Investors Go Bearish as Niu Technologies Reports First-Ever Sales Decline

Leading Chinese electric scooter maker’s sales fell 17% in the second quarter, as its home market tumbled due to Covid lockdowns

Key Takeaways:

  • Niu Technologies sold 17% less electric scooters in the second quarter from a year earlier, marking its first-ever decline
  • The company’s China sales fell 27% due to widespread Covid disruptions, but that was partly offset by soaring international sales

By Doug Young

Electric scooter maker Niu Technologies (NIU.US) took the unusual step of posting its latest preliminary results for the second quarter on July 4, even as trading of its U.S.-listed shares took a break for America’s Independence Day. But the date was anything but celebratory for Niu’s stock, which fell 5% when trading resumed July 5. That kicked off a downward march that has seen the stock fall 20% in the five trading days since the announcement.

Niu’s name means “bull” in Chinese, but investors aren’t exactly bullish on the company these days.

The days since Niu’s announcement have seen heavy trading of the stock, including the single heaviest trading day since late last year. That hints that one or more major shareholders were selling down their positions, probably worried over weak prospects for the stock for the rest of this year.

Niu’s latest numbers revealed a first-ever year-on-year sales decline for the company since it went public in 2018, as business plunged in its home China market where major swaths of the country were locked down starting from mid-March to battle recent Covid flareups. The disruptions include a citywide lockdown of Shanghai, China’s financial capital, in the months of April and May, sending sales in that key market to near zero for many retailers.

The situation began to improve in June, and many consumer-facing companies are now cautiously optimistic that conditions will return to more normal levels in the third quarter. We’ll probably start to see big discussion of that topic when Chinese companies start releasing their second-quarter results in the next few weeks, and focus on third-quarter outlook to divert attention from what will be one of their worst-ever quarters in terms of growth.

Niu is one of the first major Chinese companies to provide a look at how dismal things got in the second quarter, saying its overall sales fell 17% year-on-year in the three-month period to 208,857 scooters, electric bikes and kick-style electric scooters. That compares with 9.4% year-on-year growth in this year’s first quarter, which was already down sharply from the company’s 72% growth in unit sales for all of 2021.

The second-quarter decline was the result of an even larger 27% decline in its sales in China, which accounted for about 86% of its total unit sales for the period.

“The decrease in China market was mainly due to retail traffic decline and logistic constraints caused by the Covid-related lockdowns in Shanghai, Beijing and other top-tier cities, which traditionally contributed 35% to 55% of our total domestic sales volume,” Niu said in a statement. “Sporadic pandemic outbreaks in other parts of the country and increase of retail prices starting from April 1 also affected demand for our products in the second quarter.”

The company added that Covid-related disruptions forced it to delay the launch of many new models during the quarter, and also delayed new store openings. Accordingly, it was more upbeat on the third quarter, saying it expected to proceed with the launch of those models and resume opening stores at a more normal rate starting from June.

International boom

While things were dismal at home, Niu’s situation was much better internationally in the second quarter, as previous Covid restrictions ended in much of the world outside China and life began returning to normal. The company’s international sales quadrupled to 28,558 scooters for the period from 6,980 a year earlier as its kick-style electric scooters gained traction.

That huge jump, combined with the China weakness, propelled international sales to 13.7% of Niu’s total for the quarter, up sharply from a year earlier when they accounted for just 2.8% of the total.

Niu pointed out that its electric kick-style scooters jumped onto the Amazon Electric Bicycles best seller list for the U.S. starting in April and have remained there since then. Indeed, a look at the list shows Niu’s electric kick scooters are now the second most popular brand in the U.S., behind only Chinese rival Ninebot (689009.SH), owner of the popular Segway brand.

The strong performance for its global sales is especially noteworthy since Niu and other exporters have been hard-hit by high shipping prices for much of the last two years during the pandemic, forcing them to raise prices. Soaring prices for lithium batteries used to power its electric scooters, bikes and kick scooters have also hit Niu and its peers.

More broadly speaking, Niu, Ninebot and other rivals like China’s Kandi Technologies (KNDI.US) and Italy’s Piaggio (PIA.MI) look like well positioned lower-end bets to capitalize on the global push for more clean energy transportation and power generation. China has been one of the strongest promoters of clean energy vehicles, and is now home to some of the world’s most promising startups making both electric scooters and cars.

Following the past week’s selloff of its shares, Niu’s stock is now down nearly 60% so far this year. Despite that, the company is still a relative bull compared with its peers. Its shares now trade at a trailing price-to-earnings (P/E) ratio of 19, compared with 13 for Piaggio and just 8 and 7 for Ninebot and Kandi, respectively.

Unlike the electric car makers, most of the electric bike and scooter makers are currently profitable, reflecting their lower costs and relatively lower sophistication of their products. But the sector is also becoming increasingly competitive as other companies enter the space. Niu’s margins have taken a nosedive as that happens, and its first-quarter gross profit margin of 19.1% was down sharply from 23.8% a year earlier.

At the end of the day, Niu looks quite well-positioned as a leader in the highly fragmented global market for electric bikes and scooters. It will need to be careful for the rest of this year to avoid any potential cash-crunches if China imposes more major lockdowns or the international market slows. But once things return to more normal conditions both at home and abroad, we could see some strong upside for the company’s stock.

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