Citi analyst Jeff Chung reiterated a Buy rating and $23.30 price target on NIO (NYSE: NIO).
The analyst comments “We hosted NIO for a business update call on Mar 2nd, with the key takeaways summarized as below. 4Q22 Provision – Due to lower sales forecast of old ‘866’ models, inventory provision and losses on purchase commitments was Rmb985mn in 4Q22. Breaking it down, mgmt. indicate less than Rmb200m was related to provision of Nio’s parts inventory and c.Rmb800m was related to provision of suppliers’ inventory and losses on purchase commitments. Mgmt. indicate they conservatively recognized provisions related to old models in 4Q22 and thus expect there will be no provision in 1Q23. 4Q22 vehicle GPM – Per mgmt., 4Q22 normalized vehicle GPM of 13.5% was c.7ppt lower than that in 4Q21, which can be attributed to 1) lithium carbonate cost increase by c.Rmb300k/ton, leading to 5-6ppt GPM change; 2) F2 factory was undergoing sales ramp-up in 4Q22, leading to Rmb4-5k higher manufacturing cost per car; 3) low-margin ET5 was delivered in 4Q22, with designed GPM less than 20%. 1Q23 vehicle GPM outlook – Mgmt. expect 1Q23 vehicle GPM to be mid-to-high single-digit percentage (namely 5-9%), mainly owing to 1) discounts related to destocking of old ‘866’ models, with magnitude largely equivalent to provision amount in 4Q22 (Rmb985mn) according to mgmt., 2) weak scale effect on low sales volume, and 3) high sales proportion of low-margin model ET5. 2Q-4Q23 vehicle GPM outlook – Going forward, mgmt. expect 2Q-3Q23 vehicle GPM to return to double-digit percentage and have confidence in 4Q23 vehicle GPM to reach 18-20%, thanks to 1) sales ramp-up of high-margin models, 2) greater scale effect on sales increase, and 3) potential cost decrease of lithium carbonate. Three sales drivers in 2023 – Mgmt. indicate there will be three sales drivers for Nio this year: 1) Strong product cycle with 8 NT2.0 models; 2) Flywheel effect caused by increasing power swap stations. Mgmt. indicate the long-term competitive barrier of smart EV is charging/power swap infrastructure, and Nio will newly build 1,000 power swap stations in 2023; 3) Better customer experience driven by autonomous driving (including NOP Plus and NAD). Mgmt. believe 4Q22 was the worst time for Nio, and retail leads and order intake in Feb-23 proved to be the best in the past five months.”
