If you have read our previous article, you are certainly aware that Tesla has had an extraordinary year, with its shares up more than 350% in 2020 thanks to the growing enthusiasm about the EV industry. Nonetheless, Tesla is not the only choice for investors interested in buying into the electrification development. There are a number of other companies that are determined on modernizing the vehicle industry in order to reduce greenhouse gasses and cut dependence on fossil fuels. Some of these companies arguably offer better opportunities right now following Tesla's impressive bull run.
Figure 1 NIO share price, performace YTD, source: Bloomberg
The stock we are talking about is NIO. Overall, NIO's shares have skyrocketed nearly 383% so far in 2020. During August, there was a lot of optimistic news about the company. For example, it reported its July vehicle deliveries were at “near-record levels” and were up 322% year over year. Then, UBS analyst Paul Gong, upgraded the stock, leading to its biggest single- day gain during the month. NIO also likely benefited from Tesla's incredible August share price run-up and general excitement about the EV sector. As suggested by the second graph below, we can see that there is a constant increase in both the monthly and annual deliveries starting in the month of February.
Figure 2 NIO deliveries, source: NIO
The good news for NIO has continued into September: August sales set a new company record, and it expects to begin delivering its third vehicle model, the EC6 crossover SUV, before the end of the month, at a price of $52,500. We can compare the EC6 to Tesla’s Model X which has a starting price of $75,000, the two models offer similar performances and range. It seems that NIO is able to sell its vehicles at lower prices, increasing competition against Tesla and making itself more attractive to new potential EV customers.
Figure 3 The new EC6 NIO Suv, source: NIO
Overall, NIO is further ahead than many other electric carmakers. For one thing, it's actually manufacturing and delivering vehicles, unlike Nikola (NKLA). However, it's still only able to produce about 5,000 cars per month at most; Tesla is producing about 12,500 vehicles per month in China alone. This is why NIO has so much potential; it is just getting started. It is important to also analyze the financial aspect of the company. For such a young company, Nio is bringing in great amounts of revenue, and its sales keep growing each quarter. Total revenue was $526.4 million (RMB 3,718.9 million) in the second quarter of 2020, resulting in an increase of 146.5% from the second quarter of 2019 and an increase of 171.1% from the first quarter of 2020. Additionally, Nio was able to turn its losses into profit mainly thanks to the surge in vehicle sales in respect to its previous quarter, which increased from 3,838 to 10,331. It recorded $44.3 millions of gross profit for the second quarter, representing an increase of $119.54 million from a gross loss of $73.74 million in the second quarter of 2019 and an increase of $70.29 million from a gross loss of $24.50 million in the first quarter of 2020. Nonetheless, the company still has a net loss of $166.5 million for the current quarter, which however represents a decrease of 64% from the second quarter of 2019 and a decrease of 30.4% from the first quarter of 2020, which is very good news. Conclusion To conclude, we want to give you three reasons as of why we believe NIO is a better investment than Tesla at this moment. First, the Founder and Chairman William Li has communicated that the Chinese electric car company plans to enter into other markets starting in the second half of next year, which will certainly lead to an expansion in NIO’s sales, market cap, branding, etc. Secondly, NIO has also announced a “battery-as-a-service” subscription product that it hopes will drive more electric vehicle sales. The subscription plan reduces the upfront vehicle cost and can be compared to a regular gasoline charge. Customers who buy the battery plan, which costs a minimum of 980 yuan ($140) a month, can get a discount of 70,000 yuan ($10,000) from their purchase. The company forecasted in its latest earnings release last week that it will deliver 11,000 to 11,500 vehicles in the third quarter with the support of this innovative plan. Lastly, NIO has recently started operating in the Chinese market, with a population that is more than four times the US, whilst being backed up and supported by the Chinese Government. References
https://ir.nio.com/financials/annual-reports
https://ir.nio.com/financials/quarterly-results
https://www.cnbc.com/2020/08/21/china-tesla-rival-nio-is-up-240percent-this-year- revamping-plans-to-go-global.html
https://www.fool.com/investing/2020/08/31/is-nios-secondary-stock-offering-bullish/
https://www.fool.com/investing/2020/09/04/why-shares-of-electric-carmaker-nio- zoomed-up-almo/
Bloomberg market data (https://www.bloomberg.com/markets)
Disclaimer The ideas and opinions expressed in this report are the ones of the author and do not reflect in any way the ideas and opinions of Bocconi University. This report is intended for academic purposes only and is not intended to be an investment advice and thus should not be interpreted as such. Reliance of the information contained in this paper is at the sole discretion and risk of the reader.
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