Is NIO a Buy?
They set a price target of $4.20 on Nio’s American depositary receipts, which would represent a 56% downside to Thursday prices.
familiar to those investors following Tesla Inc. TSLA, -0.37% which Nio is seen as potential rival in China: Nio’s cash burn, potential inability to reach “ambitious” volume target
“Longer term, we question whether the premium EV segment will be big enough to support Nio’s volume ambitions,” the analysts said. They projected the company to sell 50,000 vehicles by 2020 and 160,000 vehicles by 2025.
Nio plans to have 12 store locations by year-end, but that’s a third of Tesla’s, which sold 17,800 cars last year in China.
they expect Nio to tap capital markets in the next 12 to 18 months as its costs are “too high and its price points too low,” they said. Nio’s expenses are rising rapidly, and the company likely will remain a loss-making one through 2025
Entities affiliated with Chinese technology conglomerate Tencent Holdings Ltd.0700, +4.99% have a 15% stake in Nio, and those affiliated with investment powerhouse Hillhouse Capital another 7.5%, according to the company’s prospectus. Founder and Chief Executive Bin Li holds a 17% stake.
Nio first introduced a “super car,” the EP9, in 2016. It launched its first volume-produced car, the ES8, in December 2017, with deliveries starting in June of this year.
The ES8 is a 7-seater all-aluminum body electric SUV that the company boasts is cheaper in China than Tesla’s Model X.
As of the end of July, Nio had delivered 481 ES8s and had unfulfilled reservations for more than 17,000 ES8s with deposits, according to the prospectus.
Nio plans to launch its second vehicle, the ES6, by the end of 2018, and start deliveries in the first half of next year. The ES6 is a 5-seater, “high-performance premium electric SUV, set at a lower price point than the ES8 to target a broader customer base,” NIO said in the filing.
“We have negative cash flows from operation, have only recently started to generate revenues and have not been profitable, all of which may continue in the future,” it warned.
Nio began showing revenue this year, reporting $6.7 million in vehicle sales and $7 million in total revenue for the first six months of 2018, when net losses topped $502 million. The company reported a net loss of $758.8 million for all of 2017.
Through June, Nio had burned through $549 million in cash to operate, compared with $691 million for all of 2017. Capital expenditures hit $163 million in the first six months of this year, compared with $168 million for all of last year.
The company estimates that its capital expenditures for the next three years will reach about $1.8 billion. That includes money for improvements and installation of equipment at a plant in Shanghai, as well as for research and development and the expansion of its sales and service network. It expects to incur about $600 million of that in the 12 months starting July 2018.
Nio admits it has “limited experience” so far in high-volume manufacturing of electric vehicles.
We cannot assure you that we will be able to develop efficient, automated, cost-efficient manufacturing capability and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required to successfully mass market the ES8 and future vehicles,” it said.
Then there are the suppliers. The ES8 uses more than 1,700 purchased parts which Nio buys from more than 160 suppliers. Many of those are single-source suppliers for these components, and the company is expecting that this will be similar for the ES6 and any other future vehicle it may produce.
“The supply chain exposes us to multiple potential sources of delivery failure or component shortages,”
Its business could be affected by trade wars
Nio said its business could be “adversely affected” by trade tariffs or other trade barriers, including U.S. tariffs imposed in March on steel and aluminum and additional tariffs targeting Chinese goods.
Unusual—and risky—corporate structure
The risk with this setup is that foreign investors don’t actually own stock in the company, and local management or even the Chinese government could decide or force a split with the listed company, leaving U.S. investors high and dry.
As an “emerging growth” company, Nio has to follow fewer reporting and other requirements.
The ES8, which starts at 448,000 Chinese yuan ($67,765) is half the starting price of Tesla's 836,000 yuan ($126,470) Model X in China. Nio also enjoys the advantage of Beijing's state subsidies for electric vehicles.
Pricing for the Nio EP9 is set at a hefty $1.2 million, with production limited to 16 units total