What Changed After the Q1 Report for NIO Inc. (NYSE:NIO)

Key takeaways:

• Growth guidance came in 17% lower than expected.
• The company expects about the same vehicle deliveries in Q2 as in Q1.
• Investors are revising the 4.8 price to sales multiple, while peer companies are trading at a 6.2x P/S.

NIO Inc. (NYSE:NIO) just released the Q1 2022 report. We will analyze why the market may be losing interest, and what are the key implications of the new results.

Q1 report highlights:

• Revenue at $1.56b - 4.7% higher than the average estimate of $1.49b
• Vehicle deliveries of 25,768
• Vehicle margin fell to 18.1% from 20.9% in Q4. Gross margin also fell to 14.6% from 17.2% in Q4
• Diluted net loss $287.9m, 63% less (improvement) from Q1 2021

NIO is managing to increase vehicle deliveries and made 7,024 & 5,074 in May and April respectively.

Management also released guidance, and for the next quarter, they expect deliveries growth between 5% and 14.2% YoY (23k to 25k vehicles), revenue between $1.473b & $1.591b - 10.6% to 19.4% growth YoY.

Check out our latest analysis for NIO

Growth Review

Analysts had been expecting Q2 revenue guidance to come closer to $1.86b. While the $1.532b guidance midpoint came 17.6% lower than expected. Which is why investors may be adjusting their positions.

Note that the guidance compares with Q1 last year, and if we compare with this quarter instead, it seems that growth is mostly expected to be flat. To be fair, Q2 was a hard quarter for the Chinese economy, and if they manage to deliver in line with Q1 investors may consider giving the company more time to develop.

NIO is still in an early growth stage, which is why revenue and risk is likely what matters the most for investors. Revenue is the basis of future free cash flow estimates, and investors monitor risk to see if the company is expanding beyond its current capacity, which can create financial bottlenecks in the future.

Comparing Peers

It seems that investors are scaling down on the growth optimism for NIO, which may pressure the 4.8x Price to Sales multiple. 

Competitors like XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are both trading at a 6.2x Price to Sales multiple, which gives us a good overview of the pricing level where we can see NIO converging if they execute on future deliveries.

We can also see how peers compare in general between each other, and investors can do a deeper-dive into other EV/auto companies that may reduce the risk in an EV portfolio or simply outperform NIO.

What this means for you:

NIO investors are taken a back at the growth implications set by the latest outlook. The company seems to be performing, but the economic activity pressures Q1 and Q2 have set the company back and is pressuring the valuation.

The company is still growing, but the early analyst expectations are now getting tested, and the price may see some pressures as investor sentiment shifts into a general pessimistic state.

Investors that are bullish on the company may choose different strategies to absorb the volatility, but most are likely well aware that the investment horizon for a company like NIO may be more than 4 years before the company reaches most of its value potential.

Keep in mind, when it comes to analyzing a stock, it's worth noting the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of NIO.

If you are no longer interested in NIO, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.