On the evening of August 29th, NIO released its semi-annual performance report.In the second quarter of this year, NIO achieved operating revenue of 8.77 billion yuan, a year-on-year decrease of 14.8% and a quarter-on-quarter decrease of 17.8%, which was lower than the market's expected 9.15 billion yuan. The net loss continued to expand, reaching 6.056 billion yuan, a year-on-year increase of 119.6% and a quarter-on-quarter increase of 27.8%. Although the gross profit margin has not turned negative, it is still in a declining trend, with a year-on-year decrease of 12 percentage points and a quarter-on-quarter decrease of 0.5 percentage points to 1%.As the only new force in the car-making industry that experienced a decline in sales in the second quarter, NIO's performance was directly affected. Not only did the overall revenue return to a downward range, lower than market expectations, but the net loss also further expanded.However, the company has given extremely optimistic guidance for the third quarter. The delivery guidance for Q3 is 55,000-57,000 vehicles, and the revenue guidance is 18.9 billion yuan to 19.52 billion yuan, both of which are historical highs.Starting in the second half of the year, NIO's sales have exceeded 20,000 vehicles, and the transition between new and old models has been basically completed. The overall delivery pace has also significantly accelerated. This has also led to historical highs in sales and revenue guidance for NIO in the third quarter, and the darkness before dawn for NIO is passing quickly.The highly anticipated NIO smartphone is expected to be delivered in late September, which will enhance the competitiveness of NIO's automotive products through vehicle-machine connectivity.<h2>1. NIO has gradually emerged from the low sales quagmire</h2>In the first half of the year, NIO's total sales were only 54,600 vehicles, a slight increase of 7.3% compared to the same period last year, which is not satisfactory.Among them, compared to the first quarter, NIO's sales in the second quarter were even more bleak, with a quarter-on-quarter decrease of 24.2% to 23,500 vehicles, barely meeting NIO's previous delivery target of 23,000-25,000 vehicles. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f6a5de18-3419-45cb-9c04-4eaddead4f23.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f6a5de18-3419-45cb-9c04-4eaddead4f23.png"/> It is gratifying that NIO's darkest moment has finally passed and the sun is rising. In the second half of the year, NIO reversed the sales decline in the first half, with sales reaching a record high of 20,500 vehicles in July, a year-on-year increase of 103.6% and a quarter-on-quarter increase of 91%, making a good start.Moreover, NIO is also very optimistic about sales expectations for the second half of the year.In the third quarter, NIO expects to deliver 55,000-57,000 vehicles. Even if we exclude the high sales of 20,500 vehicles in July, NIO will still maintain a sales level of at least 18,000 vehicles in August and September, which is in stark contrast to the low sales performance in the first half of the year.Overall, starting in the second half of the year, NIO has basically emerged from the low sales quagmire, mainly due to price reductions of NIO models and the successful transition between new and old models, as well as improved delivery efficiency.First of all, starting from the second quarter, NIO, which had never reduced prices before, announced a price reduction of 30,000 yuan for all models. Although it was done in exchange for battery swapping rights, it effectively enhanced the attractiveness of NIO's products.In addition, NIO, which has always pursued a high-end brand strategy, has also launched its first model, the ET5, priced below 300,000 yuan, and quickly became a popular model for NIO. Recently, NIO has offered a cash discount of 24,000 yuan for the ET5 in stock, in order to further strengthen the sales growth of this model.Furthermore, NIO has transitioned from the old &#34;866&#34; model to the new &#34;5566&#34; model, with a transition period of over a year. Previously, NIO's overall production and delivery volume were not satisfactory due to issues such as parts supply and production line upgrades.However, looking at the second half of the year, NIO's production capacity has successfully increased, and the transition between new and old models has been basically completed. The overall delivery pace has also significantly accelerated. Specifically, the delivery volume of NIO's new ES6 model exceeded 10,000 units in July, becoming the first model under NIO to achieve monthly deliveries of over 10,000 units, which indirectly verifies the competitive strength of the main model, ES6.With the improvement in delivery efficiency of new models such as ES6, ET5, and ES8, NIO's overall sales volume is expected to grow rapidly.<h2>2. Q2 Revenue Decline, Net Loss Continues to Expand, but Q3 Will See a Reversal</h2>In the past three years, NIO's revenue has been steadily increasing to 16.06 billion yuan in the fourth quarter of last year, but it started to decline in the first half of this year.Following a 33.54% decline in revenue in the first quarter of this year, NIO's revenue continued to decrease by 17.8% in the second quarter. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4f095fde-c487-4ea9-a270-70b60d67af12.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4f095fde-c487-4ea9-a270-70b60d67af12.png"/> The net loss has also expanded, with a loss of 6.056 billion yuan in the second quarter, a year-on-year increase of 119.6% and a quarter-on-quarter increase of 27.8%. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9dc92387-95d6-44ff-84ce-1067f8a0b4ac.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9dc92387-95d6-44ff-84ce-1067f8a0b4ac.png"/> Obviously, NIO's price reduction strategy in the second quarter (a price reduction of 30,000 yuan, with a reduction range of 6.5%-10% for all models) and poor sales performance (a 6% year-on-year decline and a 24.2% quarter-on-quarter decline to 23,500 units in the second quarter) have had a significant impact on NIO's revenue and profit.NIO's unit revenue stopped declining after falling below 300,000 yuan, reaching 305,000 yuan in the second quarter. Since the second quarter of last year, NIO's unit revenue has been declining after the change in vehicle model structure. Considering the recent price reduction of the ET5, it will be difficult for NIO's unit revenue to turn around in the short term. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6e4eeba8-b666-47a0-83e3-16c126c7cef3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/6e4eeba8-b666-47a0-83e3-16c126c7cef3.png"/> In the second quarter of this year, NIO's gross margin decreased by 12 percentage points year-on-year and 0.5 percentage points quarter-on-quarter to 1%. It is only a step away from breaking even. With the increase in delivery volume in the third quarter, it is expected to improve rapidly. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5a13d243-e891-4d3a-bd9c-bf4002b91c17.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5a13d243-e891-4d3a-bd9c-bf4002b91c17.png"/> However, the second quarter is just the darkness before dawn.NIO is expected to reverse in the third quarter.The company's revenue guidance for the third quarter is as high as 18.9 billion yuan to 19.52 billion yuan, a year-on-year growth of 45.3% to 50%, far exceeding the market's expected 17.2 billion yuan. If it can be achieved as scheduled, it will be NIO's highest revenue and sales level in history.<h2>3. Expenses remain high, and the burn rate is increasing</h2>Compared with Li Auto and XPeng, NIO is more aggressive in overseas market expansion, domestic product network channel expansion, and the construction of its unique battery swapping system.In the second quarter of this year, Li Auto's store expansion has already shown signs of slowing down, with a total of only 411 physical sales network, a decrease of 14 compared to the first quarter.However, NIO continues to expand rapidly. As of the end of the second quarter, NIO added 19 NIO Centers to a total of 125, added 11 NIO Spaces to a total of 271, added 16 NIO Service Centers to a total of 307, and added 222 battery swapping stations to a total of 1,561.Meanwhile, while Li Auto has announced that it will not develop overseas markets before 2025, NIO has already established authorized service center networks in major cities in five European countries: Norway, Germany, the Netherlands, Denmark, and Sweden.Therefore, NIO's sales and management expenses remain relatively rigid. In the second quarter, NIO's sales and management expenses reached 2.86 billion yuan, a year-on-year increase of 25.2% and a quarter-on-quarter increase of 16.8%.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7b18ebf9-7bd3-4e7c-980f-f36c75b87172.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7b18ebf9-7bd3-4e7c-980f-f36c75b87172.png"/> Similarly, the continuous investment in new vehicle development and the promotion of the next-generation battery swapping stations have also kept NIO's R&amp;D investment at a high level. In the second quarter, NIO's R&amp;D investment reached 3.345 billion yuan, surpassing 3 billion yuan for three consecutive quarters, a year-on-year increase of 55.6% and a quarter-on-quarter increase of 8.7%. In the short term, expenses remain high and are difficult to reduce.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5434befd-9300-4bd1-8948-714652649bdb.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/5434befd-9300-4bd1-8948-714652649bdb.png"/> In the second quarter of this year, NIO's cash and cash equivalents, restricted cash, short-term investments, and long-term fixed deposits amounted to 31.5 billion yuan, a decrease of 6.3 billion yuan compared to the first quarter. It is still the fastest burning company among NIO's peers.It is worth noting that although NIO received a capital injection of about 8 billion yuan from Abu Dhabi investment firm CYVN Holdings in June, which relieved NIO's urgent need for funds. However, judging from NIO's gradually accelerating burn rate, increasing sales and improving its own cash flow generation capability is the company's most important goal.NIO's second-quarter performance did not show significant improvement, but the better-than-expected sales and revenue guidance for the third quarter have raised more expectations in the market.With the successful transition of NIO's new and old models and the improvement in delivery efficiency, the market is expecting NIO to prove with concrete actions that Q2 is the darkness before dawn.

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NIO's second-quarter performance did not show significant improvement, but the better-than-expected sales and revenue guidance for the third quarter have raised market expectations.

NIO's Q2: Darkness Before the Dawn | Analysis by JZ Research