China’s Jaw-Dropping $72.3B Tax Breaks Fail to Save NIO’s Plunging Shares – NYSE: NIO

China’s efforts to boost electric vehicle (EV) sales through $72.3 billion in tax breaks initially had a positive impact on shares of Chinese EV manufacturers, including NIO Inc., Xpeng Inc., and Li Auto Inc. However, NIO’s stock continued to decline despite the tax breaks. NIO’s disappointing Q1 2023 results, marked by lower vehicle margins and revenues, as well as its announcement of further price cuts, have contributed to the ongoing decline in its share price.

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Key Points

1. China’s $72.3 billion tax breaks for electric vehicles (EVs) aim to stimulate EV sales in the country, which is the world’s largest auto market and the largest market for EVs. This move has initially boosted shares of Chinese EV makers like NIO, Xpeng, and Li Auto.

2. NIO’s Q1 2023 revenue missed estimates due to collapsing vehicle and gross margins caused by intense price wars in the EV market. The company plans to cut prices again in June 2023 and has given a soft guidance for Q2 2023, expecting lower deliveries and revenues compared to the previous year.

3. NIO’s CEO remains optimistic about the company’s growth prospects, particularly with the launch of their new models. However, NIO’s stock chart shows a descending triangle pattern, indicating a potential breakout or breakdown in the near future. Support levels to watch for are at $8.07, $7.33, $6.00, and $5.65.

China recently announced a tax break package worth $72.3 billion over the next four years in order to boost the sales of electric vehicles (EVs) in the country. This move initially caused a rise in the shares of Chinese EV manufacturers NIO Inc., Xpeng Inc., and Li Auto Inc. However, NIO shares have continued to decline over time, reaching lows of $7.00 in May 2023.

The tax breaks are aimed at stimulating the demand for EVs in China, which is currently the world’s largest auto market and the largest market for EVs. NIO, however, missed its revenue estimates for the first quarter of 2023 by $80 million. This was due to a collapse in vehicle margins from 18.1% to 5.1% and a decrease in gross margins from 14.6% to 1.5% compared to the previous year, as a result of price wars in the industry. To combat this, NIO announced that it would be reducing prices again on June 12, 2023.

Furthermore, NIO provided soft guidance for the second quarter of 2023, with expected deliveries between 23,000 and 25,000 vehicles, and a projected decrease in revenue of 15.1% to 9% compared to the previous year.

The Chinese government’s new tax package includes exemptions from purchase tax for new energy vehicles (NEVs) from 2024 to 2025, and a 50% reduction in purchase tax from 2026 to 2027. The purchase tax could reach up to 30,000 yuan or $4,170 per car from 2024 to 2025, and a reduced value of 15,000 yuan or $2,085 from 2026 to 2027. This extension of the current NEV purchase tax exemption, which is worth around 115 billion yuan, is set to expire after 2023. NEVs encompass all-battery EVs, plug-in petrol-electric hybrids, and hydrogen fuel-cell vehicles.

In its fiscal first-quarter results, NIO reported an EPS loss of ($0.36), which was slightly better than analyst expectations. Gross profit decreased by 88.8% to $23.6 million compared to the previous year, while losses from operations increased by 133.6% to $744.3 million. Net loss also increased by 165.9% to ($690.1 million) compared to the previous year. Despite reporting revenues of $1.55 billion, a 7.7% increase YoY, NIO fell short of analyst estimates by $80 million. The company’s vehicle margins fell to 5.1% from 18.1%, and gross margins decreased to 1.5% from 14.6% in the year-ago period due to pricing competition in China. NIO ended the quarter with $5.5 billion in cash and short-term investments.

NIO CEO William Bin Li remained optimistic despite the challenges, highlighting the positive response from customers to their new All-New ES6 model. The company expects a decline in vehicle deliveries for the second quarter of 2023, with revenues projected to range from $1.27 billion to $1.36 billion, representing a decrease of 15.1% to 9% YoY.

In terms of market performance, NIO’s shares have been in a descending triangle pattern on the weekly chart, with a potential breakout or breakdown in the near future. The company faces challenges due to the ongoing EV pricing wars in China, which have resulted in declining margins. The stock currently has a “Hold” rating among analysts, but there are other stocks that are considered better buys according to top-rated analysts.

Overall, NIO is facing both opportunities and challenges in the increasingly competitive Chinese EV market. The implementation of tax breaks may help stimulate sales, but the company will need to address its margin and revenue issues in order to regain investor confidence.

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