Nio is one of the most exciting E.V. companies
on the stock market. It's often dubbed, 'The
Tesla of China' and in this video, I'll be
exploring whether Nio really does live up
to the hype
Ok guys, thanks for watching. For everybody
that doesn't know, my name is Cam. Like many
others, Covid gave me a great opportunity
to jump into the stock market. From then I've
immersed myself, done tons of research and
really cemented my obsession with investing.
So Tesla has been rip roaring on a trajectory
steeper than Space X of late. Hey Elon.
Just when you think it cant climb any higher
it hits a new high of 2000 dollars a share
- crazy.
So today we will be comparing newer EV company
from China, NIO to the giant that is Tesla.
Although both EV companies have quite a different
approach.
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So, Elon Musk has two goals number one is
to reduce our reliance on fossil fuels and
move Tesla towards a future in autonomous
rover taxis.
Nio whilst also investing in automation has
also committed to battery swapping which does
make it stand out from the competitive EV
market.
Tesla whilst selling their cars all over the
world differ from Nio in their geographical
focus too so Nio although they have ambitious
plans to grow and expand for now they are
focused on China.
The Chinese market is absolutely huge and
with growing tensions between China and the
US I think nationalism will only increase
and the government will only want to push
home grown countries over American ones.
Whats more is the government has invested
a billion dollars, with a B, in to Nio and
they are not going to want to see them fail.
The interesting thing about China is that
they are constantly evolving and they are
transitioning from an investment driven exports
economy into an economy focused on innovation
and reliant on domestic consumption.
This is one of the many reasons I think NIO
will grow exponentially in China but for now
Tesla does still dominate.
So despite having a positive sales report
the last quarter Tesla continues to far out
sell any other electric car company in China.
In May Nio sold 3400 but Tesla did nearly
four times that selling 11500 so despite the
home grown advantage Tesla are clear leaders
here that being said Nio has some really impressive
numbers with sales increasing nearly 200%
between 2018 and 2019 and they keep on growing.
So battery swapping as a technology is very
unique in the EV world and reduces what would
be a 10 minute recharge time to a 3 minute
stop and swap.
Nio's CEO says, Nio is the only player in
battery swapping so users can replace batteries
quickly and flexibly upgrade battery packs.
A huge consideration is an enormous amount
of the population in China actual live in
high rise apartments, they continue to build
millions of high rise apartments each year
and not everybody has the ability to install
their own charging point.
This is what Nio is uniquely capitalising
on. They've also introduced a battery as a
service business, where customers can buy
the car and lease the battery.
For example, the cost of an ES6 is 358,000
RMB, or $52,000. For reference I'll be using
US dollars moving forward. The battery alone
costs $15,000, but Nio would sell the car
minus the battery for $37,000 dollars, so
essentially saving the customer an upfront
free of $15,000.
This is what makes Nio so attractive and opens
them up to a much more diverse market.
So, what about management?
We all know Elon Musk, Elon is a true visionary
and he has proven time and time again that
he is an amazing business leader. Li Bin,
Nio's CEO is obviously less well known but
his marketing vision is to 'bring joy to the
Nio drivers'.
Which is a very good sign I think because
it shows the value they place on their customers.
Li, who is also the founder, owns a 12% stake
in the business but prior to Nio he was Chief
Exec for 13 years at Bit Auto, the Chinese
car comparison website.
Interestingly they have just been taken private
by none other than Chinese gaming and media
giant, Tencent.
Whats more, Nio have an A Team of investors,
including Tencent of course, but also Baille
Gifford, Blackrock and Goldman Sachs.
Now for anybody that's ever run a business,
you know one of the biggest costs is human
capital, Nio's battery swapping stations are
currently manned but they are actively reducing
their reliance on people and moving toward
automation which will drastically increase
profitability.
However, and here comes the not so good. Nio's
financials remain poor with net losses exceeding
gains, Nio has a revenue of about $1.1B, but
in 2019 suffered a -$1.6B loss. They've had
to periodically raise capital to survive and
it's fortunes are also heavily tied to the
Chinese Government.
That being said, all successful start ups
haemorrhage cash in their first few years,
Amazon are a great example. So not all is
doom and gloom.
Now when you're analysing a business, two
of the key factors are long term debt and
free cash flow. Debt can kill a business,
even one funded by the Government and unfortunately
Nio has a lot of it.
Unlike some investors who will only buy a
company with zero debt, I on the other hand
think debt is a good thing, if managed correctly.
Debt allows a business to grow, innovate and
take market share but too much is deadly.
Nio has around $1.5B in long term debt, but
to put that in perspective it has a similar
amount in cash and short term investments,
plus about a billion dollars worth of physical
assets. As a rule of thumb I look for a 2:1
ratio between assets and long term debt.
Tesla on the other hand, a much more mature
company, turned a profit in 2020, despite
the pandemic. Nio obviously a much younger
company do have a long way to go but things
do look bright for the future.
When I look at Nio I see it in 10 years and
for me the potential far outweigh the negatives,
after all Tesla only turned a profit this
year. There is obviously more risk attached
than Tesla but with Tesla so over valued it
counts me out for the foreseeable, or until
Elon smokes another doobie on JRE.
Tesla is obviously a fantastic business with
an inspiring CEO but Nio, albeit in Tesla's
shadow, really is that too.
For the record I am a Nio investor so my info
will always be unintentionally biased. Please
remember this isn't financial advice, it's
just my opinion. Always know a business inside
and out before you take up any position.
That's it guys, please let me know what you
think of Nio and Tesla in the comments below.
Stay tuned for my next video and please remember
to like and subscribe to the channel for weekly
stock market content.
I'll see you next time. Invest smart.
