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Nio shares soar despite disappointing Q3

 

Wednesday, December 06, 2023

Today’s headlines

What’s happening: Shares of Nio gained on Tuesday, after the company released results for its third quarter.

What happened: The electric vehicle maker reported a wider-than-expected loss for its third quarter on Tuesday.

Nio also reported its revenues short of expectations and issued a weak sales forecast for the current quarter.

How were the results: The Chinese company reported a sharp increase in sales for its third quarter.

  • Revenues grew 46.6% year-over-year to 19.07 billion yuan, or $2.61 billion, falling lightly short of the consensus estimates of $2.63 billion.
  • Excluding share-based compensation expenses, non-GAAP loss came in at 31 cents per share, compared to Wall Street expectations of 43 cents per share.

Why it matters: There has been fierce competition in China’s electric vehicle market, with Nio facing pressure from domestic automakers, like Xpeng and Li Auto, as well as EV giant Tesla.

Despite the tough competition, Nio’s vehicle deliveries surged 75% year-over-year to 55,432 units in the third quarter. This also represented growth of a whopping 135.7% quarter-over-quarter. The company’s vehicle revenues jumped 45.9% year-over-year.

However, the company’s gross margins shrank to 8.0% in the third quarter, from 13.3% in the year-ago period, with vehicle margins contracting to 11.0%, from 16.4% a year earlier.

“According to the retail sales data from China Automotive Technology and Research Center, NIO ranked first in the battery electric vehicle market segment priced over RMB300,000 in China, with a market share of 45% in the third quarter of 2023,” CEO William Bin Li said during the earnings call.

Management guided to deliveries between 47,000 and 49,000 units for the fourth quarter, representing growth of 17.3%-22.3% year-over-year. They projected revenues between 16.1 billion yuan and 16.7 billion yuan, up 0.1%-4% year-over-year, lower than market expectations of 21.35 billion yuan.

Investors remained optimistic about the EV maker’s ability to curtail costs. Last month, Nio had announced plans to reduce around 10% of its workforce. “We have identified opportunities to optimize our organization, reduce costs and enhance efficiency,” Li said during the earnings call.

How shares responded: Nio’s shares climbed 1.5% to close at $7.43 on Tuesday, following the release of quarterly results. The stock has lost around 23% year to date.

What to watch: Markets will continue monitoring growth of China’s economy and spending by consumers. Investors will also watch moves by competitors to gain a larger share of the Chinese market as well as Nio’s efforts to lower costs and improve its margins.

The markets today

The Canadian dollar will be in focus today ahead of the Bank of Canada’s interest rate decision

Context: The CAD/USD forex pair fell on Tuesday, while the yield on benchmark government debt moved lower.

Details: Market sentiment took a hit on Tuesday after Moody’s Investors Service downgraded China’s credit outlook from stable to negative. The news exerted pressure on riskier assets and sent the safe-haven US dollar higher, exerting pressure on the CAD/USD forex pair.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.3% to 104.05 on Tuesday.

On the economic data front, the S&P Global services PMI for Canada declined to 44.5 in November, from 46.6 a month ago, recording the sixth straight month of contraction in services activity. Canada’s composite PMI also fell to 44.8 in November, from 46.7 in the earlier month.

Weakness in price of crude oil, one of Canada’s major exports, also exerted pressure on the loonie. WTI crude oil for January delivery fell 72 cents to settle at $72.32 per barrel on Tuesday.

The CAD/USD forex pair fell around 0.4% to 1.3593 on Tuesday. The S&P/TSX Composite Index declined by 0.17% to close at 20,375.93.

What to watch: Investors await the release of the Bank of Canada’s interest rate decision today. Canada’s central bank had kept the target for its overnight rate unchanged at 5% during its October meeting and is widely expected to do the same at its upcoming meeting.

Data on balance of trade, labour productivity and Ivey Purchasing Managers Index will also remain in focus today. Analysts expect the Ivey PMI to rise to 53.5 in November, from 53.4 in October. Canada is expected to report a trade surplus of C$1.0 billion in October, versus a surplus of C$2 billion reported for September.

Analysts expect labour productivity in Canadian businesses to decline by 0.6% in the third quarter.

Other Markets: US trading indices closed mixed on Tuesday, with the Dow Jones index and S&P 500 down by 0.22% and 0.06%, respectively, and the Nasdaq 100 up by 0.24%.

The news shaping the markets

Ukraine’s President Volodymyr Zelenskyy announced the cancellation of a video-link appeal for new aid to US lawmakers. The news sent the RUB/USD forex pair slightly higher this morning.


Colombia’s producer prices fell by 5.65% year-over-year in October. This being the seventh consecutive month of producer price deflation exerted pressure on the COP/USD forex pair.


Brazil’s S&P Global services PMI increased to 51.2 in November, from 51 a month ago. This was the second straight month of expansion in the services sector and sent the BRL/USD pair higher in forex trading this morning.


Eurozone’s industrial producer prices fell 9.4% year-over-year in October, versus a 12.4% decline a month ago, exerting pressure on the EUR/USD forex pair.


The American Petroleum Institute said US crude stockpiles had increased by 0.594 million barrels in the week ended December 1, compared to a decline of 0.817 million barrels in the prior week. Despite this, WTI crude oil futures rose this morning.

What else to watch today

Germany’s factory orders and construction PMI, Eurozone’s construction PMI and retail sales, France’s construction PMI, Italy’s construction PMI, UK’s construction PMI, Brazil’s car production, new vehicle sales and government budget value, Mexico’s consumer confidence indicator, auto exports and car output, as well as US MBA mortgage applications, ADP employment change, balance of trade, nonfarm business sector labour productivity, unit labour costs, crude oil inventories, gasoline stocks change and distillate inventories.


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