NIO: Significant Struggles Continue

Early on Wednesday morning, we received fourth quarter results from NIO (NYSE:NIO). The Chinese electric vehicle maker has worked to increase its delivery figures over the past few years, but the growth trajectory has been bumpy and fallen well short of expectations. The Q4 report showed more of the same items, featuring another top line miss as well as very disappointing guidance.

For Q4, the company reported revenue of $2.33 billion. While this was growth of more than 62% over the prior year period, the figure missed wall street estimates by about $230 million. Worse yet, the average analyst estimate had come down by more than three quarters of a billion dollars in the last six months, a drop of nearly 23%. Despite heavily reduced expectations, NIO still missed, and not by a small margin either. The graphic below shows key financial results for the period.

As you can see, gross margins also took a significant hit on a sequential and year over year basis. Vehicle margins in the fourth quarter of 2022 were negatively impacted by 6.7 percentage points due to inventory provisions, accelerated depreciation on production facilities, and losses on purchase commitments for the existing generation of ES8, ES6 and EC6. NIO investors have been looking for the company to turn a profit, but this quarterly result was a major step back in those hopes. Even without these items, margins would have come down for the period. With the company announcing some discounts already during Q1 and facing some sales troubles, the margin story isn't likely to significantly improve anytime soon.

Unfortunately for investors, the Q4 results weren't even the worst news of the day. For the current quarter, management is guiding to deliveries of just 31,000 to 33,000 vehicles. In the first two months of this year, deliveries were over 20,660 units, so March looks like it will be in-line or perhaps even below the February result of 12,157 vehicles, despite it being a longer calendar month. Total revenues for the quarter are expected to be in a range of $1.584 billion to $1.674 billion. That range is tremendously below the street average estimate of $2.78 billion, an average that has already come down a little in recent months.

As a reminder, this is a company that just a year ago was hoping to be at 30,000 units of production per month in early 2023, and now deliveries are barely expected to be above that on a quarterly basis. This poor guidance is only going to increase questions about competition, especially after Tesla (TSLA) significantly cut prices in China back in early January. Tesla is holding an Investor Day on Wednesday where it is expected to unveil an even more affordable vehicle, which could add another headwind to NIO's plan to grow in the mass market segment.

On the balance sheet front, investors will be curious to see if the company needs to raise any additional capital. Cash and investments were $6.6 billion at the end of last year, down about $600 million sequentially and just over $2 billion for the full year. With NIO continuing to lose money as well as build out its own production facilities and battery swap network, there looks to be more cash burn on the horizon.

Going into Wednesday's report, the average price target on the street was over $17.50 a share. That implies that shares will nearly double from the below $9 that they are at in early morning trading. However, I expect we'll see some target cuts on these disappointing results, and let's not forget that a year ago the street thought NIO shares were worth more than $54. The stock is currently less than a dollar from its 52-week low.

In the end, the Q4 report for NIO was another major disappointment. The company announced a sizable revenue miss despite heavily reduced street estimates, and margins tumbled sequentially and on a year over year basis. Worse yet, Q1 guidance implies a significant decline in deliveries over Q4 levels, at a time when the company is supposed to be producing new records each quarter. While management continues to believe in the long term story here, growth expectations just keep coming down. Competition is only increasing, so a poor start to the year doesn't give me much confidence right now. It would not surprise me to see shares hit a new yearly low if the sales trajectory does not improve very soon.