(Yicai) Nov. 26 -- Nio's shares fell after the Chinese electric automaker warned that the phase-out of government subsidies would weigh on its deliveries in the fourth quarter, which has overshadowed its net loss narrowing by nearly a third last quarter.

Nio [HKG: 9866] closed 1.7 percent lower at HKD46.02 (USD5.94) a share in Hong Kong today, after earlier tumbling by as much as 7.7 percent. Its New York-listed stock [NYSE: NIO] dropped 4.4 percent to USD5.50 yesterday.

Nio will likely deliver between 120,000 and 125,000 vehicles this quarter, the Shanghai-based company said in its third-quarter earnings report released yesterday. The figure is down about 20 percent compared with analysts' expectations.

Net loss shrank 29 percent to CNY3.7 billion (USD522.3 million) in the three months ended Sept. 30 from a year earlier, while revenue rose 17 percent to CNY21.8 billion (USD3.1 billion) thanks to deliveries surging 41 percent to a record high of 87,071 units, Nio pointed out.

"The order intake on the Onvo has been affected because of the cancellation of the trade-in subsidy," William Li, founder and chief executive of Nio, said at an earnings conference call regarding the family-oriented sub-brand. Cheaper models, including the Onvo L60 and L90, are "more sensitive to such changes," he added. 

"This is actually the challenge faced by the entire industry. We may not see the year-end sales spike that we normally expect," Li pointed out.

Nio's operational efficiency improved significantly, with overall gross margin climbing to 13.9 percent in the third quarter from 10.7 percent a year ago, while vehicle margin stood at 14.7 percent.

"The overall impact on the gross profit is limited," Li noted, projecting a fourth-quarter vehicle margin of around 18 percent and a profitable next year based on non-generally accepted accounting principles.

In addition, Nio is tightening expenses, with research and development costs falling 28 percent to CNY2.4 billion, driven by lower employee expenses following organizational optimization. Selling, general, and administrative costs rose just 1.8 percent to CNY4.2 billion despite the launch of new products. 

Nio's cash reserves stood at CNY36.7 billion (USD5.2 billion) as of the end of September, bolstered by an almost USD1.2 billion equity offering completed in that month.

Regarding international markets, after operating direct-to-consumer channels in Europe since 2021, Nio is shifting to partner-based distribution models across more than ten countries and regions. Its Firefly brand will spearhead overseas expansion into Europe, Asia, the Middle East, and South America.

"It does take patience and time to establish brand awareness on the new product," Li noted. "We are also more patient and also more long-term for the global market expansion of the new brand. 

"Overall speaking, in China, we started with the new brand, the premium one, and then we have the Onvo brand and the Firefly," Li said. “For the global market expansion, we will take the opposite way, where we will start with the Firefly. When Onvo has the product ready for the global markets, we will then push out Onvo and then Nio.”

Nio plans to expand the price range of the Onvo brand in China to CNY100,000 to CNY300,000 (USD13,800 to USD41,400), with the segment accounting for 15 million car sales a year, offering significant growth potential, Li pointed out.

Editor: Martin Kadiev