Tesla competitor Nio erases early gains, tanks 7% as investors secure profits

• Chinese electric automaker Nio wiped early gains and tumbled as much as 6.9% on Tuesday despite beating second-quarter estimates.
• The company nearly tripled vehicle deliveries through the quarter and crept closer to profitability with a smaller loss than expected.
• Still, strong selling activity erased initial gains and briefly pushed the stock to its lowest since early August.
• The firm expects to "meet the accelerated demand of our models" once production constraints are lifted, CEO William Bin Li said.
• Watch Nio trade live here.

Chinese automaker Nio sank as much as 6.9% on Tuesday as investors sold off on the company's earnings beat.

Shares gained as much as 8% after the Tesla competitor beat earnings estimates and posted a positive gross margin for the first time. The company shrank its quarterly loss for the fourth quarter in a row after nearly tripling its vehicle deliveries from the year-ago period.

Yet shares turned negative for the day less than 30 minutes into the session as investors kicked off a wave of profit-taking. The slump briefly erased all of Nio's 6% Monday gain. Shares pared some losses later in the morning.

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Here are the key numbers:

Revenue: 3.72 billion yuan ($540 million), versus the 3.49 billion yuan ($500 million) estimate

Loss per American depository receipt: 1.08 yuan (16 cents), versus the 1.66 yuan (24 cents) estimate

Gross margin: 8.4%, versus -33.4% in the year-ago period

Vehicle deliveries: 10,331, versus 3,553 in the year-ago period

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The automaker also guided for a strong third quarter, even as many firms withhold official forecasts. The company sees current-quarter deliveries landing between 11,000 and 11,500 vehicles, compared to selling just 4,799 vehicles in the third quarter of 2019. Revenue will range from 4.05 billion yuan ($580 million) to 4.21 billion yuan ($610 million), according to the company.

The second-quarter earnings beat is more impressive considering supply chain disruptions and demand weakness prompted by the coronavirus pandemic. The company slashed costs and borrowed more to maintain healthy cash flow throughout the health crisis, yet was still able to keep its gross margin positive.

Though the company has performed well through the economic slump, Nio is well-positioned for a recovery, CEO William Bin Li said in the Tuesday report.

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"The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models," he said.

To be sure, the company has plenty of ground to cover before catching up with Tesla. Registrations for Teslas in China reached 50,000 in the first half of the year, easily surpassing Nio's sales pace. Elon Musk's company is also ramping up Model Y production at its new Shanghai plant after producing only Model 3 sedans in the country.

Nio closed at $14.21 per share on Monday. The automaker has five "buy" ratings, seven "hold" ratings, and three "sell" ratings from analysts, according to Bloomberg data.

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