Stock of the Week: Nio

How the Chinese rival to Tesla is charging ahead.

Andrew Willis 2 August, 2022 | 4:58AM
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Andrew Willis: With Tesla choosing China as a major manufacturing hub, it might not come as a surprise that local competitors are making the most of the business environment there.

We’ve recently initiated coverage of a few such companies, including Li Auto (LI) and Xiaopeng (Xpeng) (XPEV), and Nio (NIO) which is heading off against Tesla with a premium brand it’s built in the Chinese market. Nio’s known for some high-performance EVs, with a predominantly practical, yet high-end line-up.

Nio and peers were founded more than a decade after Tesla, but their products aren’t necessarily followers in the EV space. Nio pioneered battery swap technology, notes equity analyst Vincent Sun, and the company has a battery-as-a-service solution – which separates the battery pack from the vehicle – and thus cuts upfront costs by 15-30%.

Another distinguishing factor for Nio and peers like Xpeng is speed. Yes, Tesla can pump out 80,000 cars in a month in Shanghai, but can it go from announcement to delivery in the same quarter as Nio did with its latest SUV? By using contract manufacturing with established factories in China, Nio can be very nimble.

Given Nio's relative size, we see significant growth potential at more than 50% compound annual revenue growth until 2024, with yearly deliveries reaching 400,000 by 2025 - around the time the company should be breaking even. That should also be a mere 5% market share in the China EV space, which gives you an idea of the growth runway ahead. Currently, the stock is trading at a discount with a four-star rating, but with no moat while we wait to see brand loyalty that can last at least a decade as customers wait for production to ramp up.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Li Auto Inc ADR32.71 USD3.78Rating
NIO Inc ADR20.82 USD3.84Rating
XPeng Inc ADR24.61 USD7.47Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @AndrewWillisCDN.

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