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Why China’s NIO Gave a Dismal Outlook for Q1 2019

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NIO’s Q4 updates

Chinese electric carmaker NIO (NIO) has become popular in the Chinese premium electric car vehicle segment in a very short period. The company was founded in 2014, and it is popularly referred to as the “Tesla of China.” Earlier this year, NIO gave a pleasant surprise to its investors by reporting much higher-than-expected vehicle deliveries. It delivered 7,980 cars in the fourth quarter, much higher than its delivery guidance of 6,700–7,000 units.

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Disappointing Q1 2019 outlook

In its fourth-quarter earnings report, NIO gave a dismal outlook for vehicle deliveries and revenues for the first quarter of 2019. The company expects to deliver between 3,500–3,800 car units in the first quarter of 2019, reflecting a drop of about 56% to 52% from its car deliveries in the fourth quarter of 2018.

Similarly, NIO guided its first-quarter revenues to be between 1.39–1.52 billion Chinese yuan (or $202.3 million–$220.5 million). The guided revenue range for the first quarter reflected a decline of about 60% to 56% from its fourth quarter of 2018 revenues.

Why NIO gave a dismal outlook

During its fourth-quarter earnings conference call, NIO’s management highlighted that the company sped up car deliveries towards the end of 2018 in anticipation of a drop in the electric vehicle subsidies by the Chinese government in 2019. This move helped the company boost its car deliveries in the last quarter. Apart from a slowing Chinese economy, the Chinese New Year holidays are also likely to hurt NIO’s car deliveries in the first quarter, resulting in lower revenues.

Ongoing weakness in the Chinese economy could also hurt the future growth outlook for other Chinese companies (MCHI) like Tencent Holdings (TCEHY), Baidu (BIDU), Alibaba (BABA), HUYA (HUYA), and Uxin (UXIN).

In the last couple of years, many US companies like Apple (AAPL), Tesla (TSLA), Ford (F), and General Motors (GM) have raised their bets on the Chinese market in anticipation of huge future growth potential.

In the next part, we’ll discuss why NIO could be on Warren Buffett’s radar.

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