1. The company
NIO Inc. (NIO, Financial) is a Chinese manufacturer of automobiles, with the general deadquarters located in Shanghai. The company specializes in engineering and development of secure electric autonomous vehicles. Nio is a start-up of Tencent Holding. The manufacture of automobiles is performed at the facilities of a company called JAC Motors, a Chinese state-owned company with the production capacity of more than 500,000 automobiles per year.
NIO has a staff of experts in the area of research, development and design, who possess technical skills and managing experience from leading automobile and hi-tech companies. The company has more than 4,000 employees at its branches.
Further, the company participates in the FIA Formula E championship -- a racing class for electric cars. And, importantly, NIO has set one of the speed records for electric cars.
Outstanding shares - 1,026,010,046
Share price - $7.67 (Nov. 21, 2018)
Capitalization - $7.87 billion
Outstanding debt - $197 million
EV - $8.06 million
FCF: -$1.197 million
EPS: -$44.10
Competitive advantages
- A pioneer in the market of premium-class fully electric cars in China.
- Patented technologies in the area of electric cars and autonomous driving.
- Revolutionary comprehensive solutions of charging of electric cars.
- Strategic partnership relations with the world-leading technological and industrial leaders.
- World-class management, global pool of talent and high technology base.
The history
November 2014 – Company established under the brand NextCar Inc.
July 2015 – The company participated in Formula E racing for the first time.
October 2016 – The company received authorization for the trial of autonomous vehicles in California.
May 2018 – The company declared establishment of its own station of exchange of accumulator batteries under the name Power Swap Station.
July 2017 – The company changed its name to NIO Inc.
June 2018 – The company delivered the first manufactured automobiles to buyers.
September 2018 – The company placed 160 million shares at the price $6.26 each on the stock exchange.
1.2 The brand
NIO is one of the best 10 brands on the electric car market, which had its highest-ever sales volume in China in 2017. Only Tesla (TSLA, Financial) occupies the premium segment, whereas the other nine brands fill the lower price segment, thus considerably representing an outstanding market of premium-class electric cars in China. The following diagram demonstrates a market pattern.
Source - Frost & Sullivan Report
As follows from the above diagram, ES8 can boast price advantage in comparison to the imported premium-class models such as the Tesla Model X, due to the economic benefits of production localization, the purchasing subsidies and the lack of purchase custom duties and taxes. As of the present moment, it is unlikely that Chinese consumers can afford existing premium-class electric cars at competitive prices, and the ES8 will probably face limited competition in this market niche.
1.3 The business model
NIO is the pioneer in the market of premium-class electric cars in China. It develops, jointly manufactures and sells highly intelligent premium-class fully electric cars, thus introducing innovations in the next-generation technologies of communication, autonomous driving and artificial intelligence. The company strives to deliver users comprehensive, convenient and innovative solutions for charging and other user-oriented services.
The first model, developed by the company, was the supercar EP9, in 2016. The EP9 had set a world record as the fastest fully electric car at the track of Nürburgring Nordschleife Green Hell in Germany in May 2017, having finished the lap within 6 minutes and 45.90 seconds. In combination with attractive design and boosted driving features, the EP9 delivers an extraordinary acceleration and best-in-class electric transmission, which secures its position as a premium-class brand.
The company launched the first serial electric car, ES8, for the public at its NIO Day event on Dec. 16, 2017, and had started the deliveries for users on June 28, 2018.
The company envisages the launching of a second serial electric car, ES6, by the end of 2018, and plans to start the first deliveries in the first half of 2019. ES6 is a five-seat, high-performance, increased capacity electric offroadster at a lower price in comparison to the ES8 in order to embrace a wider customer base.
2.0 The management
The board of directors consists of five members.
Bin Li has been the founder and the chairman of the board of directors since the establishment of the company. He has acted as the CEO since January 2018. Li is also the chairman of the board of directors by Bitatto Holdings Ltd., an automobile service company, registered on the NYSE, and the leading supplier of automobile services in China.
In the year 2000, Li was one of the founders of Beijing Bitauto E-Commerce Co. Ltd., acting as its director and president until 2006. In 2002 Lee became one of co-founders of Beijing C&I Advertising Company Ltd., acting as its chairman of the board of directors and the CEO since its establishment. Apart from that, Li is the deputy chairman of the Chinese Association of Car Dealers (CADA). In 2008 he was acknowledged by CADA as one of the 10 most influential and prominent car dealers in China during the last 20 years. Li graduated from Beijing University with a bachelor's degree in sociology.
2.1. Insider ownership
| Â | Ordinary Shares Bene ficially Owned Prior to This Offering Or dinary shares |
| Directors and Executive Officers**: | Â |
| Bin Li(1) | 17.2 |
| Lihong Qin(2) | 1.2 |
| Louis T. Hsieh(3) | * |
| Hsien Tsong Cheng | * |
| Padmasree Warrior(4) | 1.4 |
| Xin Zhou | * |
| Feng Shen | Â |
| Dongning Wang | * |
| Hai Wu(5) | Â |
| Denny Ting Bun Lee | Â |
| James Gordon Mitchell | Â |
| All Directors and Executive Officers as a Group | 20.6 |
| Principal Shareholders: | Â |
| Founder vehicles(6) | 17.2 |
| Tencent entities(7) | 15.2 |
| Hillhouse entities(8) | 7.5 |
In the third quarter, the company was purchased by such major players as Steve Mandel (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio), while 11.4% of the shares were purchased by Baillie Gifford. As quoted above, 17.2% of the shares are owned by the director general of the company, Bin Li, 17, 2% by Founder Vehicles, 15.2% by Tencent, and 7.5% by the Hillhouse Entities.
3. Financial performance
| Indicator | Q3 2018 | Q3 2017 |
| Revenues | 214.0 mln USD | $ 0 |
| Vehicles delivered | 3,268 | 0 |
| Gross profit | -7.90% | - |
| Operational profit / (losses) | (409.1 mln USD) | (187.5 mln USD) |
| Adjusted operational profit / (losses) | (346.2 mln USD) | (185.0 mln USD) |
| Net profit / (losses), as per the shareholders | (1.42 bln USD) | (240 2 mln USD) |
| Adjusted net profit / (losses)as per share | (1.51 $) | (8.52 $) |
In the third quarter, NIO operated as a public company for the first time. Investors showed a positive attitude to the news from that period: The company manufactured 4,206 seven-seat electric offroader ES8s in comparison to 500 cars in the second quarter. Of those offroaders, 3,268 were delivered to customers, against 100 deliveries three months prior to that.
The revenue of the company was 1.47 billion yuan (or $214 million).
4. The risks
The major risk for NIO is that sooner or later the company could face severe competition from its major rival Elon Musk, who will build his Tesla manufacturing factory in China in the near future.
Apart from that, the company will require time to start generating profit, which only generates losses at present. At the current level, the company is incapable of adequately controlling the costs related to its operating activities.
The company is pretty young and is just about to begin facing the challenges of its first serial manufacture of automobiles. Any substantial delays in the manufacture or delivery of automobiles might have a negative impact over the whole business.
The company faces risks due to the fact that the whole manufacturing process is performed at the factory of a partner. Further, the company cannot monitor the risks in the costs of raw materials and components needed for the manufacture of automobiles because it purchases more than 1,700 peculiar details, delivered by 160 companies.
5. The forecasts and expectations
It is expected that in the fourth quarter, deliveries will more than double in comparison to the preceding quarter, thus making up from 6,700 to 7,000 vehicles. The experts estimate that revenues will also double in comparison to the third quarter; however, in the meantime, one cannot say how it would influence the reduction of a net loss. For reference, Tesla, upon reaching deliveries of production of 6,900 cars per quarter, swiftly exceeded the capitalization of $30 billion. By such estimation NIO might cost $24.
In the year 2017, 770,000 electric cars were sold all across China and the government anticipates demand of 7 million cars in 2025. Should this plan be implemented, it would make up merely one-fifth of the Chinese market. The Chinese government offered generous subsidies of in average $10,000 per each electric car in 2017 in order to attract manufacturers and consumers.
According to the forecasts, the company might occupy 5% of the market, selling 350,000 cars each year.
Private investments in the technologies of autonomous vehicles also have sharply increased, indicating increased interest to this branch.
