Strong EV delivery in 3Q/4Q on new models
The widening of NIO’s 2Q22 net loss yoy was expected due to increases in R&D and promotional expenses ahead of new model ES7 and ET5 launches.
The company guided for 3Q22F EV shipments of between 31k and 33k (+24%-32% qoq), driven by ES7 deliveries that began in Aug.
Reiterate Add with unchanged DCF-based TP of HK$257.3.
2Q22 net loss widens on lower vehicle margins and higher R&D
NIO’s 2Q22 revenue grew 22% yoy to Rmb10.2bn, at the upper range of the company’s guidance, driven by 14% EV delivery growth and better product mix (vehicle ASP +6% yoy). 2Q22 vehicle margin was 16.7% (20.3% in 2Q21, 18.1% in 1Q22), mainly due to increase in battery cost/unit but partially offset by better product mix of the sedan EV ET7. SG&A expenses rose 79% yoy (+15% qoq) to Rmb4.19bn due to higher personnel costs, marketing and promotional expenses and R&D expenses ahead of the launches of the electric SUV (eSUV) ES7. 2Q22 net loss (non-GAAP), which excludes share-based compensation expenses, widened to Rmb2.19bn. 1H22 net loss (non-GAAP) was Rmb4.43bn; we deem this in line with our FY22F forecast of Rmb6.35bn net loss, as we expect strong EV deliveries in 4Q22F, thanks to robust ES7 and ET5 deliveries.
2H22F EV shipments to be stronger on ES7 and ET5 launches
NIO achieved 25.8k/25.1k EV deliveries in 1Q22/2Q22 (+28%/+14% yoy), supported by the mid-size eSUVs ES6 and EC6. The company has guided for EV shipments in 3Q22F of between 31k and 33k (+27%-35% yoy, or +24-32% qoq), in line with our shipment forecast, thanks to the premium eSUV ES7 deliveries that started in Aug. We believe ES7 shipments will exceed 2k units in Sep 22 and reach c.4k units/month in 4Q22F on production ramp-up. NIO will start mass production and delivery of its mid-size premium sedan EV ET5 in late-Sep 22, which, we believe, will further boost EV shipments in 4Q22F on the back of its strong backlog. We estimate ET5 deliveries reaching 5k/month in 4Q22F. We maintain our EV deliveries forecast of 156k in FY22F (+70% yoy, or +112% yoy in 2H22F), driven by the new model launches of the ES7 and ET5. Furthermore, the company plans to accelerate the pace of new product launches to broaden its product portfolio in FY23-24F amid rising competition.
Vehicle margins to continue to improve on new platform
We believe 2H22F vehicle margins will improve to 18.8% (17.4% in 1H22), driven by stronger EV shipments and product mix. With the adoption of NIO technology platform 2.0 (NT 2.0) for the new models and one piece die casting manufacturing technology, we think production efficiency will be further enhanced and lead to higher vehicle margins in FY23F. We expect vehicle margins to wide from 18.3% in FY22F to 21% in FY23F.
Reiterate Add; DCF-based TP of HK$257.3 unchanged
Stay invested. We believe NIO is well-positioned to capture greater market share of China’s premium eSUV and EV segments due to its strong new models pipeline and industry leading battery services technology (battery swapping and battery-as-a-service models). Our DCF-based TP of HK$257.3 (WACC: 8.6%, terminal growth rate: 5%, COE: 13.6%, RFR: 3.50%) is equivalent to 149x P/E and 69x EV/EBITDA in CY24F. Potential share price catalysts are strong deliveries of the ET7, ES7 and ET5 in 4Q22F and narrowing losses. Risks: keener competition in China’s premium EV segment.
