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NIO Prepares To Report Q4 Earnings As Shares Retreat From Recent Highs

In the electric vehicle (EV) industry, profitability has frequently taken a back seat to future expectations.

So when China-based electric vehicle maker NIO Inc (NYSE: NIO) pops the hood next week, investors will probably be more interested in its outlook for revenues and deliveries of vehicles than they will be in how much the company lost during the quarter—barring a huge miss or big surprise, of course.

Earlier this year, NIO said it had delivered a record 17,353 vehicles in Q4. While that’s tiny compared to Tesla Inc’s (NASDAQ: TSLA) 180,570 deliveries during the quarter, NIO’s number represents an 111% increase year-on-year and beat the upward end of its guidance of 16,500 to 17,000 vehicles for the quarter.

Speculative And Fundamental Drivers

While the increasing deliveries are encouraging for NIO bulls, the company has been in the red. In other industries, you might expect modest share price action for a money-losing company with negative trailing and forward price-to-earnings ratios.

Not so for NIO. The stock’s gains accelerated last year and into the early part of this year, reaching a record high around $67 dollars in January. The stock started 2020 around $4 (see figure 1).

FIGURE 1: HIGH VOLTAGE. On a percentage basis, shares of Chinese electric vehicle maker NIO (NIO—candlestick) have given Tesla (TSLA—purple line) a run for its money over the past year. Both NIO and TSLA have lost a bit of their juice in recent days, however. Data sources: Nasdaq, NYSE. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Part of that astonishing gain probably came from general market dynamics amid low-interest rates, accommodative central banks, actual and anticipated coronavirus stimulus, and anticipation of a post-vaccine recovery. There may also have been an element of investors chasing momentum in a hot stock. Securing $1 billion in funding from Chinese state-owned businesses also helped.

It’s also arguable that there may be more fundamental tailwinds helping NIO’s stock hit the accelerator in 2020. Demand for EVs has been on the rise as battery life lengthens, costs decline, more charging stations are built, and environmental concerns work their way further into the public’s consciousness.

But in the EV space, investor optimism about manufacturers’ potential can make the companies seem larger than life. Call it the Tesla effect, as investor optimism has helped make that company the most valuable automobile manufacturer on the planet by market capitalization.

Still, like the vehicles it makes, NIO shares can’t accelerate forever. After hitting the record in January, shares pulled back sharply. Some of that may be profit-taking and cooler heads prevailing ahead of its earnings release. There also may be some caution surrounding the tariff relationship between the United States and China, the world’s two largest economies.

NIO Earnings And Options Activity

When NIO releases earnings after the close Monday, March 1, it’s expected to report a loss of $0.07 per share, according to third-party consensus analyst estimates. Revenue is projected at $1.01 billion, up 148% from a year ago. Note: Consensus should perhaps come with an asterisk, as only a handful of analysts cover the company.

The options market has priced in an expected share price move of about 11.5% in either direction around the earnings release. Implied volatility sits at the 25th percentile as of Friday morning.

Looking at the March 5 options expiration, put activity has been highest at the 35 and 40 strikes. But more activity has been seen to the upside, particularly in the 50- and 60-strike calls.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Investors Plug In

In addition to the earnings data, investors next week may be seeking fresh guidance from the company. Top of the list: They’ll likely be listening for an update on battery technology from NIO. Batteries are the linchpin for the EV market, as more efficient batteries that can store more power mean vehicles can go longer without charging, giving drivers more peace of mind.

In January, NIO unveiled its first sedan, called the ET7, which boasts driving ranges of more than 500, 700 or 1000 kilometers depending on the battery. Investors are likely going to want to hear about how pre-orders are going for that vehicle, deliveries of which are expected to begin next year.

Investors are also probably eyeing the competition. The EV market field has gotten more crowded, with new interest from not only legacy auto companies and EV startups, as well as from big tech players such as Apple Inc (NASDAQ: AAPL) and Amazon.com, Inc. (NASDAQ: AMZN).

Room for All?

Still, despite the ever-crowding field, the pie is pretty big (and set to get bigger). Even if NIO never ventured outside of China, the world’s largest EV market is a pretty big playground.

Technology market analyst firm Canalys in a recent report forecast 1.9 million electric vehicles will be sold in China this year, well up from a record 1.3 million in 2020.

As a Canalys executive put it in comments accompanying the report: “With a share of just 6.3% of all passenger cars sold in China in 2020, EVs have many years of growth ahead.”

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Photo by Vlad Tchompalov on Unsplash

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