12 August 2020

Investors Apply Brakes on Nio Stock Rally Despite Q2 Beat

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News shaping
the markets today

     

What’s happening: Shares of Nio Inc. fell on Tuesday despite the Chinese electric vehicle (EV) maker reporting stronger-than-expected results for the second quarter.

What happened: The second quarter saw an uptick in the demand for EVs, with China’s auto industry rebounding from the impact of the coronavirus outbreak. The surge in demand enabled Nio to more than double its revenues in the quarter.

Despite this blowout performance, Nio’s US-listed shares closed lower yesterday, even after climbing as much as 12% in pre-market trading.

How were the results: The leading Chinese EV manufacturer posted narrower losses for the second quarter, on the back of strong revenue growth.

  • Total revenues surged 146.5% to ¥3.72 billion ($535.4 million), exceeding the aggressive consensus estimate of ¥3.51 billion.
  • Net loss came in at ¥1.21 billion ($173.9 million), or ¥1.15 per share, much lower than the loss of ¥3.31 billion, or ¥3.23 per share, reported for the same quarter last year.
  • Excluding onetime items, the loss stood at ¥1.08 per share, better than the consensus view of a loss of ¥1.84 per share.

Why it matters: The auto industry, which was severely hit by the pandemic, is witnessing strong signs of a recovery in China. Auto sales grew 16.4% in July, notching gains for the fourth month, with a rebound in demand in the world's largest auto market.

Nio reported the delivery of 3,533 of its ES8 and ES6 models in July, representing growth of a whopping 322% from last year’s levels.

The company delivered 10,331 vehicles in the second quarter, up significantly from 3,553 deliveries in the same quarter last year and 3,838 deliveries in the first quarter of this year.

“The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models,” CEO William Bin Li said in a statement.

Management expressed optimism around Nio continuing its strong performance in the current quarter and projected third-quarter revenues between ¥4.05 billion and ¥4.21 billion ($607 million), versus the prevailing consensus estimate of ¥3.53 billion. The company projected vehicle deliveries between 11,000 and 11,500 units in the third quarter.

How shares responded: After spiking around 12% in pre-market trading, Nio’s shares gave up all gains during the regular session and ended the trading day down by 8.6% at $12.99 on Tuesday. The stock, which was so far supported by high second-quarter expectation, may have succumbed to nervousness around the fate of its ADRs (American depositary receipt) due to the Trump administration’s crackdown on US-listed Chinese companies. Despite the decline yesterday, the stock has gained 223% year to date.

What to watch: With the electric vehicle maker reporting upbeat quarterly results and projecting strong deliveries and revenues in the current quarter, investors are optimistic about the company’s performance in the near term.

The Markets Today

     

European stocks will be in focus today, after surging strongly in the previous session.

Context: European stocks recorded sharp gains on Tuesday, with investors taking positive signs from a slowdown in the spread of covid-19 infections and the possibility of another US stimulus.

Details: The coronavirus daily count has eased in the US, with the New York Times tracker reporting an 18% decline in new cases over the last 14 days and a 6% decline in deaths.

Market sentiment was also lifted by news of Russia giving regulatory approval to the world’s first vaccine for covid-19. While investors remained sceptical about the safety of Russia’s vaccine, the news still triggered some optimism in the markets.

On the economic data front, the unemployment rate in the UK came in unchanged at 3.9% for the second quarter.

The pan-European Stoxx 600 index jumped 1.7% on Tuesday, with all sectors closing in positive territory. Auto shares climbed more than 4% in yesterday’s session after China reported a jump in car sales in July.

Shares of Vestas Wind Systems rose by more than 9% on Tuesday after the company restored its guidance for the full year despite missing the latest profit estimates.

London’s FTSE 100 gained 1.7% on Tuesday, while Germany’s DAX 30 index and the French CAC 40 recorded gains of 2% and 2.4%, respectively.

What to watch: Markets await the industrial production report from the Eurozone today. Analysts expect industrial production in the region to rise 10% in June, versus a 12.4% surge in May.

Markets will also focus on news related to the US stimulus prospects, with Senate Majority Leader Mitch McConnell warning of no progress being made in the talks with the Democrats over the new stimulus plan.

Investors will also keep an eye on the covid-19 figures, with the total number of cases exceeding 20.2 million globally.

Other Markets: US indices trading closed lower on Tuesday, with the Dow Jones index, S&P 500 and the Nasdaq 100 down by 0.38%, 0.80% and 1.69%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Japan’s machine tool orders, UK’s balance of trade, gross domestic product, business investment, construction output, industrial production, manufacturing production, labour productivity and construction orders, Italy’s inflation rate, South Africa’s retail sales, Brazil's retail trade, China’s foreign direct investment as well as the US MBA mortgage applications, annual inflation rate, EIA’s crude oil stocks and government budget.

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