NIO 2021Q4 & FY2021 Earnings Report Review

NIO's earnings report was released on 24 Mar 2022.  As one of the premier China EV brands, there is much expectation on its performance.

Q4/2021 Earnings Overview

EPS: actual -$1.07 versus forecast -$0.8792 <MISS>
Revenue: actual $9.9B versus forecast $9.78B <BEAT> 

24Mar22 earnings result from investing.com

NIO released their results and here is the overview extracted from their report:

  • Vehicle sales were RMB33,169.7 million (US$5,205.1 million) for the full year of 2021, representing an increase of 118.5% from the previous year.
  • Vehicle margin was 20.1% for the full year of 2021, compared with 12.7% for the previous year.
  • Total revenues were RMB36,136.4 million (US$5,670.6 million) for the full year of 2021, representing an increase of 122.3% from the previous year.
  • Gross profit was RMB6,821.4 million (US$1,070.4 million) for the full year of 2021, representing an increase of 264.1% from the previous year.
  • Gross margin was 18.9% for the full year of 2021, compared with 11.5% for the previous year.
  • Loss from operations was RMB4,496.3 million (US$705.6 million) for the full year of 2021, representing a decrease of 2.4% from the previous year. Excluding share-based compensation expenses, adjusted loss from operations (non-GAAP) was RMB3,486.2 million (US$547.1 million) in 2021, representing a decrease of 21.1% from the previous year.
  • Net loss was RMB4,016.9 million (US$630.3 million) for the full year of 2021, representing a decrease of 24.3% from the previous year. Excluding share-based compensation expenses, adjusted net loss (non-GAAP) was RMB3,006.8 million (US$471.8 million) for the full year of 2021, representing a decrease of 41.2% from the previous year.
  • Net loss attributable to NIO’s ordinary shareholders was RMB10,572.3 million (US$1,659.0 million) for the full year of 2021, representing an increase of 88.4% from the previous year. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted net loss attributable to NIO’s ordinary shareholders (non-GAAP) was RMB2,975.6 million (US$466.9 million).
  • Basic and diluted net loss per ADS were both RMB6.72 (US$1.05) for the full year of 2021. Excluding share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value, adjusted basic and diluted net loss per ADS (non-GAAP) were both RMB1.89 (US$0.29). 
In this review, we will be looking at FY2021 performance more than Q4/2021.

Notable highlights (Full Year 2021) - denominated in RMB$ unless USD$ is indicated.
2021 deliveries increased 109% to 91,429 units
2021 vehicle sales revenue increased 118% from $15.182B (2020) to $33.169B (2021)
Total 2021 revenue increased 122% from $16.257B (2020) to $36.136B (2021) but costs of sales has grown by a notable 103% too.
2021 vehicle margin improved from 12.7% (2020) to 20.1% (2021)
2021 Gross margin (all revenue) improved from 11.5% (2020) to 18.9% (2021)
Q1/2022 expects a total delivery of 25,000 to 26,000 units of vehicles
NIO has ventured into Europe (Norway) since September 2021, increasing its global sales footprint.

At this point, the figures looked fantastic.  Yet, the company ended 2021 with a Net Loss of $4.016B (2021) compared to $5.304B (2020).  At a macro level, NIO has improved their revenue by 122%, with an improved gross margin.  When this ends up with a loss, it meant that their costs have increased proportionately much more than their revenue.

Other concerns
  1. Thus, there must be other costs components that have eaten away the profits.  This caused the Net Loss (EPS) per ordinary shareholder (Basic and Diluted) to drop from -$4.74 (2020) to -$6.72 (2021) a concerning drop of 41.8%.
  2. NIO has entered an Equity Distribution Agreement involving USD$2B worth of their ADSs shares through an at the market equity offering program in September 2021.  This has further diluted their shares and incurred costs of USD$26 million.
  3. Share-based compensation expenses have increased more than 500% from $187M (2020) to $1,010M (2021).
  4. Shares dilution from 1,421,322,474 (as per Dec 2020) to 1,607,187,119 (as per Dec 2021)In essence, the EPS (loss) per share was worse as more shares were added. When there is share dilution, the earnings per share drops.  This means that every investor needs to share the earnings with more shareholders.
Notable observations from Balance Sheet (31 Dec 2020 vs 31 Dec 2021)
  1. Though total assets increased from $54.641B (2020) to $82.883B (2021), there are a few notable concerns.
  2. First, cash and cash equivalents dropped from $38.425B (2020) to $15.333B. (2021).  This is a concern as 2021 Current Liability is more than the cash and equivalent available.  
  3. NIO has increased their short-term investment from $3.95B (2020) to $37.057B (2021) - a 9x increase.  We see a similar increase in their long-term investment from $300M (2020) to $3,059M (2021), a 10x increase.  For this, we will need to monitor its returns.  
  4. Both current liability and non-current liability have doubled since 2020.  This is of concern as it would imply more interest related expenses (costs) in the coming quarters.
In conclusion

Balance Sheet's assets have increased but the doubling of liabilities is an area of concern.  Though there is an increase in total revenue & improving sales margins, the total operations costs (coming from R&D, Selling, general & administrative and others) has increased even more.  NIO management will need to better manage their costings but this could be part of the "growing pains".  Share dilution remains another red flag.  The increasing share-based compensation expense is a growing cost (5x from 2020 to 2021) - something that could continue to grow.  Fundamentally, the business does not seem to get better and thus, I would monitor the business till things are improving in the right direction.


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