Nio Turns in Larger Loss than Expected, Plans for Growing Future

Nio (NYSE:NIO) recently turned in its fourth-quarter earnings figures and revealed that there's some softness in the electric car market after all. Its fourth-quarter earnings report turned in a loss that was bigger than consensus expectations were looking for, and worse yet, the next quarter isn't looking all that great either. But Nio isn't taking these developments lying down, and is already preparing for better days to come.

A Short-Circuited Quarter

Nio's fourth quarter did not turn out as most had hoped. The company posted a loss of 1.49 billion yuan—about $230.27 million US as of this writing—against an expected loss of 757 million yuan, about $116.99 million US. Regardless of the currency conversion, though, that's still a loss of around double what was expected, and that's a bad quarter by any measure.

Back in April of last year, when the pandemic was just getting started worldwide but had already hit China hard, the Chinese government threw an extra $1 billion in funding behind Nio, a move that helped the company stabilize and address issues of declining sales and recalls in progress. The company reported, as part of its fourth-quarter operations, that it had delivered 7,225 vehicles in January, and another 5,578 in February. All fine and well until you look at some of Nio's competitors, like Tesla (NASDAQ:TSLA), who delivered a grand total of 180,570 vehicles for its fourth quarter, or a little better than 14 times what Nio did.

Worse yet, the short-term future for Nio isn't looking that bright. CEO William Li, on an analyst call, noted that the company was planning to be “more conservative” in its estimates, but suggested that the second half of 2021 might improve. In fact, Li noted, the company was “quite confident” about the demand for the latter half of 2021, but the company didn't have “the full visibility” yet. Still, the company hopes to deliver between 20,000 and 25,000 in the first quarter, up substantially from the previous quarter's figures.

Million-Candlepower Bullish Sentiment

Our latest research on Nio will likely surprise many out there, as sentiment has been trending increasingly bullish for the last six months. In fact, with the latest figures, Nio officially slipped into a consensus “buy”, where it had been languishing as a “hold” since six months ago.

Six months ago, the company had two “sell” ratings, six “hold” and three “buy” to its credit. Three months ago, that improved to just one “sell”, five “hold” and six “buy.” A month ago, further improvement came in with one “sell, “ seven “hold” and nine “buy.” Now, the company's ratings have officially crossed the Rubicon to “buy”, with no “sell” ratings, seven “hold” and nine “buy”.

The price target has also been steadily increasing in that time; six months ago, the company was down around $11.38 for a price target. That increased three months ago to $28.69, and then a month ago, increased again to $46.48. Now, it currently sits at $50.64, and given the company currently trades at $46.02, there may yet be some room to grow in the future.

The Future is a Moving Target

Nio is existing in a strange space right now. Its stock is through the roof but its performance is a disaster. Its lunch has been eaten by a string of competitors so far, and trying to compare Nio's figures to Tesla's is like comparing Lipton Brisk sales to a kid's lemonade stand. However, Nio has an eye on future expansion, which is certainly better news than we got out of this quarter. Nio has plans to push into Europe this year, and already has talks in mind to get in on the United States market, though those are at a much earlier stage than the European expansion. With Tesla pretty much the big name in the US market, and a slew of US carmakers looking to land their slice of the electric vehicle market, the contributions to Nio's bottom line from the US market aren't likely to be big. Any extra sales, however, are extra sales, and as long as they're not particularly expensive, are worth pursuing accordingly.

Nio, like the rest of the electric car market, is also facing some troubles from the worldwide semiconductor shortage. A shortage in batteries isn't exactly helping matters either, and the ongoing issues in lithium and other rare earth minerals is likewise an impediment. But these are impediments that hurt the entire market, not just Nio specifically.

So despite the fact that Nio took a serious hit with its fourth-quarter figures, and is likely to be limping along for at least another quarter, Nio has an excellent potential to do well in the Asian electric car market. That should give it quite a bit of edge going forward, and provide reason for the confidence placed in Nio by the latest analyst figures. Those who already have Nio shares, keep them because a new leg upward might be in store for the second half of 2020.