If you are planning to invest your money in the stock market and you’re looking for ideas on which company to buy, you may need to consider spending some time on this article to learn more about NIO.
What is NIO?
NIO Limited (NYSE:NIO) jointly manufactures, and sells smart and connected premium electric vehicles in China, the United States, Hong Kong, the United Kingdom, and Germany. They specialize in driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence. The company was founded in November 2014 by William Li who was inspired by Tesla and wanted to do something similar in China. Big companies like Tencent, Temasek, and Baidu invested in NIO. The company entered the New York Stock Exchange in September 2018 for an initial public offering of 1.8B $.
The company offers several different SUVs; models EC6, ES6, ES8. NIO participates in FIA Formula E all-electric championship with the sports car EP9. They have also announced the release of their first sedan model.
While the market is still dominated by internal combustion engines, it seems that there is no turning back now, we’re going electric and NIO is well suited to benefit from that.
Is NIO special?
NIO has a vision of a future filled with blue skies.
The fact of Tencent, a giant Chinese company being an investor in NIO shows the money that is behind NIO along with the knowledge in running a business.
NIO has made clear from the beginning that it is not a car company but rather a tech company.
Behind NIO is the Chinese government which has invested a lot in NIO and supports the electric vehicle companies. This could be seen as positive from one side but also negative since other Chinese electric vehicle companies could benefit as well. However, NIO is somewhat special due to the following reasons:
- Battery As A Service
- Growing track record of vehicle deliveries (analysis in the next chapter)
Battery As A Service (Baas)
BaaS is a service that makes NIO unique. NIO provides services for the vehicle-battery separation with a subscription model, similar to the one we know in software. The batteries will be chargeable, swappable, and upgradable. Both technology and business model are innovative. The user will be able to buy the vehicle without the battery. Users will choose the capacity of their choice. NIO has 162 locations in China where the batteries can be swapped. It takes less than 10 minutes to swap the battery. However, the goal of the company regarding charging is to be able to charge the battery ultra-fast.
NIO stock analysis
NIO is still unprofitable after 7 years of its existence and will probably still be for the next 2 to 3 years. However, the news, electric vehicle market, hype, and good growth in vehicle deliveries have steadily pushed the price up. Let’s dive into the recent years’ financials from Yahoo Finance.
If we look at the annual chart and the corresponding table we can see the big losses NIO has suffered. On the quarterly chart we can also notice the losses. However, the losses have been diminishing and the revenue has been getting higher. This is an important thing to take into account. It is a growth relatively new company. Investors are willing to accept the losses if there is a sign of growth and improvement which seems to be the case with NIO.
What we also need to check for NIO is, as mentioned before, the vehicle deliveries to have an idea of its growth from this point of view. The source is NIO investor relations website.
- 7,007 vehicles delivered in December 2020, increasing by 121.0% year-over-year
- 17,353 delivered vehicles in the three months ended December 2020, increasing by 111.0% year-over-year
- 43,728 vehicles delivered in 2020 in total, increasing by 112.6% year-over-year
- Cumulative deliveries of ES8, ES6 and EC6 as of December 31, 2020 reached 75,641
Should I invest in NIO stock?
Let’s dig into the necessary analysis to see if NIO is a good buy by checking the Management, the Moat and the Price (intrinsic value).
What I always look for and consider the most important is the CEO. NIO’s CEO is Mr. William Li. He was born in 1974 and possesses 10.59% of the company. Before NIO, he was the founder and CEO of Bitauto holdings, a company that he sold in 2013. Under his guidance, NIO has seen amazing growth. From what he has achieved business-wise, his net worth, and his public appearances and interviews I would say that he is a great leader for NIO. Here is a table with the most important managers in the company.
|Lihong Qin||President & Director||0.67%|
|Wei Feng||Chief Financial Officer|
|Ganesh Iyer||MD of NIO U.S. & Global Chief Information Officer|
|Jade Wei||Senior Director of Investor Relations|
Moat, popularized by Warren Buffet, is how protected the company is against its enemies. Is the product or service strong enough to have and keep a competitive advantage? The company needs a wide moat to make sure it keeps its customer base and not lose them over a competitor.
NIO has several competitors, XPENG, Li in China, others in the United States but most importantly Tesla. Tesla is a much bigger company with a much greater market cap and vehicle deliveries. Tesla has 499,550 units sold in 2020 compared to NIO’s 43,728. Tesla sells vehicles in the US, Europe and China and has announced that one of its goals is to make some of their models more affordable.
XPENG and Li are also promising companies showing a lot of potential for the future. The competition is strong. I would say that the moat is narrow (not having a solid competitive advantage).
To know if the stock is a good buy, one of the factors to take into account is the so-called fair or intrinsic value of the company; that is the value of the company without the hype and the fluctuations of the market. This will help us to find the stock price which is worth buying for us to have a good Rate of Return (RoR).
To calculate if the company is a buy for my style of investing, I calculated what I consider the fair price of NIO taking into account the following:
- Discount rate (charged for the loans)
- Earnings (EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization)
- Outstanding shares (+ dilution = additional shares added by the company to raise money)
- Analysts’ opinions
To be able to calculate the fair price we need to make some assumptions like the future growth, which, of course, may not be accurate. After my calculations using an adapted DCF (Discounted Cash Flow) model, I checked several analysts’ positions on this and averaged it to try to make it more accurate. The price I have got is 48$.
So, should you invest in NIO stock? This is up to you. You should read this analysis, take all the factors into account, the product/service, moat, management, current price, compare it to the fair price, and decide. You should also think if you like this company. Are you planning to follow the news in the long term or would you rather just day trade for some quick profit? What you decide is your decision based on your needs, budget, and investment style.
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