Will the NIO share price stall on its fourth-quarter earnings announcement?

NIO has seen its share price surge after reporting record fourth-quarter delivery numbers, but supply chain difficulties and rising competition could present headwinds for the electric vehicle maker’s financial results.

After a volatile start to the year, NIO’s [NIO] share price has been rising ahead of its fourth-quarter earnings next week.

Investor sentiment could be improving due to analysts forecasting promising revenue and earnings growth. Wall Street analysts forecast that the company will report an earnings per share loss of $0.12 and revenue of $1.54bn, compared with a $0.16 earnings loss and $1.03bn revenue in the year-ago quarter, according to Nasdaq.

For the full year, analysts forecast that NIO will report a loss of $0.76 per share, compared with a $0.73 loss last year. Revenues, however, are expected to soar 121.6% year-over-year to $5.7bn.

The news that China will work with the US to form an agreement on foreign-listed Chinese stocks has helped to improve investor outlook ahead of the announcement, as has the news that NIO’s quarterly deliveries reached a record 25,034 vehicles in the December quarter. This was an increase of 44.3% from the year-ago quarter and brought total deliveries up to 91,429 in 2021, up 109% year-over-year.

However, analysts are concerned that the pace of growth could still be lagging behind some of its peers. NIO recorded a 10% year-over-year increase in delivery numbers in February, comparing poorly with its rivals BYD [1211.HK], up 764%, and XPeng [XPEV], up 180%, over the same period.

NIO shares rally

NIO shares have dropped 36.5% since the start of the year to close at $20.26 on Monday 21 March. In comparison, competitors Rivian [RIVN] and XPeng were down 58% and 45.7%, respectively, over the same period.

Demand for electric vehicles has soared as governments, businesses and individuals look to alternative methods of transport to combat global warming, but disruption to the supply of raw materials and semiconductors — as well as the Chinese government’s regulatory crackdown on tech stocks —  has battered investor appetite.

The general turn away in markets from growth to value amid higher inflation and interest rates has also had an effect, as has China’s decision to cut EV subsidies this year.

However, the NIO share price rallied 47.9% between Monday 14 March and Friday 18 March as fears that the Chinese government would pressure US-listed stocks to delist subsided.

Supply chain squeeze in Q3

In its third quarter NIO reported an earnings per share loss of $0.29, compared with analysts’ expectations of a $0.14 loss. Its revenues came in at $1.54bn, beating estimates of $1.45bn. Vehicle deliveries also beat expectations at 24,439, compared with the expected 22,980.

However, October deliveries dropped 27.5% year-over-year. The company blamed upgrades to manufacturing lines, preparations for new products and volatility in supply chains for the slowdown in delivery numbers.

“Despite the continued supply chain volatilities, our teams and partners are working closely together to secure the supply and production for the fourth quarter of 2021,” said CEO William Li.

Its supply chain woes will once again be a key focus when NIO releases its Q4 numbers.

“Despite the continued supply chain volatilities, our teams and partners are working closely together to secure the supply and production for the fourth quarter of 2021” - NIO CEO William Li

HK listing could hedge against risks

Along with an update on supply chain disruptions and any potential impact from the conflict in Ukraine, analysts will be keen to hear management’s thoughts on the general issues around US listings and the company’s recent secondary listing on the Hong Kong Stock Exchange. Any views on consumer demand will also be of interest given the slowdown in the Chinese economy and the resurgence in Covid-19 cases.

They may also be asked about further international expansion after the group entered Norway last year. It hopes, according to Autocar, to be in 25 markets by 2025. The delivery this March of its new ET7 flagship premium smart electric sedan is another potentially exciting development for the group.

According to MarketScreener, analysts have a consensus ‘buy’ rating on the NIO stock. Bank of America, which has a neutral rating expects, as reported by Seeking Alpha, its Hong Kong listing to provide it with an “extra financing channel that could be considered in terms of hedging geopolitical risks”.

Bernstein analysts also see the HK listing as a “relief to the delisting risk” but is concerned about increased competition in the market.

“We are impressed by NIO’s user-centric offerings and battery swapping technology, but we have reservations regarding the potential sales volume it can generate with competition intensifying in the premium segment,” it wrote.