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Why Tesla Rival NIO’s Gross Margin Turned Negative in Q1

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May. 30 2019, Published 8:16 a.m. ET

NIO’s first-quarter earnings

Chinese electric car company NIO (NIO) released its first-quarter earnings results on May 28. The company reported an improvement in its adjusted net EPS to -2.42 Chinese yuan in the first quarter from -3.20 yuan in the previous quarter.

However, its revenue in the quarter fell 52.5% sequentially to 1.63 billion yuan due to a 50.0% sequential fall in its number of car deliveries.

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NIO’s first-quarter gross margin

In the first quarter, NIO reported a gross profit of -219.3 million yuan compared to its gross profit of 13.6 million yuan in the fourth quarter. With this, the company’s first-quarter gross margin turned negative again to -13.4% from 0.4% in the previous quarter.

A negative trend in NIO’s vehicle margin was one of the factors that affected its overall gross margin in the last quarter. In the quarter that ended in March 2019, the company reported a -7.2% vehicle margin compared to a 3.7% margin in the fourth quarter.

Comparison with US rival

NIO’s US rival Tesla (TSLA) reported a 20.2% gross margin in its Automotive segment in the first quarter compared to 24.3% in the previous quarter. Tesla’s Model S and X gross margins fell in the quarter primarily due to lower deliveries of these car models and lower prices.

Tesla recently started offering its lower-priced Model 3 electric car, which is expected to keep its gross margin under pressure in the near term. In the first quarter, the Model 3’s gross margin was near 20%.

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