NIO Earnings Preview

NIO reports Q4 earnings on Thursday, which means a good deal of attention will be on guidance for the next fiscal year, considering supply chain effects.

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It's all about the future

NIO has had a particularly difficult quarter. It was provisionally identified by the SEC in the list of China tech firms that could have its NYSE listing removed. It had to shut down production due to covid. The price of raw materials spiked, and it had to raise prices. But it did manage to list on the Singapore exchange.

However, those factors are well known to traders. How the company will deal with the issues over the next twelve months, is not. Hence, CEO commentary might be at the forefront of trader interest. The worst-case scenario is if NIO fails to provide guidance, citing uncertainty. 

What's at stake

NIO has had to revise its ambitious delivery schedule due to supply chain issues. But this isn't exactly far out of the mainstream of vehicle manufacturers since the start of covid. Other firms have had to take proactive measures to deal with the issue, but at a substantial cost. 

NIO has yet to turn a profit, but still reported CNY 55.4B (or around $8.7B) in available funds. Cash burn over the last three months could get attention from traders, with the consensus expecting EPS of -$0.91 on sales of $9.9B. The question that will likely be scrutinized is how management plans to address the supply chain issue and get deliveries back on track. The latest report for May showed an annual increase of 11.5% in deliveries.

The other major issue is price. The price of key components like nickel have skyrocketed, and with the ongoing war in Ukraine, could remain high. This, in part, has forced the company to increase its own sales prices, while rival Tesla did in the past year but has recently managed to avoid doing so. As inflation bites, what will NIO do about inflation? And given the deteriorating economic situation in China, will there continue to be solid demand for the flashy and more pricey cars in NIO's largest market?

NIO’s price action looks hopeful

NIO’s share is in a bear market but a recent attempt above the 50-day average of $18.10 could change the stock’s outlook. The 200-day of $20.45 will have to be recaptured to gain any real confidence a turnaround is afoot.

Major resistance will be met at $24 as it’s a confluence between the May 4th swing high and the 38.2% Fibonacci retracement of the $44.27-$11.68 leg. Above there, the 50% and 61.8% equivalents are resistances, with the former forming a cluster at the bottom of the $33.80-$27.53 range. 

Inversely, if we lose the 50-DMA in one of the three upcoming trading sessions the likelihood of prices sliding towards $14.09 and $11.68 will increase. But the latter will be less probable as a double divergence signal appearing on the MACD may provide support ahead of time. 

Source: SpreadEx

Key takeaways

NIO has hit a few stumbling blocks this quarter but has positioned itself well in the international market to come back. What remains to be seen is if the company’s CEO addresses the known issues of supply chain and deliveries while inflation rises and as China’s economy slows.