NIO Trend Reversal
StockDweebs what do you think of this NIO analysis ? Trying to apply your methodolgy and reasoning.
Credits to u/JustOnTheHorizon on the brief below:
Company Biography:
NIO Limited designs, manufactures, and sells electric vehicles in the People's Republic of China, Hong Kong, the United States, the United Kingdom, and Germany. The company offers five, six, and seven-seater electric SUVs. It is also involved in the provision of energy and service packages to its users; marketing, design, and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after sales management activities. In addition, the company offers charging solutions, including Power Home, a home charging solution; Power Swap, a battery swapping service; Power Mobile, a mobile charging service through charging trucks; Public Charger, a public fast charging solution; and Power Express, a 24-hour on-demand pick-up and drop-off charging service. Further, it provides value-added services, such as statutory and third-party liability insurance, and vehicle damage insurance through third-party insurers; repair and routine maintenance services; courtesy car services during lengthy repairs and maintenance; and roadside assistance, as well as data packages. NIO Limited has a strategic collaboration with Mobileye N.V. for the development of automated and autonomous vehicles; and collaboration agreements with various manufacturers for the manufacture of ES8, a six or seven-seater high-performance electric SUV.
So to summarize:
- Sells and Manufactures a variety of luxury cars
- Offers a multitude of charging solutions
- Offers BaaS (Battery as a subscription service, meaning NIO owners subscribe and essentially rent out the battery for the car but we'll get to that later)
- Provides vehicle damage insurance, statutory and third-party liability insurance (Statutory meaning its required by law to own)
- Offers repair and routine maintenance services and roadside assistance, and data packages
Now that's a handful and we don't have all day, so we'll primarily be focusing on the main event which is their car line and BaaS. This does not mean you should disregard the other packages when viewing it as an investment, it just means I'm too lazy to do research on the other things.
Market and Competition
Market
Honestly pretty much everyone knows where the EV market is heading and how it's the future, but it's worth mentioning regardless.
The EV market is expected to grow at a CAGR of 21%, and hit 30 Million Cars worldwide by 2030. By 2026, worldwide EV revenue is expected hit roughly half a trillion USD, or $500 Billion. (Also, for those who aren't sure what a CAGR is, it means that the market on average is expected to grow by 21%. Not overall, but 21% year by year; take a second to appreciate the compound growth effect that will occur.) What's more, is that the Asia Pacific market (Where NIO primarily is) is reported to have the fastest growth. Here's a graph that represents these projections.
If we take a more specific look to NIO's market, analysts have recently upgraded previous forecasts, now claiming that 20% of the vehicle fleet will be EV by 2025. Beyond that, the forecasts for 2035 and 2050 are 53% and 80% penetration, respectively.
Strategy
The Chinese EV market has quite a few players on the board, so strategy is pretty important to differentiate and forge a unique business model. Nio's strategic goal is to have a consistent, stable order flow, rather than a fluctuating order backlog similar to Tesla. (Courtesy of J.P Morgan) By keeping pricing steady, Nio's focus lies on services and customer experience driving a positive reputation in the community and keeping engagement high; it also allows gross and vehicle margin to find stable ground as volumes rise.
We could also discuss their consumer relationship, and how their dealerships double as community grounds for owners to hang out. Apparently Nio has even more of a cult then Tesla, but I don't have the experience to confirm that. Regardless, between their own app for owners, special owner events, and communal spaces, it is clear that Nio strives to form a strong and loyal customer base.
BaaS. Battery as a Service. Or rather, a subscription. Nio has chosen to distribute batteries in a non-traditional manner, electing to not include it with the sale of their vehicles and instead letting consumers chose and rent batteries depending on their personal needs. This shaves off roughly $10,000 off the price of their vehicles, which in turn boosts Nio's price competitiveness and demand. Also, BaaS acts as an additional revenue source for Nio that will continue to generate cash by nature even if sales take a hit. Nio has hit roughly 1 Million battery swaps thus far, and these swapping stations even support the EV's of other automakers. This flexibility of compatibility with other EV's makes Nio-power (The battery swapping stations) much easier to scale. You may be thinking, does this benefit the consumer in anyway? Sure it does. The custom battery solutions offer a chance for consumers to cater to their own needs. Some people aren't able to have their own home charging stations; many don't even have a consistent parking spot they can rely on daily. Also, consumers can customize depending on their own driving habits; if you can't afford to bleed money on certain battery solution, downgrade. Going on a large roadtrip? No problem, just rent a larger battery size. However, the most appealing benefit to consumers is the protection from battery degradation. Instead of being stuck with a dated or low-end battery, all Nio vehicles use the same size of battery. What does this mean? Well, basically you don't need to worry about the value of your battery depreciating as new advancements make it absolute. Consumers can upgrade to the latest and most powerful battery pack, and one size fits all. This improves resale value, and provides a future proof battery system. Overall the BaaS may attract a decent amount of controversy (it does have some drawbacks that I touch on later), but I'm personally a fan because it's very pro-consumer, improves brand visibility (There's hundreds of these things and other EV's can use them attracting more traffic), and offers Nio Inc. another revenue stream. To recap: Extra revenue stream, easy to scale, brand visibility, and very pro-consumer.
Another thing that's worth mentioning is that the Chinese government favors BaaS companies when it comes to benefits, so there's that too.
Catalysts
I don't actually have a lot of research in this area, so if anyone in the comments recalls a catalyst or two share it and I'll add it in.
- European Market Expansion
- Rapid Clean Tech Movement
- New Manufacturing Base run by JAC Motors
- NIO partnership with Chinese industrial park at Hefei, which will reportedly produce 300,000 clean energy vehicles a year
- Speculation: Potential expansion to the American Market down the road. This is pure speculation, but here's an article written by Barron's claiming that Nio Inc. has been attempting to formulate an action plan to enter the U.S. Market.
Local environment
Let's take a quick peek at Nio's infrastructure. As previously mentioned, they've chosen to offer battery as a subscription service, or BaaS for short. Now, we've already talked about the strategy and benefits behind this choice, but how well are they executing? As of right now, NIO currently has roughly 143 battery changing stations in China, and they plan to almost double that number by adding 100 more. Additionally, they've partnered with the Chinese state's grid to help establish these new battery swapping stations.
This all sounds great, right? We've discussed the benefits of a BaaS system and looked over the infrastructure they've established. There is of course, a predictable drawback that I should mention. Because NIO has decided to manufacture and run their company this way, other markets that lack China's battery swapping infrastructure will be harder to crack into, because they will require heavy investment and development to create a Nio-power network that allows for battery swapping. Just something to keep in mind when considering European and North American markets, because there has been some buzz about NIO entering those areas. Anyway, let's move on.
Now as you probably know, NIO is a China based EV company. Why is that a good thing exactly? Well, here's why. The Chinese are said to be posturing to win EV over by setting a 2025 goal to make 20 percent of its auto sales plug-in hybrids or battery-powered electric vehicles (EVs). China has around 240 million passenger vehicles today meaning that 48 million of them would be EV by 2025. On top of that, China is the largest Wind and Solar energy producer in the world, and even further, they're the largest investor in renewable energies. OK, IDGAF where's the relation to cars? It's not super concrete, but there is one; these pieces of evidence prove China's firm and absolute take on clean tech and energy. They've been busting their butts and paying and arm and a leg in the cause of clean energy, so you know they'll do everything they can to implement it as much as possible. Also it should make you feel more confident in their goals, and how large the Chinese EV market is/How fast the Chinese EV market will grow. Actually, let's take a closer look at the Chinese environment with some numbers and facts.
- China is the largest EV market in the world, representing roughly 50% of worldwide sales.
- From 2019 to 2020, Chinese EV sales increased 550%, from 200,00 units to 1,300,000 units.
- China expects sales to grow nearly 40% this year despite the pandemic, growing from 1,300,000 units to over 1,800,000 units.
Between these statistics and China's firm stance on clean tech and the EV market, we can conclude that NIO's local environment is well suited for growth and stability.
Financials and Numbers
Not gonna do much talking here, just sharing some numbers and you make with it what you will.
Q4 Positive Highlights and Outlook
Q4 Revenues grew 46.7% Quarter over Quarter, reaching $1.02 Billion, while many expected $1.04 Billion.
Deliveries reached 17,000 Units for Q4. For reference they sold 40,000 units in 2020.
NIO projects 20,000+ Units for Q1 of 2021, which is 15% quarter over quarter. Again, for reference they sold 40,000 units for 2020. What's more is that in Q1 2020, they only sold 4k cars but in Q1 2021 they're projected to do 400% that number a year later. This type of growth is probably the most appealing aspect to potential investors the way I see it.
Gross and Vehicle Margin grew to 17.2%
NIO generated positive cash-flow
Despite the tech restraints from battery/chip shortages, management says production levels will be able to remain 'normal'
Even with the production constraints through Q2, NIO's outright delivery and revenue growth are visible - the company is on track to deliver nearly the same amount of cars in Q1/Q2 as it had in 2020.
NIO trades at about 13.1x projected FY21 revenues
Q4 Negative Highlights
Due to the Semiconductor/Chip Shortage, NIO is expecting a bit of a bump in the road in terms of deliveries in the early half of the year
With the combination of chip and battery constraints, NIO expects monthly production through Q2 to cap around ~7,500 units, a 25% decrease from Q1 projections.
Net Loss for Q4 clocked in at $1.3 Billion USD
Operating Losses weren't reduced a whole lot
Missed EPS estimates
No dividend
Investment Outlook
Analyst Consensus
Need a third opinion? This is one of the biggest green flags IMO. These ratings really show how undervalued NIO truly is. Here's a compilation of some price targets from some of the biggest and most influential banks. Please keep in mind NIO's recent price activity: 31-38 (As of Mar. 5)
Price targets:
- HSBC: $49
- Morgan Stanley: $80
- J.P. Morgan: $75
- Deutsche: $70
- Bank of America: $70
- Goldman Sachs: $64
- Daiwa: $100
Conclusion
Obviously the EV market and the growth opportunity it presents is fantastic, especially the Asia Pacific market, but I'm also a big fan of their strategic approach. Feel free to debate me on that. I've also heard a lot of praise regarding their management, seen a lot of fans of William Li, calling him a genius and the 'Elon Musk of China'. There's a couple things I've missed in this DD; I probably should've touched on the competition, their other services/packages, and done a thorough breakdown on their vehicles, but I'm really no expert in those fields so I'll leave that to others.
For this thesis, I think it's important to keep in mind how much the price has dipped recently. I mean within the past month it's been as high as 61, and as low as 31. EV's have taken a beating in these red days, and may even continue to decrease. I personally find any prices under 35 extremely appealing, but that general sub 40 area is pretty solid IMO. Hell, it almost went sub 30 on the 5th. I primarily like the growth opportunity Nio presents, especially when considering the discount its been at. It's also important to recognize that these dips may continue with tech/growth/EV stocks, so probably factor that into your opinion and remember to also consider the long term prospect.
This took hours, hope you enjoyed.
My positions: None, I'm absolutely broke, I just like to write analyses and research.
TL;DR
- Good growth opportunity
- Good market (Local environment too)
- Good strategic approach
- The bigwig banks have price targets way higher above where it currently sits
- Huge dip (50% at one point)
Credits to u/JustOnTheHorizon on the brief below:
Company Biography:
NIO Limited designs, manufactures, and sells electric vehicles in the People's Republic of China, Hong Kong, the United States, the United Kingdom, and Germany. The company offers five, six, and seven-seater electric SUVs. It is also involved in the provision of energy and service packages to its users; marketing, design, and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after sales management activities. In addition, the company offers charging solutions, including Power Home, a home charging solution; Power Swap, a battery swapping service; Power Mobile, a mobile charging service through charging trucks; Public Charger, a public fast charging solution; and Power Express, a 24-hour on-demand pick-up and drop-off charging service. Further, it provides value-added services, such as statutory and third-party liability insurance, and vehicle damage insurance through third-party insurers; repair and routine maintenance services; courtesy car services during lengthy repairs and maintenance; and roadside assistance, as well as data packages. NIO Limited has a strategic collaboration with Mobileye N.V. for the development of automated and autonomous vehicles; and collaboration agreements with various manufacturers for the manufacture of ES8, a six or seven-seater high-performance electric SUV.
So to summarize:
- Sells and Manufactures a variety of luxury cars
- Offers a multitude of charging solutions
- Offers BaaS (Battery as a subscription service, meaning NIO owners subscribe and essentially rent out the battery for the car but we'll get to that later)
- Provides vehicle damage insurance, statutory and third-party liability insurance (Statutory meaning its required by law to own)
- Offers repair and routine maintenance services and roadside assistance, and data packages
Now that's a handful and we don't have all day, so we'll primarily be focusing on the main event which is their car line and BaaS. This does not mean you should disregard the other packages when viewing it as an investment, it just means I'm too lazy to do research on the other things.
Market and Competition
Market
Honestly pretty much everyone knows where the EV market is heading and how it's the future, but it's worth mentioning regardless.
The EV market is expected to grow at a CAGR of 21%, and hit 30 Million Cars worldwide by 2030. By 2026, worldwide EV revenue is expected hit roughly half a trillion USD, or $500 Billion. (Also, for those who aren't sure what a CAGR is, it means that the market on average is expected to grow by 21%. Not overall, but 21% year by year; take a second to appreciate the compound growth effect that will occur.) What's more, is that the Asia Pacific market (Where NIO primarily is) is reported to have the fastest growth. Here's a graph that represents these projections.
If we take a more specific look to NIO's market, analysts have recently upgraded previous forecasts, now claiming that 20% of the vehicle fleet will be EV by 2025. Beyond that, the forecasts for 2035 and 2050 are 53% and 80% penetration, respectively.
Strategy
The Chinese EV market has quite a few players on the board, so strategy is pretty important to differentiate and forge a unique business model. Nio's strategic goal is to have a consistent, stable order flow, rather than a fluctuating order backlog similar to Tesla. (Courtesy of J.P Morgan) By keeping pricing steady, Nio's focus lies on services and customer experience driving a positive reputation in the community and keeping engagement high; it also allows gross and vehicle margin to find stable ground as volumes rise.
We could also discuss their consumer relationship, and how their dealerships double as community grounds for owners to hang out. Apparently Nio has even more of a cult then Tesla, but I don't have the experience to confirm that. Regardless, between their own app for owners, special owner events, and communal spaces, it is clear that Nio strives to form a strong and loyal customer base.
BaaS. Battery as a Service. Or rather, a subscription. Nio has chosen to distribute batteries in a non-traditional manner, electing to not include it with the sale of their vehicles and instead letting consumers chose and rent batteries depending on their personal needs. This shaves off roughly $10,000 off the price of their vehicles, which in turn boosts Nio's price competitiveness and demand. Also, BaaS acts as an additional revenue source for Nio that will continue to generate cash by nature even if sales take a hit. Nio has hit roughly 1 Million battery swaps thus far, and these swapping stations even support the EV's of other automakers. This flexibility of compatibility with other EV's makes Nio-power (The battery swapping stations) much easier to scale. You may be thinking, does this benefit the consumer in anyway? Sure it does. The custom battery solutions offer a chance for consumers to cater to their own needs. Some people aren't able to have their own home charging stations; many don't even have a consistent parking spot they can rely on daily. Also, consumers can customize depending on their own driving habits; if you can't afford to bleed money on certain battery solution, downgrade. Going on a large roadtrip? No problem, just rent a larger battery size. However, the most appealing benefit to consumers is the protection from battery degradation. Instead of being stuck with a dated or low-end battery, all Nio vehicles use the same size of battery. What does this mean? Well, basically you don't need to worry about the value of your battery depreciating as new advancements make it absolute. Consumers can upgrade to the latest and most powerful battery pack, and one size fits all. This improves resale value, and provides a future proof battery system. Overall the BaaS may attract a decent amount of controversy (it does have some drawbacks that I touch on later), but I'm personally a fan because it's very pro-consumer, improves brand visibility (There's hundreds of these things and other EV's can use them attracting more traffic), and offers Nio Inc. another revenue stream. To recap: Extra revenue stream, easy to scale, brand visibility, and very pro-consumer.
Another thing that's worth mentioning is that the Chinese government favors BaaS companies when it comes to benefits, so there's that too.
Catalysts
I don't actually have a lot of research in this area, so if anyone in the comments recalls a catalyst or two share it and I'll add it in.
- European Market Expansion
- Rapid Clean Tech Movement
- New Manufacturing Base run by JAC Motors
- NIO partnership with Chinese industrial park at Hefei, which will reportedly produce 300,000 clean energy vehicles a year
- Speculation: Potential expansion to the American Market down the road. This is pure speculation, but here's an article written by Barron's claiming that Nio Inc. has been attempting to formulate an action plan to enter the U.S. Market.
Local environment
Let's take a quick peek at Nio's infrastructure. As previously mentioned, they've chosen to offer battery as a subscription service, or BaaS for short. Now, we've already talked about the strategy and benefits behind this choice, but how well are they executing? As of right now, NIO currently has roughly 143 battery changing stations in China, and they plan to almost double that number by adding 100 more. Additionally, they've partnered with the Chinese state's grid to help establish these new battery swapping stations.
This all sounds great, right? We've discussed the benefits of a BaaS system and looked over the infrastructure they've established. There is of course, a predictable drawback that I should mention. Because NIO has decided to manufacture and run their company this way, other markets that lack China's battery swapping infrastructure will be harder to crack into, because they will require heavy investment and development to create a Nio-power network that allows for battery swapping. Just something to keep in mind when considering European and North American markets, because there has been some buzz about NIO entering those areas. Anyway, let's move on.
Now as you probably know, NIO is a China based EV company. Why is that a good thing exactly? Well, here's why. The Chinese are said to be posturing to win EV over by setting a 2025 goal to make 20 percent of its auto sales plug-in hybrids or battery-powered electric vehicles (EVs). China has around 240 million passenger vehicles today meaning that 48 million of them would be EV by 2025. On top of that, China is the largest Wind and Solar energy producer in the world, and even further, they're the largest investor in renewable energies. OK, IDGAF where's the relation to cars? It's not super concrete, but there is one; these pieces of evidence prove China's firm and absolute take on clean tech and energy. They've been busting their butts and paying and arm and a leg in the cause of clean energy, so you know they'll do everything they can to implement it as much as possible. Also it should make you feel more confident in their goals, and how large the Chinese EV market is/How fast the Chinese EV market will grow. Actually, let's take a closer look at the Chinese environment with some numbers and facts.
- China is the largest EV market in the world, representing roughly 50% of worldwide sales.
- From 2019 to 2020, Chinese EV sales increased 550%, from 200,00 units to 1,300,000 units.
- China expects sales to grow nearly 40% this year despite the pandemic, growing from 1,300,000 units to over 1,800,000 units.
Between these statistics and China's firm stance on clean tech and the EV market, we can conclude that NIO's local environment is well suited for growth and stability.
Financials and Numbers
Not gonna do much talking here, just sharing some numbers and you make with it what you will.
Q4 Positive Highlights and Outlook
Q4 Revenues grew 46.7% Quarter over Quarter, reaching $1.02 Billion, while many expected $1.04 Billion.
Deliveries reached 17,000 Units for Q4. For reference they sold 40,000 units in 2020.
NIO projects 20,000+ Units for Q1 of 2021, which is 15% quarter over quarter. Again, for reference they sold 40,000 units for 2020. What's more is that in Q1 2020, they only sold 4k cars but in Q1 2021 they're projected to do 400% that number a year later. This type of growth is probably the most appealing aspect to potential investors the way I see it.
Gross and Vehicle Margin grew to 17.2%
NIO generated positive cash-flow
Despite the tech restraints from battery/chip shortages, management says production levels will be able to remain 'normal'
Even with the production constraints through Q2, NIO's outright delivery and revenue growth are visible - the company is on track to deliver nearly the same amount of cars in Q1/Q2 as it had in 2020.
NIO trades at about 13.1x projected FY21 revenues
Q4 Negative Highlights
Due to the Semiconductor/Chip Shortage, NIO is expecting a bit of a bump in the road in terms of deliveries in the early half of the year
With the combination of chip and battery constraints, NIO expects monthly production through Q2 to cap around ~7,500 units, a 25% decrease from Q1 projections.
Net Loss for Q4 clocked in at $1.3 Billion USD
Operating Losses weren't reduced a whole lot
Missed EPS estimates
No dividend
Investment Outlook
Analyst Consensus
Need a third opinion? This is one of the biggest green flags IMO. These ratings really show how undervalued NIO truly is. Here's a compilation of some price targets from some of the biggest and most influential banks. Please keep in mind NIO's recent price activity: 31-38 (As of Mar. 5)
Price targets:
- HSBC: $49
- Morgan Stanley: $80
- J.P. Morgan: $75
- Deutsche: $70
- Bank of America: $70
- Goldman Sachs: $64
- Daiwa: $100
Conclusion
Obviously the EV market and the growth opportunity it presents is fantastic, especially the Asia Pacific market, but I'm also a big fan of their strategic approach. Feel free to debate me on that. I've also heard a lot of praise regarding their management, seen a lot of fans of William Li, calling him a genius and the 'Elon Musk of China'. There's a couple things I've missed in this DD; I probably should've touched on the competition, their other services/packages, and done a thorough breakdown on their vehicles, but I'm really no expert in those fields so I'll leave that to others.
For this thesis, I think it's important to keep in mind how much the price has dipped recently. I mean within the past month it's been as high as 61, and as low as 31. EV's have taken a beating in these red days, and may even continue to decrease. I personally find any prices under 35 extremely appealing, but that general sub 40 area is pretty solid IMO. Hell, it almost went sub 30 on the 5th. I primarily like the growth opportunity Nio presents, especially when considering the discount its been at. It's also important to recognize that these dips may continue with tech/growth/EV stocks, so probably factor that into your opinion and remember to also consider the long term prospect.
This took hours, hope you enjoyed.
My positions: None, I'm absolutely broke, I just like to write analyses and research.
TL;DR
- Good growth opportunity
- Good market (Local environment too)
- Good strategic approach
- The bigwig banks have price targets way higher above where it currently sits
- Huge dip (50% at one point)
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