NIO stock is shaping up to be the next big thing in the Asian EV market. And, I’m not the only one who thinks that – the Chinese government and JP Morgan are also very hopeful for the future of this company.
Hello everyone and welcome back to Investing with Antoaneta. As promised, today we are going to take a small break from talking about Tesla. Instead, we will be having a look at another major player in the field of Electric Vehicles, but this time, in China. Before we jump right in, I want to take a second to thank everyone for the positive feedback and to ask you to give me a thumbs up if you want to see more investing content in the future. Check out my other blog such as, “Selling Stocks Before The Election?“.
Who is NIO Inc.?
NIO is a Chinese Automobile manufacturer. They’re based in Shanghai, and their CEO is William Li (Li Bin). NIo specializes in the production of electric vehicles, and they are also one of the key players in the FIA Formula E Championship. Now, if you are like me, and you aren’t a big racing fan, you’re are probably wondering what this championship is.
But don’t worry, since I looked into it and I’ll tell you – Formula E is the world’s first single-seater all-electric car racing competition. Well, that’s not the main reason why I am excited about NIO stock, but, hey, it’s an interesting and valuable piece of information.
What’s been happening with NIO stock?
As you can see, NIO stock was slowly moving up in price until October 14th, when it jumped up in a big way. Now, as a long-term investor, I was enjoying that steady growth and looking out for opportunities to add more NIO to my portfolio. Come the 14th, and I wake up to a massive price bump.
A couple of minutes and a few Google searches later, I came across an article, explaining the situation. The headline reads: “JP Morgan sharply raises NIO price target to $40, representing 85% upside potential”. Apparently, the JP Morgan analysts finally realized the tremendous potential in NIO and raised their price target. And, please keep in mind guys, that all of this happened after they gave NIO a neutral rating in their previous analysis on June 21st (the price target at the time was $14).
In their latest report, JP Morgan analysts admit that they “missed the stock’s major rally YTD”. And you wonder why I don’t like listening to analysts … Anyway, analysts will rarely admit that they’ve made a mistake of this type, and the fact that they were willing to do this only highlights the potential of NIO.
The same report goes to further state.
“We are upgrading the stock to OW (overweight) from Neutral and set a new Jun-21 PT of USD40 based on 3.0x 2025E EV to sales. Instead of trying to justify a higher PT, we review our long-term investment thesis, based on our bullish top-down sector view, introduce 2025 earnings projection and draw implications to the current stock price.
We come to the conclusion that NIO remains attractive from a long-term perspective.”
According to JP M’s projections, “the company is expected to earn about 7% market share in the passenger EV (electric vehicles) market by 2025 or specifically about 30% share in the premium space that they are focusing on.”
Okay, but doesn’t 7% sound a bit too low? Well, it really depends on how much faith you have in the company (and how well you’ve done your research). Personally, I am a big believer in NIO, and I am convinced that they will be one of (if not the most) dominant companies in China’s EV sector. And, don’t worry – I’ll share my reasoning with you here:
NIO is backed by the local government
And, if you have ever run a business, you should know that governmental backing is a huge thing. For 2020, “NIO has secured a 1-billion-dollar investment from several state-owned companies in Hefei”.
NIO is leading in terms of autonomous driving
Recently, NIO announced that its customers had driven one billion kilometers, placing them miles ahead of their competitors. When it comes to the Chinese market, Tesla doesn’t even come close. This is yet another moat that the other companies will have to invest in overcoming.
They have a great moat
Their innovative battery swap technology puts them miles ahead of everyone else. None of their competitors (at least in China) can even come close to the utility and comfort, provided by NIO’s battery swap stations.
Remember, guys – China is very densely populated. There are a lot (and I do mean A LOT) of people living in high-rise apartments or high-rise condos. This means that there’s practically no space for the type of supercharging stations that Tesla is building in the West. NIO’s swap stations are capable of swapping batters in under five minutes, which, again, gives them an edge as far as the Chinese consumers are concerned.
And, keep in mind that they’re already building this infrastructure. It’s not some plan on a drawing board; it’s already put into action. If the other companies want a chance to compete, they will need to also invest in this. NIO’s CEO Li Bin announced that they’ve already completed over one million swaps as of October 5th, 2020.
Upcoming key catalysts
- NIO is expected to deliver solid Q3 results in mid-November, with the forecasts pointing towards further Gross Profit Margins expansion. Analysts expect an increase of about 12% versus 8% in Q2 2020.
- Their newly launched EC6 crossover model is very hot right now. The company is currently working through a robust order backlog, due to the initial production ramp and substantial demand.
- A new sedan model is also scheduled to come out on “Nio Day”. This will add more variety to the company’s portfolio (they currently offer one crossover – EC6 and two SUVs – ES8 and ES6).
- Recently, Nio’s CEO, Li Bin, announced that he is expecting to deliver around 150 000 units per unit, starting from 2021. Nio is aiming at doubling its production capacity to hit 300 000 annual vehicle deliveries. Naturally, this has skyrocketed the public’s expectations of Nio. As a comparison, Tesla is currently pushing about 500 000 vehicles per year, which accounts for about 85% of the company’s total revenue. If Nio manages to hit this number, then it’s more than reasonable to expect their stock to hit record prices.
Opportunities in 2021
- Rising NEV penetration with an emerging and structural shift from business to consumers. The market is shifting towards individual buyers, rather than corporates or customers, living in cities with purchase quota. This is expected to broaden the EV market, and NIO will be able to benefit, as long as they manage to keep their position within the top 10 by market share.
- The extension of the NEV subsidy program towards 2020, where the government’s subsidy scheme covers the battery swap business is encouraging.
- The new model coming out on Nio day next January is expected to considerably expand the company’s portfolio and attract a multitude of new customers.
My Nio Strategy
I am currently very bullish in regards to this company, and I keep adding more Nio stock to my portfolio at every opportunity. As I often say – long-term investors love volatility. Unless something drastic happens, like a shift in management or a publicity problem, I will most likely continue with this approach for the foreseeable future. And, if you think about it, we’ve seen this situation play out before as well, with Tesla. Back then, I made some excellent returns on my Tesla investments, and I am definitely looking forward to Nio’s future.
And this concludes our brief look at Nio. Personally, I see a ton of promise in this company, and I will be looking to add more Nio stock to my portfolio as soon as possible. If you are interested in the EV market, I would highly recommend that you look into this stock as well. Thank you for reading this blog until the end. If you enjoyed it, please make sure to let me know by giving it a thumbs up and sharing it with your friends. As always, questions, ideas, and experiences go in the comments section below, and I’ll get back to you as soon as possible. Alternatively, you can also reach me on Social Media – Facebook, Instagram, Twitter, Pinterest, YouTube, or send me an email at [email protected].
Thank you all for reading, and I’ll see you all in the next blog!
Recommended books for further reading:
- The Ultimate Finance Book – Roger Mason
- Intelligent Investor – Benjamin Graham
- The Finance Book – Stuart Warner
- Rich Dad’s Guide to Investing – Robert T Kiyosaki
- Money: Know More, Make More, Give More – Rob Moore
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