Will NIO be bigger than Tesla?

Will NIO be bigger than Tesla?

Courtesy of Nio

Nio Faces Challenges, But Growth Continues

Shares of Chinese electric vehicle maker NIO plummeted this Thursday after 36Kr, a Chinese media outlet, reported that a high-ranking executive for Nio’s autonomous driving team was leaving the company. Although Nio recently announced its outstanding delivery results for Q1 2022, its stock price tumbled after a short jump. Under the influence of the new COVID-19 cases in Shanghai and the price raising of its major supplier CATL, Nio still faces challenges, but growth does not stop. 

Nio delivered 25,768 vehicles in the three months ended March 2022, increasing by 28.5% year-over-year — as expected. However, as a comparison, XPeng and Li Auto, both Chinese electric vehicle makers, witnessed a 275.2% and 177.4% increase respectively.

2022 will be an important year for Nio. Before this year, the latest model of Nio, EC6, was released in 2020. While XPeng and Li Auto both released their new models in 2021. As a result, this may explain why Nio’s sell record was overtaken by its competitors. 

On March 28th, Nio delivered its luxury sedan model ET7.

Later this year, Nio will also deliver ET5, a mid-size sedan, and ES7, an SUV. All these three models will have Nio’s next generation autonomous driving. Besides these new models, Nio also announced its new battery with over 1,000km recharge mileage, which delivers in Q4 2022. As reported, Nio “has built 865 Power Swap stations and 707 Power Charger stations till March 23rd.” 

Although in 2021, Nio gained 36.14 billion RMB revenue, increasing by 122.3% year-over-year, it also faced a 4.02 billion RMB deficit. “The research and development expenses are the main cost of deficit,” said Bin Li, Nio’s CEO. Last year, the company increased its R&D expense by 84.6%, mostly on new models and autonomous driving. On the bright side, Nio’s gross margin in 2021 was 18.9%, increasing 7.4% year-by-year. In the short term, Nio will still be a new company and its high R&D expenses will cause a deficit. In the long term, companies maturing product lines and increasing gross margin will lead to the break-even point in the near future. Bin Li expects this will be achieved in 2024. 

By the end of 2022, the Chinese government will cancel subsidies on electric vehicles. This will have a major impact on Chinese EV makers. Traditionally, the most outstanding advantage of EVs is their low price. This can overcome public concerns on the short recharge mileage and reliability of EVs. After 2022, prices for EVs will increase and electric vehicle makers will need to introduce better features to retain their customers.

Nio, as a luxury EV maker, will face a larger impact than companies like XPeng or Li Auto.

On the other hand, Nio also put much effort into its service and consumer experience. In 2021, the company built 12 new NIO houses — the showroom and the place for consumers to socialize. Nio also introduced its Battery as a Service program that allows users to rent batteries for 980RMB per month and save 70,000RMB while purchasing vehicles. With its best service, Nio has the highest customer stickiness among EV makers. Considering these effects, increasing price won’t hurt its delivery results significantly. 

In the long run, Nio is still a good company. It has built its own factor and expanded partners to lower the risk of supply chain. Although its market value has shrunk since last year, this is mostly due to common factors. These include the risk of delisting, the price increase in raw materials and the new wave of pandemic in Shanghai.

These external influences won’t last for years. China is still the largest market for EVs in the world. By the end of 2030, the Chinese government expects that 40% of vehicles will be powered by electricity. Nio still has a great market growth potential. Currently, Nio’s FWD P/S ratio is about 5.7 while Tesla is around 13.3. Reasonably, Nio shares have bottomed and will enter a bullish phase in near future.

Will Nio ever be as large as Tesla? Probably not, but the future is still very bright for this troubled carmaker!

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Written by Tianrui Gu & Edited by Avhan Misra & Phillip Kim

Will NIO be bigger than Tesla?