NIO is a major EV maker in China’s popular SUV sector. In contrast to rival luxury SUV models such as Tesla, NIO EV models are cheaper. Based on analysts’ assessment, NIO has a good potential of growing shareholder value over the long term. NIO intends to make more car deliveries next month to help fulfill its Q2 revenue target of $1.24 to $1.29 billion.
Who is NIO?
NIO is a car manufacturer from China with one car model, ES8. It has an initial production capacity of 2,000 units a month, and it can ramp up to 10,000 units a month. The problem is that a large portion of the total sales still comes from its unsold inventory. However, in addition to other delivery and delivery delay costs, production capacity is vital in the car segment. For instance, the huge-sized SUV market is expected to increase significantly in China compared to other segments. NIO’s new model ES6 is another important EV model.
Is NIO The Next Tesla?
Even though Elon Musk is a billionaire being the CEO of Tesla Inc. (TSLA), he has been on the verge of bankruptcy for quite a few times. Even after Tesla’s rising stock price, Musk has still been under investigation by the SEC for misleading public disclosures. It can easily be argued that Musk was only smart enough to state that he would be able to sell shares for cash instead of stock, as the stock price of Tesla has been rising even when the company has suffered losses. Even with these problems, William Li, NIO CEO, is confident that Tesla will be their biggest competitor in China’s SUV market.
What is the EV market like in China?
In our view, most people don’t know how big China’s EV industry is in total, particularly in relation to the global EV market. China recently surpassed the U.S. in car sales. In the first half of this year, China sold 17.1 million vehicles, which is more than the 17 million vehicles that the U.S. sold in the first half of the year. In addition, China’s EV market was worth $10.2 billion, accounting for 6% of global EV sales. It was still only about 1% of China’s total car sales. What makes China’s EV industry so big? China is the world’s biggest car market. In 2020, more than 40% of all the cars sold in China were cars that didn’t exist 15 years ago.
Unlike competitors Tesla (NASDAQ:TSLA) and FCA, (NYSE:FCAU), NIO’s main business model is direct selling instead of a dealership network. We estimate that the gross margin for this year should be between 22% to 24% . However, if the WLTP certification of the imported cars is delayed, the company may face some selling restrictions in key cities in the EU. This might occur before the end of this year, but we don’t have a firm idea yet.
Can we profit from NIO stock?
While several Chinese auto companies have proved to be risky for investors, NIO (NASDAQ: NIO ) has been exceptionally successful since its IPO in December 2017. In contrast to FCA automobile (NYSE: FCAU ), NIO has been selling higher-end versions of premium SUVs like the ES8 and ES6 in China. Of course, Tesla is not far behind in this market. Many people in China compare NIO to Tesla, considering both are premium electric SUV makers in China. NIO has a good chance of competing with Tesla in China as well.
Conclusion
Analysts think that electric vehicle makers will provide more and more opportunities for investors to benefit from the sector’s growth. The most important thing to know about electric vehicle makers is that their business model is different from other industries. Tesla is driven by four criteria: car design, manufacturing, sales network, and financials.
NIO is the fourth largest EV maker in China, with pricing as a significant competitive advantage. NIO has a good potential of growing shareholder value over the long term. The company has lower risks compared to Tesla. Tesla has massive cash-flow problems, but NIO does not have such big cash-flow issues.
