Nio Inc. (NYSE: NIO) reported first-quarter 2019 results Tuesday morning that were objectively awful, though not as bad as analysts had expected. The maker of premium all-electric cars for the Chinese market came public in September 2018 at $6.26 per American depositary share (one ADS is equal to one ordinary share) and closed Friday at $3.86.

First-quarter revenue totaled $243.1 million, about 3% above the expected $236 million. Vehicle sales totaled $228.8 million, a drop of nearly 55%. Vehicle margins fell sequentially from a positive 3.7% to a negative 7.2%. The net loss for the quarter was $390.9 million, a sequential drop of 24.1% and a year-over-year decline of 71.4%. Net loss per ADS was $0.38, and the adjusted net loss per ADS was $0.36.

Nio attributed the decline in vehicle sales to accelerated deliveries of its model ES8 in the fourth quarter of 2018 in anticipation of electric vehicle (EV) subsidy reductions in China in 2019, as well as the seasonal slowdowns surrounding the Chinese New Year holidays in the first quarter of 2019.

Deliveries of its ES8 totaled 3,989 in the first quarter, down from 7,980 in the fourth quarter of 2018. The first ES8 rolled off the production line in April 2018, and Nio sold just 100 in the second quarter of last year.

In April, deliveries totaled 1,124, reflecting a greater than anticipated slowdown in monthly deliveries resulting from EV subsidy reduction announced in late March, as well as the slowdown of macro-economic conditions in China, which the U.S.-China trade war has exacerbated. The company noted that wholesale passenger vehicle sales were down approximately 15% year on year from January to April 2019, compared to the same period of last year.

Earlier this month, Nio announced a framework agreement with a Beijing-based investment firm that could include up to $1.5 billion in new capital in exchange for a minority stake in the automaker. The investment firm is expected to help Nio build a new manufacturing facility for its next generation of EVs.

The company’s founder, board chair and chief executive, William Li, said the company’s second model, the ES6, will begin rolling off the production line in June. He noted that the company has more than 12,000 preorders for the new model. Li left it to Chief Financial Officer Louis T. Hsieh to deliver the not-so-good news: “Looking ahead to the second quarter, we expect an even more challenging sales environment and anticipate overall sequential demand and deliveries to decrease, as competition continues to accelerate and the general automobile market in China remains muted. Against this backdrop, NIO is focusing on rolling out our ES6 nationwide, and at the same time, improving overall network utilization and operating efficiencies.”

While this seems like overall bad news, investors had pushed the ADSs up by more than 6.5% early Tuesday. The good news appears to be that the numbers could have been worse. The other upside could be the result of the very trade war that Nio is warning about. If China boosts tariffs on imported autos by 25%, Tesla Inc. (NASDAQ: TSLA) will see the price for its base Model S jump from $113,000 to north of $140,000 for a Chinese buyer. A Nio model ES8 costs about half the current base price of the Model S.

Rather than fight on the high-end, Tesla is preparing to shift the battle to a different front. The company is expected to announce Chinese pricing of its Model 3 later this week. Tesla aims to build the Model 3 for the Chinese market at its new Gigafactory in Shanghai beginning later this year, thus avoiding the import tariff altogether. Bloomberg has estimated a base Model 3 starting price in China of $43,400 before government subsidies are applied.

Pricing for the standard version of the Nio ES6, an SUV/crossover announced last December and similar to Tesla’s Model X, is around $52,000. But the ES6 has a jump of at least four months on the Model 3, if Nio can begin delivering next month as promised. A standard version of Tesla’s Model X costs about $116,000 in China, including import duties.

Nio’s stock was last seen trading near $4.00 per share, in a post-IPO range of $3.81 to $13.80. The 12-month price target on the stock is $7.64.

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