Source: Beast Finance Author: Beast Finance
Analysis of Weilai’s second quarter financial report
The biggest takeaway from NIO's Q2 2023 financial report is not the company's declining revenue or widening losses, but the fact that China's electric vehicle industry as a whole is facing huge profits due to intensified price competition rate pressure...and that could put Nio and other EV makers at breakeven.
Nio's revenue in the second quarter of 2023 was 8.8 billion yuan ($1.2 billion), a year-over-year decline of 14.8%. This shows that NIO's revenue growth is decelerating, mainly due to lower-than-expected delivery growth and as we mentioned, the entire Chinese EV industry is facing significant margin pressure due to increased price competition.
As Tesla (TSLA) slashed prices on models like the Model Y, the best-selling electric car in China, forcing other companies in the industry to follow suit, NIO was one of them (NIO cut prices in the second quarter. 30,000 yuan).
The consequence of the price cut is that Weilai's profit margin in the second quarter of 2023 has dropped sharply, and it has dropped by 10.5 percentage points compared with the same period last year.
Not just NIO, Xiaopeng Motors (XPEV) profit margins have also continued to deteriorate in the second quarter of 2023 due to price pressure.
Due to the sharp drop in profit margins, Weilai's net loss in the second quarter of 2023 has also expanded significantly. NIO lost RMB 6.1 billion ($835.1 million) in Q2 2023, compared to RMB 2.8 billion ($411.7 million) in Q2 2022, so NIO's losses have increased It has more than doubled. As we analyzed earlier, the main reasons for Weilai's losses are price cuts and weak delivery growth in the second quarter of 2022.
Meng Beast Finance believes that the sharp decline in profit margins and profits is the biggest concern for investors about Nio at present, especially when its profit target may be further postponed to the future.
Weilai currently expects that fiscal year 2026 will be its first year to achieve breakeven, and the deteriorating profit margin is a key issue that Weilai will face, and it is also the main resistance to whether Weilai can achieve breakeven.
Third quarter delivery outlook
According to Weilai's practice, the company has given a delivery forecast for the third quarter of 2023. For the third quarter, NIO expects total deliveries to reach between 55,000 and 57,000 vehicles in the third quarter, a year-on-year increase of 74.0 to 80.3%. In the second quarter, Nio delivered only 23,520 electric vehicles to customers, so the company expects its deliveries to increase by 138% in the third quarter of 2023.
Risks NIO faces
From a risk perspective, NIO's deteriorating margin trend is a red flag that its risk profile is deteriorating, and Xpeng Motors also faced severe margin pressure in the second quarter, even generating negative profits profit margin (Xpeng Motor's profit margin has deteriorated for two consecutive quarters).
Therefore, Beast Finance believes that from the perspective of delivery profit margins and delivery prospects, if investors want to invest in Chinese electric vehicle stocks, the best choice is still the ideal car (LI) that continues to crush competitors in many fields.
In our opinion, the recent adjustments have also increased the risk of trading NIO stock. If NIO’s profit margin becomes negative like Xiaopeng Motors one day, then we will resolutely short NIO stock.
in conclusion
There are many things worth paying attention to in Weilai's financial report for the second quarter of 2023. The biggest point is that price cuts have begun to have a very large impact on Weilai's profit margins. The quarter also faced significant pressure on prices and margins, which led to wider losses and slower revenue growth. Going forward, Nio needs to prove it can turn around deteriorating margins or risk losing investor interest.