NIONIO

Key highlights

• Vehicle margins expanding: Vehicle margin, which is the profit left after building each car, rose to 18.8% compared to 10.2% a year ago. This improvement suggests the company is becoming much more efficient at manufacturing as it shifts to a more profitable mix of vehicles.
• Strong delivery growth: The company delivered 83,465 vehicles in the first quarter, nearly doubling the 42,094 cars delivered in the same period last year. Scaling up deliveries is essential for the company to reach its goal of sustainable profitability.
• Operating expenses falling: Spending on research and development dropped 40.7% to RMB1,885.0 million because of organizational optimization, which is a term for job cuts and restructuring. This helped the company report an adjusted profit from operations of RMB66.8 million, a major swing from the RMB5,947.2 million loss last year.
• Multibrand expansion continues: The mix of cars sold included 13,339 units from the newer ONVO brand and 11,583 from the FIREFLY brand. Introducing these different brands allows the company to reach more types of buyers beyond its original premium NIO line.
• Strong delivery outlook: Management expects to deliver between 110,000 and 115,000 vehicles next quarter, which would be an increase of 52.7% to 59.6% over last year. This suggests that the ramp up of new models like the ONVO L80 and the flagship ES9 is expected to drive significant volume growth.

Our take: A very strong quarter that shows the business is finally finding its footing. The jump in vehicle margins to 18.8% and the move to a positive adjusted operating profit prove that the company can grow deliveries while controlling costs. This significantly strengthens the case for the stock by reducing the need for more outside funding.