Nio still needs to get its strategic direction sorted out before it can expect to turn profitable in the foreseeable future, particularly for its second brand, Alps, analysts at CMB International said.

(Image credit: CnEVPost)

Nio still needs to sort out its strategic direction before it can expect to turn profitable in the foreseeable future, particularly for its second brand, Alps, CMB International said in a research note today.

Nio's management said in a March 2022 earnings call that the electric vehicle (EV) maker aims to break even in the fourth quarter of 2023 and achieve annual profitability in 2024 for the first time.

However, Nio's deliveries in the first half of 2023 declined as a result of the switch to the NT 2.0 platform for multiple models and intense competition, creating a significant drag on both revenue and gross margin.

On June 9, 2023, the company's management said in another earnings call that Nio may need to push back the point at which it reaches break-even, but the delay will be less than a year.

Nio has yet to announce when it will release its fourth-quarter 2023 earnings. Its local counterpart Li Auto (NASDAQ: LI) will report its fourth-quarter financial results on February 26, before the US stock market opens.

CMB International expects Nio to report a net loss of RMB 4.4 billion ($612 million) in the fourth quarter, narrowing slightly from the third quarter.

Nio's third-quarter net loss was RMB 4.56 billion, up 10.8 percent from the year-ago quarter, while down 24.8 percent from the second quarter, according to its financial results announced on December 5.

In the fourth quarter of 2023, Nio offered lower discounts than other major brands, CMB International noted, adding that they expect the average selling price of Nio's vehicles to slip 2 percent from the third quarter to RMB 309,000.

The impact of the decline in selling price is expected to be offset by lower battery costs, and Nio's vehicle margin is expected to improve by 0.7 percent to 11.7 percent in the fourth quarter from the third quarter, according to the team.

CMB International expects Nio to sell 210,000 vehicles in 2024, with a consolidated gross margin improving to 8.1 percent.

Given the lack of contribution from new models in the first half of the year and internal cannibalization from existing models, Nio's sales growth rate this year is likely to be the lowest among the trio of Chinese EVs listed in the US, the team said. The other two companies are Li Auto and Xpeng (NYSE: XPEV).

Considering the company's move to cut back on non-core businesses, CMB International forecasts Nio is expected to see a year-on-year reduction in research and development and sales and administrative expenses this year, but still post a net loss of up to RMB 14.6 billion for the year.

The team said that last year's investment of more than RMB 20 billion in Nio by the Abu Dhabi sovereign fund can support its growth needs through 2024-2025, a critical window that will determine the company's survival.

($1 = RMB 7.1882)

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