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NIO Q1 2019 Results Reveal Challenges

Challenging conditions in China are affecting NIO. Only 2,800-3,200 ES8/ES6 to be sold in Q2.

NIO ES8 Electric SUV Sales In China Increased In March

Mark Kane

By: Mark Kane

May 31, 2019 at 2:13pm ET

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Chinese premium electric car manufacturer NIO released financial results for the first quarter of 2019 which reveals several interesting things.

First of all, the company sold in Q1 3,989 NIO ES8, which translated into a negative gross margin of 13.4%:

ES8 deliveries - 3,989
Revenues of RMB1,631.2 million (US$243.1 million)
Net loss was RMB2,623.6 million (US$390.9 million)

In April, ES8 experienced "a greater than anticipated slowdown" to 1,124 sales (5,113 YTD). NIO explains the slowdown by lower subsidies and general macro-economic conditions.

"Deliveries of the ES8 in April 2019 were 1,124 vehicles, which reflected a greater than anticipated slowdown in monthly deliveries primarily due to the electric vehicle (EV) subsidy reduction announced in late March, as well as the slowdown of macro-economic conditions in China which has been exacerbated by the US-China trade war, particularly in the automotive sector where wholesale passenger vehicle sales were down approximately 15% year on year from January to April 2019, compared to the same period of last year."

NIO ES8 sales in China – April 2019

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The near-term perspectives for NIO also are not too optimistic as NIO wrote:

"Looking ahead to the second quarter, we expect an even more challenging sales environment and anticipate overall sequential demand and deliveries to decrease, as competition continues to accelerate and the general automobile market in China remains muted. Against this backdrop, NIO is focusing on rolling out our ES6 nationwide, and at the same time, improving overall network utilization and operating efficiencies."

NIO expects that sales in Q2 2019 will amount 2,800-3,200 cars, which is probably quite accurate as we are already through April and almost the entire of May.

However, the number includes both the ES8, and new ES6 (up to several hundred planned for June). The decrease in sales to an average of 1,000 per month will result in further net losses, we assume.

Business Outlook

For the second quarter of 2019, the Company expects:

Deliveries of vehicles to be between 2,800 and 3,200 units, representing a decrease of approximately 19.8% to 29.8% from the first quarter of 2019. This outlook incorporates the planned deliveries of several hundred ES6s in June 2019.

Total revenues to be between RMB1,134 million (US$169 million) and RMB1,294 million (US$193 million), representing a decrease by approximately 20.7% to 30.5% from the first quarter of 2019.

In case of ES6, NIO already received more than 12,000 pre-orders (refundable deposit orders), including over 5,000 since the Shanghai Auto Show began five and a half weeks ago.

The production of ES6 recently started at JAC production plant:

"In April 2019, the Company entered into a manufacturing cooperation agreement with Jianghuai Automobile Group Co., Ltd., or JAC, for the manufacture of the ES6, which is a supplement to the agreement that Company entered into with JAC in May 2016. Pursuant to these agreements, the Company pays JAC manufacturing fees on a per-vehicle basis monthly and compensates JAC for its operating losses for the initial three-year period after the start of production of the ES8 from April 10, 2018. The Company may fund additional investments in equipment in the Hefei manufacturing plant of JAC for the production of the ES6."

NIO ES6 production

In the future, NIO intends to introduce a third electric car model in 2020, based on the same platform as the ES8 and ES6.

The further models, including the ET7 concept from Shanghai, will be based on a next-generation platform 2.0 (NP2) platform and produced at a new NIO manufacturing facility, for which the company seeks funding.

"In April 2019, the Company showcased a preview version of the ET7, its high-performance premium electric sedan, at the Shanghai Auto Show. Recently, the Company made the decision to design and develop the ET series with the future NIO NP2 platform, our next generation product platform featuring Level 4 autonomous driving capabilities, and will provide an update on the launch timeline of the ET series in the future. Meanwhile, the Company plans to leverage the platform technologies from the ES8 and ES6 to create a new model design and expects to launch the third vehicle model in 2020."

"In May, the Company entered into a framework agreement with Beijing E-Town International Investment and Development Co. Ltd. (“E-Town Capital"), an investment corporation headquartered in Beijing Economic-Technological Development Area (BDA). Pursuant to this agreement, the Company will establish an entity, NIO China, in Beijing Economic-Technological Development Area and contribute certain businesses and assets into NIO China, while E-Town Capital will initially target to invest up to RMB10 billion through its affiliated entities or jointly with third parties in NIO China in exchange for a minority equity stake of NIO China. Furthermore, it is expected that E-Town Capital will help NIO China to build or to find third-party partners to build a new manufacturing facility for the Company’s next-generation platform 2.0 (NP2) vehicles. The parties are continuing to work towards a final binding definitive agreement for this investment."

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One other way to expand the business is the joint venture with GAC, which soon will result in a new all-electric Hycan brand on the market.

"In April 2018, the Company, together with NIO Capital, Guangqi New Energy Automobile Co., Ltd., and Guangzhou Automobile Group Co., Ltd, or GAC, established a joint venture company, GAC-NIO New Energy Vehicle Technology Co., Ltd., or GAC-NIO, to mainly engage in electric vehicle and parts development, sales and services. William Li, NIO’s founder, chairman and chief executive officer, is also serving as the chairman of GAC-NIO. On May 20, 2019, GAC-NIO announced its new brand, Hycan He Chuang, and plans to launch its first vehicle model this year. The Company expects to work strategically with GAC-NIO in a variety of areas including technologies, supply chains and service networks."

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NIO Inc. Reports Unaudited First Quarter 2019 Financial Results

May 28, 2019 at 4:30 AM EDT

Quarterly Total Revenues reached RMB1,631.2 million (US$243.1 million)
Quarterly Deliveries of the ES8 reached 3,989 vehicles

SHANGHAI, China, May 28, 2019 (GLOBE NEWSWIRE) -- NIO Inc. (“NIO” or the “Company”) (NYSE: NIO), a pioneer in China’s premium electric vehicle market, today announced its unaudited financial results for the first quarter ended March 31, 2019.

Operating Highlights for the First Quarter of 2019

Deliveries of the ES8 reached 3,989 in the first quarter of 2019, compared with 7,980 vehicles delivered in the fourth quarter of 2018.

Key Operating Results 2019 Q1 2018 Q4 2018 Q3 2018 Q21 Deliveries ES8 3,989 7,980 3,268 100

Financial Highlights for the First Quarter of 2019

Vehicle sales were RMB1,535.2 million (US$228.8 million) in the first quarter of 2019, representing a decrease of 54.6% from the fourth quarter of 2018.
Vehicle margin2 was negative 7.2%, compared with positive 3.7% in the fourth quarter of 2018.
Total revenues were RMB1,631.2 million (US$243.1 million) in the first quarter of 2019, representing a decrease of 52.5% from the fourth quarter of 2018.
Gross margin was negative 13.4%, compared with positive 0.4% in the fourth quarter of 2018.
Loss from operations was RMB2,617.7 million (US$390.0 million) in the first quarter of 2019, representing a decrease of 24.1% from the fourth quarter of 2018 and a 78.8% increase from the same period of 2018. Excluding share-based compensation expenses, adjusted loss from operations (non-GAAP) was RMB2,498.1 million (US$372.2 million) in the first quarter of 2019, representing a decrease of 24.4% from the fourth quarter of 2018 and a 75.7% increase from the same period of 2018.
Net loss was RMB2,623.6 million (US$390.9 million) in the first quarter of 2019, representing a decrease of 25.1% from the fourth quarter of 2018 and a 71.4% increase from the same period of 2018. Excluding share-based compensation expenses, adjusted net loss (non-GAAP) was RMB2,504.0 million (US$373.1 million) in the first quarter of 2019, representing a decrease of 25.5% from the fourth quarter of 2018 and a 68.2% increase from the same period of 2018.
Net loss attributable to NIO’s ordinary shareholders was RMB2,652.0 million (US$395.2 million) in the first quarter of 2019, representing a decrease of 24.6% from the fourth quarter of 2018 and a decrease of 32.8% from the same period of 2018. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted net loss attributable to NIO’s ordinary shareholders (non-GAAP) was RMB2,501.2 million (US$372.7 million).
**Basic and diluted net loss per American depositary share (ADS)**3 were both RMB2.56(US$0.38) in the first quarter of 2019. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted basic and diluted net loss per ADS (non-GAAP) were both RMB2.42(US$0.36).
Cash and cash equivalents, restricted cash and short-term investment were RMB7,536.5 million (US$1,123.0 million) as of March 31, 2019.

2019 Q1 2018 Q4 2018 Q1 % Change4 QoQ YoY Vehicle Sales 1,535.2 3,381.2 — -54.6% — Vehicle Margin -7.2% 3.7% — -1,087 bp — Total Revenues 1,631.2 3,435.6 — -52.5% — Gross Margin -13.4% 0.4% — -1,384 bp — Loss from Operations (2,617.7) (3,446.9) (1,463.9) -24.1% 78.8% Adjusted Loss from Operations (non-GAAP) (2,498.1) (3,305.2) (1,421.7) -24.4% 75.7% Net Loss (2,623.6) (3,503.0) (1,531.0) -25.1% 71.4% Adjusted Net Loss (non-GAAP) (2,504.0) (3,361.3) (1,488.9) -25.5% 68.2% Net Loss Attributable to Ordinary Shareholders (2,652.0) (3,516.5) (3,943.9) -24.6% -32.8% Net Loss per Ordinary Share-Basic and Diluted (2.56) (3.37) (150.96) -24.0% -98.3% Adjusted Net Loss per Ordinary Share-Basic and Diluted (non-GAAP) (2.42) (3.20) (56.67) -24.4% -95.7%

Recent Developments

Deliveries in April 2019

Deliveries of the ES8 in April 2019 were 1,124 vehicles, which reflected a greater than anticipated slowdown in monthly deliveries primarily due to the electric vehicle (EV) subsidy reduction announced in late March, as well as the slowdown of macro-economic conditions in China which has been exacerbated by the US-China trade war, particularly in the automotive sector where wholesale passenger vehicle sales were down approximately 15% year on year from January to April 2019, compared to the same period of last year.

Framework Agreement with Beijing E-Town International Investment and Development Co. Ltd.

In May, the Company entered into a framework agreement with Beijing E-Town International Investment and Development Co. Ltd. (“E-Town Capital"), an investment corporation headquartered in Beijing Economic-Technological Development Area (BDA). Pursuant to this agreement, the Company will establish an entity, NIO China, in Beijing Economic-Technological Development Area and contribute certain businesses and assets into NIO China, while E-Town Capital will initially target to invest up to RMB10 billion through its affiliated entities or jointly with third parties in NIO China in exchange for a minority equity stake of NIO China. Furthermore, it is expected that E-Town Capital will help NIO China to build or to find third-party partners to build a new manufacturing facility for the Company’s next-generation platform 2.0 (NP2) vehicles. The parties are continuing to work towards a final binding definitive agreement for this investment.

Manufacturing Arrangement of ES6

In April 2019, the Company entered into a manufacturing cooperation agreement with Jianghuai Automobile Group Co., Ltd., or JAC, for the manufacture of the ES6, which is a supplement to the agreement that Company entered into with JAC in May 2016. Pursuant to these agreements, the Company pays JAC manufacturing fees on a per-vehicle basis monthly and compensates JAC for its operating losses for the initial three-year period after the start of production of the ES8 from April 10, 2018. The Company may fund additional investments in equipment in the Hefei manufacturing plant of JAC for the production of the ES6.

New Product Development

In April 2019, the Company showcased a preview version of the ET7, its high-performance premium electric sedan, at the Shanghai Auto Show. Recently, the Company made the decision to design and develop the ET series with the future NIO NP2 platform, our next generation product platform featuring Level 4 autonomous driving capabilities, and will provide an update on the launch timeline of the ET series in the future. Meanwhile, the Company plans to leverage the platform technologies from the ES8 and ES6 to create a new model design and expects to launch the third vehicle model in 2020.

Update on GAC-NIO Joint Venture
In April 2018, the Company, together with NIO Capital, Guangqi New Energy Automobile Co., Ltd., and Guangzhou Automobile Group Co., Ltd, or GAC, established a joint venture company, GAC-NIO New Energy Vehicle Technology Co., Ltd., or GAC-NIO, to mainly engage in electric vehicle and parts development, sales and services. William Li, NIO’s founder, chairman and chief executive officer, is also serving as the chairman of GAC-NIO. On May 20, 2019, GAC-NIO announced its new brand, Hycan He Chuang, and plans to launch its first vehicle model this year. The Company expects to work strategically with GAC-NIO in a variety of areas including technologies, supply chains and service networks.

CEO and CFO Comments

“We delivered 3,989 ES8s, the Company’s high-performance premium electric SUVs, in the first quarter of 2019, followed by 1,124 ES8s in April, bringing our total aggregate deliveries to 16,461 vehicles as of April 30, 2019,” said William Li, founder, chairman and chief executive officer of NIO. “We are excited that in June, as scheduled, our second production model, the ES6, a 5-seater high-performance premium electric SUV, will roll off the production line and the first deliveries to NIO users will begin in the same month. The ES6 received broad-based positive feedback from the recent Shanghai Auto Show, and the early reviews from our ES6 test drive campaign launched in May bode well for continued positive momentum. We currently have more than 12,000 ES6 pre-orders (refundable deposit orders), among which over 5,000 pre-orders were placed since the Shanghai Auto Show began five and a half weeks ago. We are confident that as more and more new potential users start to experience the ES6 first-hand, the vehicle’s competitive features and price will appeal to a growing number of premium automobile buyers.”

“Deliveries of the ES8 in the first quarter of 2019 exceeded the Company’s expectation despite headwinds from EV subsidy reductions, slowing macro-economic conditions, increased competition, and seasonal factors around the Chinese New Year holiday period,” added Louis T. Hsieh, NIO’s chief financial officer. “Looking ahead to the second quarter, we expect an even more challenging sales environment and anticipate overall sequential demand and deliveries to decrease, as competition continues to accelerate and the general automobile market in China remains muted. Against this backdrop, NIO is focusing on rolling out our ES6 nationwide, and at the same time, improving overall network utilization and operating efficiencies.”

Financial Results for the First Quarter of 2019

Revenues

Vehicle sales in the first quarter of 2019 were RMB1,535.2 million (US$228.8 million), representing a decrease of 54.6% from the fourth quarter of 2018. The decrease in vehicle sales over the fourth quarter of 2018 was attributed to accelerated deliveries of the ES8 in the fourth quarter of 2018 in anticipation of EV subsidy reductions in China in 2019, as well as the seasonal slowdowns surrounding the Chinese New Year holidays in the first quarter of 2019.
Other sales in the first quarter of 2019 were RMB96.0 million (US$14.3 million), representing an increase of 76.4% from the fourth quarter of 2018. The increase in other sales over the fourth quarter of 2018 was mainly attributed to an increase in revenues derived from NIO life merchandise and services provided in the first quarter of 2019.
Total revenues in the first quarter of 2019 were RMB1,631.2 million (US$243.1 million), representing a decrease of 52.5% from the fourth quarter of 2018.

Cost of Sales and Gross Margin

Cost of sales in the first quarter of 2019 was RMB1,850.5 million (US$275.7 million), representing a decrease of 45.9% from the fourth quarter of 2018. The decrease in cost of sales over the fourth quarter of 2018 was mainly driven by the decrease in delivery volume of the ES8 in the first quarter of 2019.
Vehicle margin in the first quarter of 2019 was negative 7.2%, compared with positive 3.7% in the fourth quarter of 2018. The decrease of vehicle margin was mainly driven by the decrease in delivery volume of the ES8 in the first quarter of 2019.
Gross margin in the first quarter of 2019 was negative 13.4%, compared with positive 0.4% in the fourth quarter of 2018, mainly driven by the decrease in vehicle margin in the first quarter of 2019.

Operating Expenses

Research and development expenses in the first quarter of 2019 were RMB1,078.4 million (US$160.7 million), representing an increase of 55.4% from the first quarter of 2018 and a decrease of 28.8% from the fourth quarter of 2018. Excluding share-based compensation expenses, adjusted research and development expenses (non-GAAP) were RMB1,046.2 million (US$155.9 million), representing an increase of 52.7% from the first quarter of 2018 and a decrease of 30.0% from the fourth quarter of 2018. The decrease in research and development expenses over the fourth quarter of 2018 was primarily attributed to the higher design and professional expenses incurred in the fourth quarter of 2018 to support the frequent test, research and development stage of the ES6, the Company’s 5-seater high-performance premium electric SUV launched in December 2018.
Selling, general and administrative expenses in the first quarter of 2019 were RMB1,319.9 million (US$196.7 million), representing an increase of 71.5% from the first quarter of 2018 and a decrease of 32.2% from the fourth quarter of 2018. Excluding share-based compensation expenses, adjusted selling, general and administrative expenses (non-GAAP) were RMB1,234.1 million (US$183.9 million), representing an increase of 67.6% from the first quarter of 2018 and a decrease of 32.4% from the fourth quarter of 2018. The decrease in selling, general and administrative expenses over the fourth quarter of 2018 was primarily attributed to decreases in marketing and promotional activities and expenditure on outsourced professional services.

Loss from Operations

Loss from operations in the first quarter of 2019 was RMB2,617.7 million (US$390.0 million), representing an increase of 78.8% from the first quarter of 2018 and a decrease of 24.1% from the fourth quarter of 2018. Excluding share-based compensation expenses, adjusted loss from operations (non-GAAP) was RMB2,498.1 million (US$372.2 million), representing an increase of 75.7% from the first quarter of 2018 and a decrease of 24.4% from the fourth quarter of 2018.

Share-based Compensation Expenses

Share-based compensation expenses in the first quarter of 2019 were RMB119.6 million (US$17.8 million), representing an increase of 184.0% from the first quarter of 2018 and a decrease of 15.6% from the fourth quarter of 2018. The decrease in share-based compensation expenses over the fourth quarter of 2018 was primarily attributed to a decrease in share-based compensation expenses relating to certain directors and executive officers.

Net Loss and Earnings Per Share

Net loss was RMB2,623.6 million (US$390.9 million) in the first quarter of 2019, representing an increase of 71.4% from the first quarter of 2018 and a decrease of 25.1% from the fourth quarter of 2018. Excluding share-based compensation expenses, adjusted net loss (non-GAAP) was RMB2,504.0 million (US$373.1 million) in the first quarter of 2019, representing an increase of 68.2% from the first quarter of 2018 and a decrease of 25.5% from the fourth quarter of 2018.
Net loss attributable to NIO’s ordinary shareholders in the first quarter of 2019 was RMB2,652.0 million (US$395.2 million), representing a decrease of 32.8% from the first quarter of 2018 and a decrease of 24.6% from the fourth quarter of 2018. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted net loss attributable to NIO’s ordinary shareholders (non-GAAP) was RMB2,501.2 million (US$372.7 million).
Basic and diluted net loss per ADS in the first quarter of 2019 were both RMB2.56(US$0.38). Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted basic and diluted net loss per ADS (non-GAAP) were both RMB2.42(US$0.36).

Balance Sheets

Balance of cash and cash equivalents, restricted cash and short-term investment was RMB7,536.5 million (US$1,123.0 million) as of March 31, 2019.
On January 1, 2019, the Company adopted ASC 842, Leases and used the additional transition method to initially apply this new lease standard at the adoption date. Right-of-use assets and lease liabilities were recognized on the Company's consolidated financial statements.

Business Outlook

For the second quarter of 2019, the Company expects:

Deliveries of vehicles to be between 2,800 and 3,200 units, representing a decrease of approximately 19.8% to 29.8% from the first quarter of 2019. This outlook incorporates the planned deliveries of several hundred ES6s in June 2019.
Total revenues to be between RMB1,134 million (US$169 million) and RMB1,294 million (US$193 million), representing a decrease by approximately 20.7% to 30.5% from the first quarter of 2019.

This business outlook reflects the Company’s current and preliminary view on the business situation and market condition, which is subject to change.

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