Why did NIO take a $581.11 million loss last quarter?

The Chinese electric vehicle (EV) manufacturer NIO NYSE: NIO released its unaudited third-quarter results for 2022 on November 10, which reported mixed developments for the company.

Although NIO recorded record-high vehicle deliveries and significant top-line revenue growth, its net loss swelled by 392.1% year over year (yoy) and 49.1% quarter over quarter (qoq).

Driving these losses was an increased cost of sales basis, weakened margins, and inflated operating expenses.

Let's cover the highlights from the report.

What did NIO announce?

• Vehicle deliveries up 174.3% yoy to 10,059
• Vehicle sales up 38.2% yoy to RMB11,932.7 million
• Total revenues up 32.6% yoy to RMB13,002.1 million
• Gross profit down 12.9% yoy to RMB1,735.1 million
• Gross margin down 700 basis points yoy to 13.3%
• Net loss up 392.1% yoy to RMB4,110.8 million
• Adjusted net loss up 514.2% yoy to RMB3,498.9 million

Cost of sales increased 44.2% yoy during the reported period. The report stated that delivery volumes and higher battery costs per vehicle contributed to the expansion.

The contraction in the company's gross margin was said to be due to fewer sales of automotive regulatory credits, its decreased vehicle margin, and its other sales margins shrinking. Increased capital expenditure into its power and service network was also cited as leading to the decrease.

Despite these losses, NIO has a healthy amount of cash and cash equivalents left on its balance sheet at RMB51.4 billion, buying it some runway to reach profitability.

What else did NIO announce?

NIO's research and development (R&D) expenses increased significantly during the reported period. R&D swelled 146.8% yoy to RMB2,944.5 million. Funds were earmarked for personnel in research and development as well as for scoping additional products in its pipeline.

Meanwhile, selling, general and administrative (SG&A) expenses also took a turn for the worst as they inflated by 48.6% yoy to RMB2,712.5 million. Most of the rise in its SG&A expense can be chalked up to the company's increased sales personnel force and marketing activities.

What did management say?

NIO CEO William Bin Li said:

"Following the delivery of our new product lineup based on NIO Technology 2.0 catering to different market segments, we have witnessed strong growth momentum in user demand and robust foot traffic, especially after the debut of ET5s in stores from September, and expect the ET5 delivery will support a substantial acceleration of our overall revenue growth in the fourth quarter of 2022. To meet the growing user demand and shorten the waiting time, we have been working closely with supply chain partners to accelerate production and delivery."

What's next?

NIO gave guidance for the fourth quarter of 2022. It expects its total vehicle deliveries to increase by 71.8% to 91.7%. This should arrive at a number of 43,000 to 48,000 vehicles.

Meanwhile, total revenue is also expected to increase by 75.4% to 94.2%, to arrive at a number of RMB17,368 million to RMB19,225.