NIO is car manufacturer in China specialising in the design, development and services for electric vehicles.
NIOOctober 25, 2020
Thesis - NIO is a leader in the Chinese electric vehicle market. Since its IPO in 2019, NIO has tripled in value. Its name in Chinese translates to “Blu Sky Coming” - a nod to an environmentally friendly Chinese future. Often touted as the “Tesla of China” it designs and jointly manufacturers premium electric vehicles. It does have some significant differences to Tesla. First, it is significantly smaller in scale, delivering only 10,331 cars in Q2 (Tesla did almost 10 times that). Second, NIO is not vertically integrated. It does not wholly manufacture the car and does not create the battery. Instead, it focuses on the software, service and community around the car. In fact, it is known for excellent customer service and is very well rated in the Chinese car market. An investment in NIO is definitely a more high-risk public market investment, betting on the Chinese EV market in general.
Leadership - William Li is the founder and CEO of NIO. At 46 years old, this is the third (!) company that he has founded and taken public. Brought up in a humble farming town, he excelled in school and went on to study at the top-rated Peking University. As a computer science major, he participated in the early Chinese internet wave, his second company Bitauto was valued at $1b. With NIO, he seeks to make EV mainstream in China by improving the quality of electric cars as well as the experience of car ownership. He emphasises the lifestyle of owning an EV and pushes the community aspect of NIO ownership. He is known for being heavily in the details of how the cars are perceived and presented, for example, it is said he’ll personally check how clean the showroom floors are where his cars are on display.
Financials & Performance - In Q2 2020, revenues where $493.4 million, up 146% annually. Vehicle margins are 9.7%, up from negative numbers the previous year. Given the current scale, the numbers are likely to change significantly in the coming quarters. The company remains very unprofitable and relied on an external raise from Chinese government earlier this year.
Risks - Whilst NIO has a great reputation amongst customers it is still a long way from mass adoption. EV ownership is by no means mainstream in China and the current vehicle prices are considered expensive in China, however the government is supportive of the market (as well as its local companies). As mentioned above, the financial situation of the company is still very immature and will need to improve in the coming quarters. An investment in NIO requires a very long-term outlook.