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NIO Stock: Delisting Fears, Q2 Guidance, and EV Subsidy


May. 29 2020, Published 9:35 a.m. ET

  • On Thursday, NIO released its first-quarter earnings. The stock fell 8.1% despite posting an earnings beat. There are fears about Chinese companies getting delisted from US exchanges.
  • While the company missed the top-line estimates, its guidance on deliveries and gross profit margins looked encouraging. NIO also cleared the air on its eligibility for China’s EV (electric vehicle) subsidy.
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NIO stock fell after Q1 earnings release

On Thursday, NIO (NYSE:NIO), a popular Chinese electric vehicle maker, released its first-quarter earnings. The stock lost 8.1% in yesterday’s trade. So far, the stock has fallen in pre-market trading today. The company posted a narrower-than-expected loss in the quarter. However, the top line was below the consensus estimates. Meanwhile, the guidance on deliveries and the gross profit margin progression looked encouraging. Management also offered its take on Chinese shares getting delisted from US exchanges. Meanwhile, management discussed the company’s eligibility for China’s EV subsidy.

Q2 delivery guidance

NIO expects to deliver between 9,500 and 10,000 electric vehicles in the second quarter. At the lower end of the guidance, this represents a yearly rise of 123%. Importantly, the company said that its order growth has reached the pre-pandemic levels since late April. China is the only major automotive producer that has resumed near-normal operations.

While the US automotive industry has resumed operations, it still faces supply bottlenecks and virus spread. NIO also maintained its guidance on a double-digit vehicle gross margin by the end of the year. The company expects vehicle gross margins to rise to 5% in the second quarter. The metric was -7.4% in the first quarter.

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Is the stock a buy after its Q1 earnings beat?

NIO stock has fallen 4.7% this year. There are valid concerns about sustainability due to the cash burn. However, the company can also bank on the Chinese government. The Hefei municipal government was among the strategic investors that injected capital into the cash-starved company. NIO stock rose after the news. Despite having a higher price tag, NIO cars also qualify for China’s EV subsidy.

China’s EV subsidy

During the first-quarter earnings call, NIO cleared the air about its eligibility for China’s EV subsidy. While the company’s cars don’t qualify for the subsidy based on the selling price, they qualify based on battery swapping technology. Incidentally, Tesla (NASDAQ:TSLA) lowered its selling prices in China to qualify for China’s EV subsidy.

Will NIO get delisted?

Meanwhile, rising US-China tensions are a possible risk for NIO investors. There are fears that the US might enforce strict requirements for foreign companies that list on US exchanges. As a result, many Chinese companies could get delisted from the US if they don’t comply.

During NIO’s first-quarter earnings call, analyst Bin Wang asked about how the company would respond amid fears of a US delisting. NIO CFO Steven Fing said, “Looking forward, we will actually and closely monitor the changes and trends of the markets and adopt plans that best serve the interests of NIO Inc.’s investors and shareholders.”


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