NIO: Great Investment, or a Flop?
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My attention has for the moment been directed towards NIO thanks to Morgan Stanley’s recent purchase of 10M shares, raising their investment value by 55% to over 28M shares, whilst simultaneously setting a near 100% upside 1Y price target to $10 per share. Ahead of NIO’s June 6 earnings report for 1Q2024, I thought it best to take it upon myself to review the company’s past reports, consumer sentiment, competition, and upcoming industry opportunities, in the anticipation that the all time high (ATH) of about $67 may be broken not so far in the future — quite possibly in the next two to three years. Indeed, that sort of prediction may appear at first to be the lament of an investor who readily entered the stock near its ATH, but in fact I have neither open nor closed positions in NIO stock or options at the time of publishing. That is to say: this is an independent evaluation intended to lay out NIO’s potential to become a high-value company, alongside factors that might stand against such an increase.
What is NIO, and What Differentiates Them?
As stated in their Annual Report 2023, published April 2024, NIO is “a pioneer and a leading company in the premium smart electric vehicle market. We design, develop, manufacture, and sell premium smart electric vehicles, driving innovations in next-generation technologies in assisted and intelligent driving, digital technologies, electric powertrains and batteries. We differentiate ourselves through our continuous technological breakthroughs and innovations, such as our industry-leading battery swapping technologies, Battery as a Service, or BaaS, as well as our proprietary NIO assisted and intelligent driving and its subscription services.” Compared to most other Chinese EV companies, NIO distinguishes itself primarily through two factors: high-end models and battery swapping.
High-End Models
NIO focuses on the premium segment of the EV market, offering luxury features and cutting-edge technology. Their vehicles are known in China for their performance, design, and advanced driver-assistance systems (ADAS). Models cater to consumers looking for high-quality, technologically advanced vehicles. This positioning allows NIO to target a market with higher profit margins and less price sensitivity compared to the mass market. However, this also effectively sets an upper limit on the demand, as most lower-class and low middle-class would not be able to purchase NIO even if they are willing.
It is also worth noting that in Chinese culture, names are seen as of great importance; NIO’s Chinese name is pronounced wèi lái, which means Blue Sky Coming, and it is seen as almost auspicious and rather chic. The same pronunciation of the characters can also be used to mean “future” when written in a different manner. Trading View prevents using multiple languages, hence the lack of Chinese characters.
Battery Swapping and Battery as a Service (BaaS)
NIO's battery-swapping technology is a significant differentiator: instead of traditional charging methods, NIO offers battery-swapping stations where depleted batteries can be exchanged for fully charged ones in a matter of minutes, replaced by robots without a need for human intervention. This innovation addresses two of the primary concerns of EV owners — charging time and charger availability (for those without private chargers). The BaaS model further enhances this by allowing customers to lease batteries instead of purchasing them with the car, reducing the upfront cost of the vehicle by about 10K and offering flexibility to upgrade to newer battery technologies as they become available. This service model is unique and provides NIO with a recurring revenue stream, similar to a subscription service. The standard 75kWh battery costs $100 per month and the long-range 100kWh one cost $230 per month (respectively reduced by 31% and 35% in March). Do note that the costs accrued from building battery swap station and chargers increases relatively linearly — a good sign as long as revenue continues to increase exponentially.
As of May 29, 2024, there are 2,427 recorded swap stations in China, 802 of which are along highways. While there are fewer swap stations in Europe, these are located in larger cities where most NIO Europe users are concentrated. Cooperations with other EV companies are in the works to develop cars which can utilize NIO’s existing battery swap station. Today, NIO has the following partners on battery swapping: GAC Group, FAW Group, Changan Automobile, Geely Group, JAC Group, Chery Automobile, and Lotus Technology. If these collaborations ever come into fruition, NIO would undoubtedly have higher profits from the numerous non-NIO vehicles using their swapping services. Besides, as of November 2023, about 80% of the power from NIO chargers is used by other brands, with BYD and TSLA vehicles being the foremost at 19.4% and 12.3%, respectively.
Safety
I would like to leave this note on safety, since much attention has lately been drawn to the issue of Chinese EVs catching fire. According to Wikipedia, NIO only had 3 fires recorded by 2021, one of which was caused by a collision; an article in 2023 states two more fires had occurred due to collisions, bringing the estimated total to five for a company that has now sold over 515K EVs as of May 31, 2024. It is suggested that those looking to invest in Chinese EV companies compare their rates of fire per hundred thousand cars sold. For NIO, this number seems extremely low, at under 1 fire per 100K — unless there remains other data my investigation did not uncover.
Stock Performance and Sentiment
NIO's stock has historically been highly volatile, reflecting both the rapid growth potential and inherent risks associated with the EV industry. I have identified a possible supertrend buy signal on the 5Y chart in the case that the stock price closes above the $6.56 mark at the end of any week. If this happens, it could signify a robust upward momentum, potentially attracting a wave of new investors and boosting market confidence. This possibility is supported by an upwards slope in on-balance volume (OBV) since mid-April — a momentum indicator for volume showing crowd sentiment. Please refer to the chart for supertrend and OBV. The green box indicates the possible buy zone if the supertrend is confirmed, and the arrows on the graph seek to provide a rough guide for how price might move.
Overall, market sentiment is mixed, with many investors predicting for an uptrend and others unsure of when NIO will become profitable. Consumer sentiment towards NIO remains generally positive, particularly among tech-savvy and environmentally conscious consumers. The company’s focus on high-end models with advanced features has carved out a niche in the premium EV market. Their NIO house idea further sets them apart from competitors, offering a place where users. These strategies positions NIO well against competitors like Tesla, which also targets the high-end segment, and differentiates it from other Chinese EV manufacturers that compete primarily on price.
Competition and Industry Landscape
NIO operates in a highly competitive landscape with numerous players vying for market share. Tesla remains a formidable competitor globally and within China, leveraging its brand recognition and extensive Supercharger network. Other Chinese manufacturers like BYD and XPeng also pose significant competition, each with their own strengths in battery technology, manufacturing scale, and market strategies.
It seems unlikely NIO will ever have the chance to expand to the United States of America. However, the rest of the Americas might hold some potential for future expansion. At the moment, it might be best for NIO to solidify their position in the Chinese markets and to gain more loyal customers across Europe.
Recent Events and Announcements
NIO Energy, a key subsidiary focusing on charging infrastructure, battery swapping, and energy storage, recently secured a substantial investment of $207 million. This capital influx is earmarked primarily for research and development (R&D), as well as to support manufacturing and operational costs. Such investments are crucial for NIO’s ongoing technological advancements and expansion of its service network, enhancing its competitive edge in the fast-evolving EV market.
Furthermore, NIO announced its record-breaking May deliveries of “20,544 vehicles, increasing by 233.8% year-over-year. NIO delivered 66,217 vehicles year-to-date in 2024, increasing by 51.0% year-over-year.” Having broken their July 2023 highs in deliveries, it appears more and more likely that once NIO ameliorates their cost-managing, their profits will see a formidable increase.
Anticipation is building around NIO’s upcoming earnings report for Q1 2024, scheduled for release on June 6. Previous quarterly reports have shown mixed results, with strong revenue growth but persistent challenges in achieving consistent profitability.
Industry Opportunities and Challenges
The EV industry is poised for substantial growth, driven by increasing environmental regulations, government incentives, and a global shift towards sustainable transportation. For NIO, opportunities lie in expanding its market share, both domestically and internationally, and further innovating in battery technology and autonomous driving.
However, the company faces several challenges. Supply chain constraints, rising raw material costs, and geopolitical tensions can impact production and profitability. Additionally, NIO must continuously innovate to stay ahead of the competition, particularly in battery technology and autonomous driving capabilities.
Conclusion: Great Investment or a Flop?
NIO presents a compelling investment opportunity with its innovative technologies, strong brand positioning, and significant growth potential in the premium EV market. The company’s strategic focus on battery swapping and BaaS provides a unique value proposition that could drive recurring revenue and customer loyalty.
However, potential investors should also consider the risks. The EV market is highly competitive and rapidly evolving, with substantial operational and regulatory challenges. NIO’s financial performance has been inconsistent, and achieving sustained profitability remains a key hurdle that NIO will hopefully be able to resolve by end of year 2024.
In conclusion, while NIO has the potential to become a high-value company and possibly exceed its previous all-time high of $67 per share in the next few years, it also faces significant risks that could impede its growth. Investors should weigh these factors carefully and consider their own risk tolerance and investment horizon before making a decision.
Once the June 6 earnings report is released, I will make an update to further scrutinize earnings and revenue growth. At the moment, it seems a small long position in NIO at the current price would be fitting (low theoretical downside risk at just over $5 per share), although it might be best to wait for supertrend and OBV confirmation before making a hefty commitment.
Omni out.
Feel free to ask any questions or provide suggestions. This is not financial advice.
What is NIO, and What Differentiates Them?
As stated in their Annual Report 2023, published April 2024, NIO is “a pioneer and a leading company in the premium smart electric vehicle market. We design, develop, manufacture, and sell premium smart electric vehicles, driving innovations in next-generation technologies in assisted and intelligent driving, digital technologies, electric powertrains and batteries. We differentiate ourselves through our continuous technological breakthroughs and innovations, such as our industry-leading battery swapping technologies, Battery as a Service, or BaaS, as well as our proprietary NIO assisted and intelligent driving and its subscription services.” Compared to most other Chinese EV companies, NIO distinguishes itself primarily through two factors: high-end models and battery swapping.
High-End Models
NIO focuses on the premium segment of the EV market, offering luxury features and cutting-edge technology. Their vehicles are known in China for their performance, design, and advanced driver-assistance systems (ADAS). Models cater to consumers looking for high-quality, technologically advanced vehicles. This positioning allows NIO to target a market with higher profit margins and less price sensitivity compared to the mass market. However, this also effectively sets an upper limit on the demand, as most lower-class and low middle-class would not be able to purchase NIO even if they are willing.
It is also worth noting that in Chinese culture, names are seen as of great importance; NIO’s Chinese name is pronounced wèi lái, which means Blue Sky Coming, and it is seen as almost auspicious and rather chic. The same pronunciation of the characters can also be used to mean “future” when written in a different manner. Trading View prevents using multiple languages, hence the lack of Chinese characters.
Battery Swapping and Battery as a Service (BaaS)
NIO's battery-swapping technology is a significant differentiator: instead of traditional charging methods, NIO offers battery-swapping stations where depleted batteries can be exchanged for fully charged ones in a matter of minutes, replaced by robots without a need for human intervention. This innovation addresses two of the primary concerns of EV owners — charging time and charger availability (for those without private chargers). The BaaS model further enhances this by allowing customers to lease batteries instead of purchasing them with the car, reducing the upfront cost of the vehicle by about 10K and offering flexibility to upgrade to newer battery technologies as they become available. This service model is unique and provides NIO with a recurring revenue stream, similar to a subscription service. The standard 75kWh battery costs $100 per month and the long-range 100kWh one cost $230 per month (respectively reduced by 31% and 35% in March). Do note that the costs accrued from building battery swap station and chargers increases relatively linearly — a good sign as long as revenue continues to increase exponentially.
As of May 29, 2024, there are 2,427 recorded swap stations in China, 802 of which are along highways. While there are fewer swap stations in Europe, these are located in larger cities where most NIO Europe users are concentrated. Cooperations with other EV companies are in the works to develop cars which can utilize NIO’s existing battery swap station. Today, NIO has the following partners on battery swapping: GAC Group, FAW Group, Changan Automobile, Geely Group, JAC Group, Chery Automobile, and Lotus Technology. If these collaborations ever come into fruition, NIO would undoubtedly have higher profits from the numerous non-NIO vehicles using their swapping services. Besides, as of November 2023, about 80% of the power from NIO chargers is used by other brands, with BYD and TSLA vehicles being the foremost at 19.4% and 12.3%, respectively.
Safety
I would like to leave this note on safety, since much attention has lately been drawn to the issue of Chinese EVs catching fire. According to Wikipedia, NIO only had 3 fires recorded by 2021, one of which was caused by a collision; an article in 2023 states two more fires had occurred due to collisions, bringing the estimated total to five for a company that has now sold over 515K EVs as of May 31, 2024. It is suggested that those looking to invest in Chinese EV companies compare their rates of fire per hundred thousand cars sold. For NIO, this number seems extremely low, at under 1 fire per 100K — unless there remains other data my investigation did not uncover.
Stock Performance and Sentiment
NIO's stock has historically been highly volatile, reflecting both the rapid growth potential and inherent risks associated with the EV industry. I have identified a possible supertrend buy signal on the 5Y chart in the case that the stock price closes above the $6.56 mark at the end of any week. If this happens, it could signify a robust upward momentum, potentially attracting a wave of new investors and boosting market confidence. This possibility is supported by an upwards slope in on-balance volume (OBV) since mid-April — a momentum indicator for volume showing crowd sentiment. Please refer to the chart for supertrend and OBV. The green box indicates the possible buy zone if the supertrend is confirmed, and the arrows on the graph seek to provide a rough guide for how price might move.
Overall, market sentiment is mixed, with many investors predicting for an uptrend and others unsure of when NIO will become profitable. Consumer sentiment towards NIO remains generally positive, particularly among tech-savvy and environmentally conscious consumers. The company’s focus on high-end models with advanced features has carved out a niche in the premium EV market. Their NIO house idea further sets them apart from competitors, offering a place where users. These strategies positions NIO well against competitors like Tesla, which also targets the high-end segment, and differentiates it from other Chinese EV manufacturers that compete primarily on price.
Competition and Industry Landscape
NIO operates in a highly competitive landscape with numerous players vying for market share. Tesla remains a formidable competitor globally and within China, leveraging its brand recognition and extensive Supercharger network. Other Chinese manufacturers like BYD and XPeng also pose significant competition, each with their own strengths in battery technology, manufacturing scale, and market strategies.
It seems unlikely NIO will ever have the chance to expand to the United States of America. However, the rest of the Americas might hold some potential for future expansion. At the moment, it might be best for NIO to solidify their position in the Chinese markets and to gain more loyal customers across Europe.
Recent Events and Announcements
NIO Energy, a key subsidiary focusing on charging infrastructure, battery swapping, and energy storage, recently secured a substantial investment of $207 million. This capital influx is earmarked primarily for research and development (R&D), as well as to support manufacturing and operational costs. Such investments are crucial for NIO’s ongoing technological advancements and expansion of its service network, enhancing its competitive edge in the fast-evolving EV market.
Furthermore, NIO announced its record-breaking May deliveries of “20,544 vehicles, increasing by 233.8% year-over-year. NIO delivered 66,217 vehicles year-to-date in 2024, increasing by 51.0% year-over-year.” Having broken their July 2023 highs in deliveries, it appears more and more likely that once NIO ameliorates their cost-managing, their profits will see a formidable increase.
Anticipation is building around NIO’s upcoming earnings report for Q1 2024, scheduled for release on June 6. Previous quarterly reports have shown mixed results, with strong revenue growth but persistent challenges in achieving consistent profitability.
Industry Opportunities and Challenges
The EV industry is poised for substantial growth, driven by increasing environmental regulations, government incentives, and a global shift towards sustainable transportation. For NIO, opportunities lie in expanding its market share, both domestically and internationally, and further innovating in battery technology and autonomous driving.
However, the company faces several challenges. Supply chain constraints, rising raw material costs, and geopolitical tensions can impact production and profitability. Additionally, NIO must continuously innovate to stay ahead of the competition, particularly in battery technology and autonomous driving capabilities.
Conclusion: Great Investment or a Flop?
NIO presents a compelling investment opportunity with its innovative technologies, strong brand positioning, and significant growth potential in the premium EV market. The company’s strategic focus on battery swapping and BaaS provides a unique value proposition that could drive recurring revenue and customer loyalty.
However, potential investors should also consider the risks. The EV market is highly competitive and rapidly evolving, with substantial operational and regulatory challenges. NIO’s financial performance has been inconsistent, and achieving sustained profitability remains a key hurdle that NIO will hopefully be able to resolve by end of year 2024.
In conclusion, while NIO has the potential to become a high-value company and possibly exceed its previous all-time high of $67 per share in the next few years, it also faces significant risks that could impede its growth. Investors should weigh these factors carefully and consider their own risk tolerance and investment horizon before making a decision.
Once the June 6 earnings report is released, I will make an update to further scrutinize earnings and revenue growth. At the moment, it seems a small long position in NIO at the current price would be fitting (low theoretical downside risk at just over $5 per share), although it might be best to wait for supertrend and OBV confirmation before making a hefty commitment.
Omni out.
Feel free to ask any questions or provide suggestions. This is not financial advice.
Nota
The latest earnings call may have come as a disappointment to those of you who are long on NIO, but before I continue with the update, please do keep in mind that April and May were not included in the 1Q24 report. Hence, the record number of deliveries in May (20.5K) and the considerable quantity from April (15.6K) will be reflected on the following report, both of which had substantial year-over-year (YoY) growth. If the June estimates of 19K deliveries is beat, we may see gross margin rise back above 10% or even 13% — nothing short of stellar. NIO should at least meet their delivery goal, and a miss might indicate a greater underlying issue than only one NIO faces. For example, if China were to, for some reason declare recession; that is to say, an issue significantly affecting the upper-middle and upper class Chinese EV users.Regarding the first quarter key financial results, a brief summary seems fitting: There was overall YoY growth but quarter-over-quarter (QoQ) fall across the board, all except for total revenue (-7% YoY, -42% QoQ). As delineated, the falls were caused by reduced vehicle margins compared to the last quarter. Assets and liabilities both decreased from previous quarter, with assets falling 11% and liabilities 15% YoY.
Since I have written at length on NIO’s other features and recent events, it seems best to proceed with what these key earnings might mean for the company’s future and the stock’s price. Firstly, YoY growth is certainly good news, and although the QoQ increase in losses are quite significant, it seems more like a signal — the beginning of the end for NIO’s recovery phase towards net profit. The fall in total revenue YoY may have been caused by a multitude of factors, although it seems the cost of vehicle sales remains the main reason for mounting losses. Within the next two quarters NIO could be able to bring cost-effective solutions to reduce at least some of these losses by taking advantage of their extensive funding into research and development (R&D) for the past years. In such a case, it would be highly plausible that their net negative margin rise above -10%, to near 0%.
It seems dubious at best that there would be any further downside swings in price below the $4.3 mark, and I reckon the price will not be passing $5.5 anytime before the end of June, when the monthly deliveries are released. If they meet or beat their 19K goal, the price should settle above $5.5. To maintain this upward momentum would however require 3Q24 to have strong deliveries as well, and seasonal changes in demand may prevent such an outcome. Nonetheless, since April and May were quite the strong months for NIO, as long as they can continue with at least April performance in the following months, the price may just keep rising and close beyond beyond $6.56 on a given week — the potential supertrend buy signal. In other words, as long as NIO delivers more than 15K vehicles in the next three to four months and finish these upcoming two quarters strong, there remains a very real potential for price to break $10 in 2025.
I have yet to open a position on NIO.
Omni out.
Feel free to ask any questions or provide suggestions. This is not financial advice.
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