Is NIO Profitable Yet?


Nov. 17 2020, Updated 11:23 a.m. ET

The Chinese automaker, NIO will likely announce its third-quarter earnings before the markets open on Tuesday, Nov. 17. The company was founded in 2014 and has its global headquarters in Shanghai. Although the company hasn't become profitable yet, it could post encouraging third-quarter results. 

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NIO is a holding company for designing, manufacturing, and selling electric vehicles. Also, the company works to innovate within technologies like autonomous driving and artificial intelligence. Two of NIO's key vehicles are the EP9 supercar and the ES8 7-seater SUV, according to CNN Business

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Is NIO profitable yet?

NIO, along with other electric vehicle manufacturers, is popular in China. The company's name means “Blue Sky Coming” in Chinese, which illustrates its vision of a better future for automobiles and auto owners.  

NIO added over 1,000 percent in gains from its 2019 year-end close and jumped from $4.02 to $44.50, according to Yahoo Finance. In comparison, Tesla added 390 percent and went from $83.67 to $409.

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Other EV companies in China that have raised capital in U.S. markets to try and keep up with Tesla include XPeng, Li Auto, and WM Motor. Earlier in 2020, NIO raised over $1.5 billion from U.S. investors and $1 billion from investors in China. 

Nasdaq reported in September that NIO hasn't generated positive gross margins from electric vehicle sales. However, investors expect a good third-quarter earnings report. NIO has hit a sales record and several milestones in its growth plan. 

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Investors in the U.S. tend to view NIO as part of a group of Chinese EV manufacturers including Li Auto and XPeng. So, when one company is successful, it bodes well for the others. XPeng reported favorable third-quarter earnings last week. NIO’s share prices increased after XPeng's report. 

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Is NIO backed by the Chinese government?

Tencent Holdings, a Chinese tech company, has backed NIO from the beginning. Tencent assisted NIO in securing additional funding this year including $1 billion directly from the government, according to InvestorPlace

The bailout occurred early in 2020 and links NIO’s future to “the whims of the Chinese government,” according to TheVerge. A group of companies in the city of Hefei, in the Anhui province, funneled $1 billion into Nio China, which is a subsidiary created by NIO. Now, the Hefei investor group owns nearly a quarter of the company. 

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As part of the deal, NIO is obligated to commit most of its core business in China to the new subsidiary. The company also has to provide $600 million to Nio China and build new headquarters for Nio China in Hefei. 

The sales goals in the deal include NIO shipping at least 20,000 vehicles per year. The company is already on pace to reach that goal in 2020. 

Why is NIO losing money?

Analysts and investors say that NIO needs to attain a minimum profitability threshold of positive gross margins from sales of EVs, according to Nasdaq. Only after that happens can NIO start to lower its costs and work towards generating a sufficient net income and EBITDA.


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