Photo credit: Duge

On September 5, NIO (09866.HK/NIO.US) released its Q2 2024 financial results, with notable figures across multiple metrics, though still some distance from achieving full-year profitability.

According to the financial report, in Q2 2024, NIO achieved new highs in both revenue and deliveries: revenue reached RMB 17.45 billion, up 98.9% year-on-year and 76.1% quarter-on-quarter; deliveries totaled 57,400 units, up 143.9% year-on-year and 90.9% quarter-on-quarter. Simultaneously, the company's automotive gross margin increased 6 percentage points year-on-year to 12.2%.

NIO expects Q3 deliveries to range from 61,000 to 63,000 units, with revenue projected at RMB 19.11 billion to RMB 19.67 billion, both setting new records.

Based on this, the capital market responded positively, with NIO's U.S. shares closing up 14.39% on September 5, Eastern Time. Several investment banks also upgraded their ratings on NIO.

However, the issue of losses remains a persistent challenge for NIO. In Q2 2024, NIO's net loss was RMB 5.046 billion, and the adjusted net loss was RMB 4.535 billion. Founder Li Bin had initially hoped for profitability in 2024 but later pushed this target to 2025.

With positive data trends, NIO now needs to accelerate the listing and delivery of its second brand, Ledao, to expand its scale, spread costs, and thereby advance its profitability journey.

1. Multiple impressive metrics

According to the Q2 financial report, NIO made significant progress in multiple areas beyond revenue and deliveries.

For example, due to increased deliveries, NIO's automotive sales revenue reached RMB 15.68 billion, up 118.2% year-on-year and 87.1% quarter-on-quarter. NIO attributed the increase to higher deliveries, partially offset by a decrease in average selling price due to changes in product mix and user benefit adjustments since June 2023.

NIO's other sales revenue in Q2 was RMB 1.766 billion, up 11.3% year-on-year and 15.6% quarter-on-quarter. The increase was mainly driven by higher parts, accessories, and after-sales service revenue as vehicle ownership increased, as well as increased revenue from energy solutions, partially offset by lower used car sales revenue.

In terms of gross margin, a key focus area, NIO's Q2 gross margin was 9.7%, up 8.7 percentage points year-on-year and 4.8 percentage points quarter-on-quarter; automotive gross margin was 12.2%, up 6 percentage points year-on-year and 3 percentage points quarter-on-quarter.

NIO attributed this improvement to reduced per-unit material costs, partially offset by a decrease in average selling price due to user benefit adjustments since June 2023.

With the improvement in automotive gross margin, NIO's losses narrowed further. Although the net loss in Q2 2024 was still RMB 5.046 billion, it decreased by 16.7% year-on-year and 2.7% quarter-on-quarter. As of June 30, NIO's cash and cash equivalents, restricted cash, short-term investments, and long-term time deposits totaled RMB 41.6 billion.

These figures indicate that NIO is slowly recovering, reflected in the company's record-high Q3 guidance. Li Bin noted that NIO delivered over 20,000 vehicles in both July and August, expecting Q3 deliveries to set a new record, further consolidating and expanding its market share.

Notably, following the earnings announcement, NIO received positive outlooks from multiple institutions. Among them, JPMorgan Chase upgraded its rating on NIO from 'Neutral' to 'Overweight' and increased its target price from USD 5.3 to USD 8. Yuanta Securities also upgraded its rating on NIO's H-shares to 'Buy' with a target price of HKD 45.

2. Turning losses into profits is paramount

From Q2 2024's financial results, NIO has emerged from its low-margin phase with narrowing losses, but this is still far from ideal. With high investments in R&D, sales, and general & administrative expenses, NIO still has a long way to go before achieving profitability.

Data shows that NIO's R&D expenses in Q2 were RMB 3.22 billion, down 3.8% year-on-year but up 12.4% quarter-on-quarter; sales, general, and administrative expenses were RMB 3.758 billion, up 31.5% year-on-year and 25.4% quarter-on-quarter.

NIO attributed the increase in sales and administrative expenses to higher personnel costs and marketing expenses. As sales volume increased, so did the number of salespersonnel and bonuses; multiple new vehicle launches in Q2 significantly increased online and offline marketing expenses; and the nascent Ledao brand is also heavily investing in sales channels.

Therefore, Li Bin mentioned during the Q2 earnings call that 'optimizing gross margin is a crucial task for the next stage, while ensuring steady sales growth.' He also stated that NIO would continue to optimize its product cost structure, increase the proportion of high-margin models in the market, and aim for a 15% automotive gross margin by Q4.

Specifically, NIO's products will gradually transition to the third platform (NT3), starting with the ET9. The NT3 platform targets an average automotive gross margin of over 20%. Additionally, if Ledao and the third brand, Firefly (internally codenamed 'Firefly'), can expand more aggressively in global markets, they will balance the company's efficiency and positively impact its financials.

It is reported that Ledao's first model, L60, has started presales at a starting price of RMB 219,900, set to officially launch in September and begin deliveries by the end of the month. Currently, L60's pre-orders exceed expectations. Li Bin hopes to deliver 10,000 L60s in December 2024 and reach monthly deliveries of 20,000 units by next year.

He expressed confidence, stating, 'We are confident in the comprehensive competitiveness of Ledao L60, targeting a market of over 8 million vehicles. Combined with BaaS and charging/swapping networks, it is highly competitive, with a much higher sales ceiling.'

The first model of the third brand, Firefly, is also scheduled for delivery in H1 2025, positioning itself as a premium compact car in China with an expected price range of tens of thousands of yuan, catering to the demand for a second family car.

From a revenue and profitability perspective, the sales of Ledao and Firefly will be crucial moving forward. With its multi-brand strategy, NIO hopes to achieve a qualitative change in profitability.

Author | Li Li

Source | CarVisibility