NIO 2024
Company History
NIO is shown as 蔚来 in Chinese characters. It stands for
"Blue Sky Coming," symbolizing their commitment to a more
environmentally friendly future. It designs and manufactures high-end electric
vehicles.
Founded in 2014, NIO began generating
revenue in 2018 with the launch of its seven-seater ES8. That same year, the
company was listed on the New York Stock Exchange. In 2022, NIO was introduced
to the Main Board of the Hong Kong Stock Exchange by way of introduction.
NIOs
revenue is generated from:
1)
Vehicles sales
2)
battery service
3)
Sales of charging piles
4)
Sales of packages: energy package and service package
5)
Automotive regulatory credits
6)
Others: sales of accessories, embedded products and services, others.
Management Team
Mr. Bin Li is the founder and CEO of
the company. In 2000, he co-founded Beijing Bitauto E-Commerce Co., Ltd., a
leading automobile service company. Bitauto Holdings Limited was also listed on
the New York Stock Exchange.
Mr. Lihong Qin is the co-founder,
director, and president of the company. Prior to joining the company, Mr. Qin
held a position at a leading property development and investment company in
China.
The top management team has
experienced significant volatility between 2018 to 2022. At the end of 2018,
Padmasree Warrior resigned, followed by the departure of Vice President of
Operations, Ping Jiang. Between 2019 and 2020, there were major organizational
changes within the mid-to-upper management team. In 2022, the Assistant Vice
President of Autonomous Driving left NIO to join a startup. In 2024, XPeng's
CFO resigned due to family and personal reasons.
Products & Innovations
Vehicles
NIO designs, develops, manufactures,
and sells its vehicles in the premium smart electric vehicle market. Currently,
it offers products and services in China, Norway, Germany, the Netherlands,
Denmark, and Sweden, with plans to expand into additional global markets. Table
1 displays the currently available models for sale.
Table 1 NIOs currently available models for sale
Note:
MSRP represents starting manufacturer’s
suggested retail price in China as of the date of this annual report.
In May 2024, NIO unveiled its new product, the ONVO L60, priced around RMB 250,000, which is aimed at competing with Tesla's Model Y.
According to unconfirmed online reports, NIO is also preparing to launch another new model, Firefly. This compact car is expected to have a base price between RMB 100,000 and 150,000, catering to a more affordable segment of the market. However, these details have not yet been officially confirmed by NIO.
Batteries
China
dominates the global battery manufacturing industry, with six of the top 10
battery producers being Chinese companies. Contemporary Amperex Technology Co.
Ltd. (CATL) and BYD alone account for 37% and 16% of the global car battery
market, respectively, while the other four Chinese manufacturers contribute an
additional 11%. These companies are also key suppliers to electric vehicle (EV)
manufacturers. At the current stage, the quality of batteries produced by these
manufacturers is quite similar when considering comparable costs. Battery
technology has become significantly more mature, and the quality of batteries
used in different EVs tends to be nearly identical when the vehicles are priced
at the same level.
Innovations (Service and Digital
Technologies)
·
Battery
Swapping
NIO
is one of the few electric vehicle companies currently offering a battery
swapping service. The video
showcases how the battery is swapped in NIO's Power Swap Station 1.0 within
just 5 minutes. In 2021, NIO upgraded the Power Swap Station to version 2.0.
Thanks to NIO's autonomous driving technology and advanced driver assistance
systems, the entire battery swapping process can now be completed without any
human involvement.
In July 2024, NIO established its first 4th-generation Battery Swap station in Shanghai. The battery swapping time has been further reduced to just 3.5 minutes. Additionally, the station's appearance has been enhanced, offering both improved functionality and a more refined design.
Currently, NIO operates 3,957 charging stations and 2,489 battery swap stations. In addition, there are 1,038,073 third-party charging piles available, further supporting NIO's electric vehicle ecosystem.
·
Battery as a
Service (BaaS)
Thanks
to its battery swapping technology, NIO offers an innovative business model
where customers can purchase vehicles without batteries and instead subscribe
to the batteries. This allows customers to pay a lower upfront purchase price
while enjoying the flexibility of future battery upgrades. For example, in
Denmark, the upfront purchase price of the NIO ET7 is reduced by 168,000 DKK
when choosing the Battery-as-a-Service (BaaS) option. The monthly subscription for
the 580 km battery for the ET7 is 2,199 DKK.
At the early stage of sales in Norway, around 92% of customers chose BaaS when purchasing NIO vehicles. I believe BaaS was, and still is, a great idea. However, for NIO's BaaS model to become more appealing to other EV buyers, a robust network of NIO Power (battery swap stations) is essential.
The growing trust and popularity of EVs have been largely driven by the standardization and expansion of charging infrastructure. Similarly, for BaaS to thrive, significant capital is required to build NIO battery swap stations. In China, the cost to build one station is around 2 to 3 million, and this expense is likely to be even higher in other countries.
Compared to competitors like XPeng and BYD, NIO vehicles are generally priced higher. To accelerate the expansion of NIO Power and make BaaS more attractive, NIO needs the support of other car brands. Without this broader adoption, the convenience of the battery swap solution could be overshadowed by the higher price of NIO vehicles.
NIO is actively seeking partners for its battery model and has opened its power swap network to the entire industry. Starting in 2024, NIO has entered into strategic partnerships with several automakers, including Changan Automobile, Geely Group, JAC Group, Chery Automobile, Lotus Technology, GAC Group, and FAW Group, to collaborate on battery swapping. However, more information is needed to assess the depth of these collaborations.
The rapid expansion of BaaS is heavily dependent on capital investment in NIO Power or similar infrastructure. The surge in EV sales has been largely driven by the standardization of charging plugs, which has simplified the adoption of electric vehicles. However, very few EV manufacturers are developing battery swapping technology. NIO remains the primary investor in battery swap stations.
The appeal of battery swapping—taking less than five minutes compared to the 30 minutes required for fast charging—is undeniable. However, its success depends on the availability of a sufficient network of battery swapping stations. This presents a significant challenge for NIO as it expands abroad.
·
NIO
Autonomous Driving (NAD) and Advanced driver assistance system (ADaaS)
NAD is NIO's in-house developed assisted and intelligent driving system. It encompasses NIO's proprietary algorithms, localization technology, control strategies, and platform software. The advanced driver assistance system, called Navigate on Pilot Plus (NOP+), is built on the features of NAD. It offers advanced driving support for expressways, urban environments, parking, and battery swapping.
My thoughts: The major advantage of EVs over internal combustion engine (ICE) vehicles is their advanced driver assistance systems, which significantly enhance the driving experience. Currently, the driver assistance systems of the leading EV manufacturers in China are nearly on par with each other. This creates a challenge for customers to differentiate between them. At the same time, these companies must invest heavily to keep up with their competitors. If any manufacturer falls behind in technology, they risk losing out to the competition and being rejected by customers.
·
Research and
Development (R&D)
NIO has strategically established offices around the world in locations that provide access to top talent.
Ø Shanghai – R&D center for production models
Ø Beijing – R&D center for software
Ø Hefei – manufacturing center
Ø Munich – design center
Ø Oxford – R&D center for advanced engineering
NIO
has also developed an in-house R&D capability for intelligent driving
chipsets. At the end of 2023, NIO announced its first proprietary chip, the
NX9301, designed for assisted and intelligent driving. This 5nm chip features a
32-core CPU architecture and over 50 billion transistors. NIO plans to
integrate this chip into its future products.
My thoughts: Manufacturers often tend to exaggerate the capabilities of their products, and for chips, it is particularly challenging to evaluate their performance until they are implemented in vehicles. In the short term, NIO's in-house chip development has undoubtedly increased its costs. However, in the long run, NIO could benefit from this investment if the chips prove to meet performance expectations. Given the ongoing tension between the US and China, with the US placing advanced semiconductors on a banned export list, it is possible that the list could expand. In such a scenario, NIO's proprietary chips could be a significant advantage for the company in the future.
Manufacturing
Vehicle Manufacturing
Jianghuang Automobile Group Ltd (JAC),
a major state-owned automobile manufacturer in China, has been manufacturing
NIO vehicles since 2016. The joint production takes place at the F1 and F2
plants in Hefei, China.
In December 2023, NIO signed
definitive agreements with JAC to acquire the manufacturing equipment and
assets of the F1 and F2 plants. Recently, NIO confirmed that the F3 Plant is
currently under development (Table 2).
Table 2 NIOs vehicle factories
It should be noted that NIO has not made any official statements regarding the production capacities of the F2 and F3 plants. However, online consensus estimates suggest that the F2 plant has a capacity of 300,000 units per year, while the F3 plant has been approved for 600,000 units per year by authorities. This could potentially bring NIO's total production capacity to 1 million units annually in the near future.
Electric Powertrain Manufacturing
NIO has implemented automated production lines, an advanced manufacturing execution system, and automated guided vehicles for the production of electric powertrains at its powertrain manufacturing facilities in China.
Distribution
Detailed information on vehicle
distribution channels in China:
The traditional Automobile Sales
Service Shop (4S) model is a comprehensive, full-service approach that
integrates sales, spare parts, service, and surveys all in one location. Before
Tesla entered the Chinese market, nearly all car manufacturers in China relied
on the 4S dealership model. Tesla, however, introduced a different approach,
combining online orders with offline pick-up at 4S shops in China.
Following a similar concept, NIO has
established NIO Houses and NIO Spaces. NIO Houses serve as clubhouses for NIO
users and their guests, offering spaces for community activities, and even for
special events like marriage proposals. NIO Spaces, on the other hand, are
typically smaller and more sales-focused. As of December 31, 2023, there were
145 NIO Houses and 335 NIO Spaces globally.
Customers
NIO's current products are targeted at the higher-end market, but it has clearly shifted its strategy. The lower-end market is much larger than the higher-end. For instance, the WULING MINIEV, which sold 426,482 units in 2021, was ranked number one in the BEV market in China. Tesla's Model 3 and Model Y followed in second and third place, respectively. The price range for the MINIEV is between RMB 32,800 and 69,800. Notably, the top 10 vehicles in 2021 were all priced lower than NIO's models.
NIO has historically focused on
higher-end customers in tier-one and tier-two cities in China. However, there
is much greater potential in tier-three and tier-four cities due to their
larger populations. Although the purchasing power in these smaller cities is
lower than in tier-one and tier-two cities, the EV market in these regions
remains far from saturated. To tap into this opportunity, NIO recognizes the
need to introduce more affordable models to expand into tier-three and
tier-four cities. As part of this shift, NIO has started launching cheaper
models, such as the ONVO, with the Firefly model also in development.
Additionally, while NIO is generally
considered a slightly better car than XPeng in China, XPeng's sales have
performed significantly better internationally. In my opinion, this is largely
due to NIO's much higher pricing. I will provide more details in the upcoming
comparison article.
Valuation
NIO began generating revenue in 2018 and is still in a high-growth phase, currently with negative EPS. The most common and classic valuation method for companies in this stage, especially given the uncertainty of future capital structure, is the Free Cash Flow to the Firm (FCFF) model. It's crucial to remember that the accuracy of this model's estimates is highly dependent on the assumptions used for its inputs.
In the following chapters, I will outline my inputs and financial model for valuing NIO. Predicting NIO's life cycle with precision is challenging, as all available information is based on the current situation and its plans for the near future. However, as the saying goes, the only constant in life is change. I will closely monitor NIO's developments and adjust my inputs and valuation accordingly as new information becomes available.
Delivery assumption
NIO
appears to be maintaining its rapid growth. Table 3 shows NIO's actual vehicle
deliveries from 2018 to 2023, along with the estimated deliveries projected
from 2024 to 2030.
Table 3 Delivery growth assumption for NIO (2024-2030)
Discount rate --WACC
Derived from CAPM:
Rf: risk free rate, 4.2% - current 10
years treasury rate
Β: 1.86 (5 years monthly)
E(Rm)): 7.22% from the average annual
return from MSCI World.
A summary of the input assumptions:
Results
Baseline scenario: $3.13
per ADS
Better scenario: $9.26 per ADS
On August 26, 2024, NIO's U.S.-listed American Depositary
Receipts (ADRs) were trading at approximately $4.
The
puzzle
NIO faces a situation similar to XPeng. Its production
capacity could reach nearly 1 million vehicles annually in the coming years,
yet last year, NIO delivered only 160,000 EVs. Additionally, the growth rate is
slowing. A significant increase in foreign tariffs could further complicate
NIO's international expansion. Given these uncertainties, it is difficult to
predict how much of this planned capacity NIO will be able to utilize.
This report reflects my personal opinion. Please note
that there are always uncertainties in the stock market.
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