Is It the Right Time to Enter NIO, the Tesla of China?

Nio Inc (NYSE: NIO), the Chinese electric carmaker has given a stellar year-to-date return of 50%. Let us look at the various factors which are driving the stock higher.

Electric vehicle industry is one of the hottest investment idea as the automobile industry transitions from the combustion engine to the hybrids. China is the leading producer of new-energy vehicles (NEVs).

The stock is up in the past couple of days after the CBS 60 Minutes interview which focused on how the company is working to become more of a lifestyle brand in China. For a question of whether the company aspires to be the Tesla of China? The founder and CEO William Li replied

“It’s like the clothes fashion models wear on the catwalk,”. It’s not the same “They may be beautiful, but you can’t wear them every day.” The comparison continued to include supermodels. “So Tesla is the supermodel and you’re the girl next door?” asked correspondent Holly Williams. “Yeah,” Li replied. He further mentioned that the China will manufacture more than 1 million electric vehicles this year with massive support from the government.

The company is founded in 2014 by Chinese entrepreneur William LI. It is backed by the Chinese Technology Company Tencent Holdings (HKG: 0700). It got listed in September 2018.

The company is expected to release its fourth quarter 2018 results on March 05, 2019. During the third quarter results released on November 06, 2018 revenue rose 3,095% to RMB 1,469 million (US$ 214 million) when compared to the second quarter of 2018. Net loss was RMB 2,810 million an increase of 57% from the second quarter.

Cash and cash equivalent at the end of November 2018 were RMB 9,153 million (USD 1.3 billion). The company recently raises $650 million through the convertible bond.

The initial demand for the company’s vehicles is very strong. NIO began deliveries of the ES8, a 7-seater high-performance electric SUV in China from June 2018. The company delivered 3,318 ES8 vehicles in December 2018 when compared to 3,089 delivered in November and a total of 11,348 vehicles in June to December 2018 period.  The company could also give a tough competition for Tesla vehicles in the China market due to lower pricing and also the company is able to ramp up the production.

After the success of ES8, the company has launched lower-priced electric SUV ES6 in December 2018 for a price of around $50,000 which is around $14,000 less than the ES8. The deliveries are expected in June 2019.

Risks: China is reducing the subsidies given to electric vehicles. Even though it is the biggest market there is intense competition in the Chinese EV market. Slowing Chinese economy could also put a dent on the company’s revenues. The company is young and the production has only begun last year.

Conclusion: This is a high-growth stock. Investors need to understand the risk of investing in such companies. However, returns could also very high. Also, the company’s efficiency in producing vehicles on time is very appreciable. It could also attract Tesla investors and other investors who are interested to invest in electric vehicles.

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