NIO’s Gross Margin Turned Positive in Q4 2018


Mar. 7 2019, Published 12:21 p.m. ET

NIO’s Q4 2018 earnings

In the previous part of this series, we looked at Chinese electric carmaker NIO’s (NIO) fourth-quarter revenues. The company’s future revenue growth is highly dependent on the demand of its new SUV model ES6, which was launched in December 2018. The first deliveries of the ES6 are expected to start in June 2019. Consistent, solid demand for the ES6 could make NIO’s revenue grow faster than American rival Tesla’s (TSLA) revenue at its initial stage.

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NIO’s Q4 2018 gross margin

In the fourth quarter, NIO reported a gross profit of about 13.63 million Chinese yuan, or $1.98 million, as compared to a gross loss of 116 million yuan in the third quarter. Thus, the company’s fourth-quarter gross margin turned slightly positive and stood at 0.4% as compared to -7.9% in the third quarter.

Why NIO’s gross margin improved

The company attributed a significant improvement in its gross margin to an increase in its vehicle margin in the fourth quarter of 2018 to 3.7%. In the previous quarter, NIO’s vehicle margin was in negative territory at -4.3%. An increase of 91.8% and 144.2% in ES8 car production and deliveries, respectively, in the fourth quarter helped NIO report a higher vehicle margin due to economies of scale.

In the third quarter, US electric automaker Tesla reported a gross margin of 24.7% from its automotive segment. Tesla’s gross margin from its lower-priced electric sedan Model 3 has been positive since the second quarter of 2018.

As of March 6, NIO and TSLA have lost 16.3% and 13.6% month-to-date, respectively. During the same period, Chinese firms (MCHI) Tencent Holdings (TCEHY), Baidu (BIDU), Alibaba (BABA), and Uxin (UXIN) have risen by 7.3%, 4.7%, 0.6%, and 17.1%, respectively.

Next, we’ll discuss why NIO’s first-quarter guidance disappointed investors.


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