NIO is going through a challenging period as it needs to quickly increase production and sales to stop losses.

NIO's Q2 financial results for the second quarter of 2019 reveals weak sales and high net loss, which will force a reduction of the workforce.

The Chinese premium EV manufacturer reports 3,553 sales during Q2 (including 3,140 ES8 and 413 ES6), compared to 100 ES8 sold a year ago when the company launched its first model.

  • Total deliveries - 3,553 (3,140 ES8 and 413 ES6)
  • Revenues of RMB1,508.6 million (US$219.7 million)
  • Net loss was RMB3,285.8 million (US$478.6 million)

As we can see, the net loss is more than two times higher than revenues.

It seems that NIO has two problems - the first is the obvious too low volume of sales, while the second is the negative gross margin of 10.9% in Q2 (33.4% when including the one-off battery recall).

The gross margin already improved from negative 13.4% in Q1, but it still is negative.

To further improve the financial conditions, NIO intends to reduce its global headcount to 7,800 (down 21% compared to 9,900 in January 2019).

Financial Highlights for the Second Quarter of 2019

  • Vehicle sales were RMB1,414.5 million (US$206.1 million) in the second quarter of 2019, representing a decrease of 7.9% from the first quarter of 2019.
  •  
  • Vehicle margin2 was negative 24.1%, compared with negative 7.2% in the first quarter of 2019. Excluding accrued recall costs, vehicle margin in the second quarter was negative 4.0%.
  •  
  • Total revenues were RMB1,508.6 million (US$219.7 million) in the second quarter of 2019, representing a decrease of 7.5% from the first quarter of 2019.
  •  
  • Gross margin was negative 33.4%, compared with negative 13.4% in the first quarter of 2019. Excluding accrued recall costs, gross margin in the second quarter was negative 10.9%.
  •  
  • Loss from operations was RMB3,226.1 million (US$469.9 million) in the second quarter of 2019, representing an increase of 23.2% from the first quarter of 2019 and a 72.1% increase from the same period of 2018. Excluding accrued recall costs and expenses, loss from operations in the second quarter was RMB2,869.7 million (US$418.0 million). Excluding share-based compensation expenses, adjusted loss from operations (non-GAAP) was RMB3,133.9 million (US$456.5 million) in the second quarter of 2019, representing an increase of 25.5% from the first quarter of 2019 and a 73.0% increase from the same period of 2018.
  •  
  • Net loss was RMB3,285.8 million (US$478.6 million) in the second quarter of 2019, representing an increase of 25.2% from the first quarter of 2019 and an 83.1% increase from the same period of 2018. Excluding share-based compensation expenses, adjusted net loss (non-GAAP) was RMB3,193.6 million (US$465.2 million) in the second quarter of 2019, representing an increase of 27.5% from the first quarter of 2019 and an 84.5% increase from the same period of 2018.
  •  
  • Net loss attributable to NIO’s ordinary shareholders was RMB3,313.7 million (US$482.7 million) in the second quarter of 2019, representing an increase of 24.9% from the first quarter of 2019 and a decrease of 45.8% 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 RMB3,189.9 million (US$464.7 million).
  •  
  • Basic and diluted net loss per American depositary share (ADS)3 were both RMB3.23 (US$0.47) in the second 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 RMB3.11 (US$0.45).
  •  
  • Cash and cash equivalents, restricted cash and short-term investment were RMB3,455.6 million (US$503.4 million) as of June 30, 2019.

William Bin Li, founder, chairman and chief executive officer of NIO said:

“During the second quarter of 2019, we delivered a total of 3,553 ES8 and ES6 vehicles. This was followed by 837 units in July and 1,943 units in August, bringing our total aggregate deliveries to 21,670 as of August 31, 2019. Our ES6, the Company’s 5-seater high-performance premium electric SUV, began rolling off the production line in June, and we are ramping up the production and deliveries for the coming months. In an environment of softer macro-economic and auto market conditions, we continue to work hard to expand our market penetration. Starting in October, we will begin delivering the ES6 and ES8 with an 84-kWh battery pack, extending their NEDC driving range to 510 km and 430 km, respectively. Going forward, we will continue to enhance sales by strengthening our value proposition through technology advancement.” 

“In response to the overall tempered market conditions, we are also working hard to maximize returns on our resources and have implemented comprehensive efficiency and cost control measures across the organization. These measures aim to further improve efficiency and streamline operations within our sales and service network and R&D activities. We target to reduce our global headcount to be around 7,800 by the end of the third quarter from over 9,900 in January 2019, and aim to further pursue a leaner operation through additional restructuring and spinning off some non-core businesses by year end,”

NIO expects that sales in Q3 2019 will be between 4,200-4,400 cars - the highest number since the peak Q1 2018, but at forecasted revenues, the losses will continue:

Business Outlook

For the third quarter of 2019, the Company expects:

  • Deliveries of vehicles to be between 4,200 and 4,400 units, representing an increase of approximately 18.2% to 23.8% from the second quarter of 2019. 
  • Total revenues to be between RMB1,593 million (US$232.0 million) and RMB1,663million (US$242.2 million), representing an increase by approximately 5.6% to 10.3% from the second quarter of 2019.

See the full report here.