(profit confidential) – Today’s focus stock: Nio Inc (NYSE:NIO), the “Tesla of China.”
Whether you like electric vehicles (EV) or old-school V8s, it’s hard to deny that EVs are a force to be reckoned with in the automotive industry.
To give you an idea, Tesla Inc (NASDAQ:TSLA) now commands a market capitalization of $375.0 billion, while Detroit’s “Big Three” automakers—General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and Fiat Chrysler Automobiles NV (NYSE:FCAU)—have a combined market capitalization of around $91.0 billion.
Note that Tesla does not sell more cars than these traditional automakers right now. In fact, each of Detroit’s “Big Three” sold more cars than Tesla in the first half of 2020. (Source: “Light vehicle sales in the United States between 1st half of 2019 and 2020, by manufacturer,” Statista, last accessed September 25, 2020.
In other words, what investors see in TSLA stock is not just what the company is doing today, but what it can do in the future. With increasingly stringent environmental regulations, there will likely be a lot more EVs on the road going forward.
Mind you, Tesla is not the only notable play on the booming EV market. If you are willing to look to the east, you’ll find that Nio Inc, an EV maker from China, is also delivering enormous returns to investors.
Nio launched its first volume-manufactured EV, the “ES8,” in December 2017. The ES8 is a seven-seat premium electric SUV that starts at around $65,000. Delivery of the ES8 began in June 2018.
Then, in December 2018, the company introduced the “ES6,” a five-seat, high-performance premium electric SUV. ES6 pricing starts around $52,000. Nio has been making deliveries of the EV since June 2019.
While Nio Inc is a Chinese company, its American depositary shares have been trading on the New York Stock Exchange since September 2018, so it’s very convenient for U.S. investors to get a piece of the action.
And those who bought Nio stock earlier on are laughing all the way to the bank: over the past 12 months, the stock is up a staggering 780%.
3 Reasons to Put Nio Inc on Your Radar
Other than the skyrocketing share price, here are three reasons why EV investors should take a serious look at NIO stock.
Reason #1: Soaring Deliveries
The first reason is the growth in deliveries. For companies that build and sell cars—no matter what they are powered by—the amount of vehicles delivered in a given reporting period is one of the key performance metrics.
This year, the performances of many automakers were negatively impacted by the COVID-19 pandemic and the following economic downturn.
Nio’s EV sales tumbled in the first quarter of 2020 due to lockdowns in many regions of China. But as the lockdowns got lifted, the numbers quickly went back up again.
According to the latest earnings report, Nio Inc delivered 8,068 ES6s and 2,263 ES8s in the second quarter of 2020, for a total of 10,331 EVs.
This represented a whopping 190.8% increase from the 3,553 EVs delivered in the second quarter of 2019. (Source: “NIO Inc. Reports Unaudited Second Quarter 2020 Financial Results,” Nio Inc, August 11, 2020.)
And the growth momentum is still continuing. The company provided an update on September 3, revealing that it had delivered 3,965 vehicles in August 2020. The number not only represented a 104% increase year-over-year, but also marked a new monthly delivery record for Nio. (Source: “NIO Inc. Provides August 2020 Delivery Update,” Nio Inc, September 3, 2020.)
Keep in mind that auto sales tend to be cyclical. The fact that Nio managed to grow its deliveries at such an impressive pace right after a huge economic shock not only represents a sign of strength for the company, but also shows how hot the EV market is in China.
Reason #2: Narrowing Losses
As you’d expect from an automaker with soaring vehicle deliveries, Nio’s revenue is in an uptrend. In the second quarter of 2020, the company generated $526.4 million in total revenue, marking a 146.5% increase from a year ago.
For young EV companies, it’s not unusual to see increasing losses alongside booming sales. And that brings us to the second reason why Nio stock could be special: its losses are narrowing.
For the second quarter of 2020, Nio Inc reported an adjusted net loss of RMB1.08 (USD$0.15) per share. This marked a substantial improvement, because its adjusted net loss was RMB1.60 (USD$0.23) per share in the first quarter and RMB3.11 (USD$0.46) per share in the year-ago period.
Reason #3: Battery as a Service Model
The third reason to consider Nio stock lies in its recently introduced “Battery as a Service” (BaaS) subscription model.
You see, the company has long been planning a BaaS model with its battery swap technologies. It has deployed 143 battery swap stations across 64 cities in China.
So, instead of waiting a long time for their EVs to be charged—which is what most EV drivers have to deal with—Nio’s BaaS customers can get their EV battery swapped in minutes.
There is also a strong incentive to sign up for the service: customers who buy an electric car from Nio and subscribe to use the 70kwh battery pack under the BaaS model can get a RMB70,000 (USD$10,300) discount from the original purchase price of the EV and pay a monthly subscription fee of RMB980 (USD$140.00) for the battery pack.
Obviously, the launch of the BaaS model provides an additional source of revenue for Nio Inc. At the same time, it also gives consumers a new reason to choose the company’s EVs over the competition’s.
And there you have it. As more and more Chinese consumers start going electric, Nio Inc—known as the “Tesla of China”—should be able to take its business to the next level. Even though there is geopolitical tension between the U.S. and China at the moment, the company’s fast-growing business means its American depositary shares could still see better days ahead