Nio bullish about its business performance despite coronavirus

Chinese electric car startup Nio is confident about its prospects this year despite the coronavirus outbreak, expecting its gross profit margin to become positive in the second quarter.

"Based on the current trend, we would hope the daily new order rate to return to the level of last December in April," said William Li, founder and chairman of Nio, on an earnings call last week.

He expected production, which resumed in late February at its plant in Hefei, Anhui province, to return to normal in April as well.

Due to the coronavirus outbreak, Nio delivered 2,305 vehicles in January and February, which was lower than the company's target set prior to the outbreak.

Li expected 1,100 to 1,300 vehicles to be sold in March, bringing sales in the first quarter to around 3,500.

"Facing the pressure of the outbreak, we are still confident to achieve the preset sales target for 2020," Li said.

He did not make public the sales target though. In 2019, the company delivered 20,565 vehicles, up 81 percent year-on-year.

Nio's new models are hoped to help drive sales. In April, it will start the delivery of the updated ES8 SUV.

In September, the EC6 SUV, which is expected to take on Tesla's Model Y, will roll off the assembly line.

In the fourth quarter of 2020, its 100 kw/hour battery pack will hit the market.

Li said the company will continue to expand its sales network by building more NIO Spaces, with an estimated 200 of them by the end of this year.

Gross margin improvement is one of Nio's top objectives in 2020. Last year, its gross margin was negative 15.3 percent, with net loss standing at $1.62 billion.

Li said the gross margin will turn positive in the second quarter and reach the two-digit level by the end of the year as it has been optimizing the supply chain, winning a better deal with battery producer CATL, and reducing manufacturing costs as it ramps up production.

The company has also become stricter about expense control and further improved its efficiency, with its headcount cut to around 7,000 from 100,000 in early 2019.

"We are pleased to see encouraging results to date, and expect around 35 percent expense reduction compared to the prior quarter even under the pressure of the outbreak," said Li.

Nio has made steady progress in financing efforts over the past months. It has issued $435 million convertible notes this year to several unaffiliated Asia-based investment funds, which are to support the company's daily operations and business development.

In late February, it inked a 10-billion-yuan framework agreement with the Hefei city government in Anhui province, and Li said the definitive deal will be signed in April.