Weekly Analysis – Is NIO going to take over Tesla?

1. US stock investment strategy

All of the companies listed in US market announced their quarterly earnings by today. Luckily, we saw S&P 500 quarterly bottom-up EPS growth was +25% on year-to-year basis.

US Weekly_graph1

Also, 80% of the companies showed positive surprise for this quarter, which is the highest level. The average of positive surprise for last five years was 70%.

Although U.S is leading a bull market, many markets around the world are facing downside risk due to US-China tariff war. Especially China and Hong Kong markets are turning deeply into the bear market now. Some countries are facing currency crises because foreign capital flew out from emerging countries and headed to U.S market. Big companies which hold large weight of overseas segments are losing value, since dollar is too strong and eliminates oversea sales’ contribution to revenue. Currently, the average over-seas segment revenue is about 38% of S&P 500 index companies. We can see many investors changed their investment target from large cap to small-mid cap to avoid the risk from emerging countries.

This trend shows in the NFIB (National Federation of Independent Business) Index. Small Business Optimism Index recorded historic high in August.

US Weekly_graph2

At the same time, Small Business Outlook Index also shows strong estimate for the near future business inside US.

US Weekly_graph3

It seems the tariff war will continue for a long-time and we think it is time to increase investment into small-mid cap stocks under this business environment.

2. Nio Inc. (NYSE: NIO)

Nio Inc., a Shanghai-based electric-car maker went public on New York Stock Exchange. After pricing near the bottom of its target range at $6.26 and a bumpy first day of trading, the shares rose as much as 35.78% at $8.50 (as of Sept 17th.) in New York trading. The company is backed by Tencent Holdings Ltd.

Chinese government incentives have helped the country become the world’s biggest market for clean-energy vehicles (EV). The Government has set new sales targets for electric plug-in and hybrid vehicles equivalents to 10 percent of annual sales by 2019 for all the car makers in China. Also, the government will no longer grant new licenses for building new gasoline-powered car factories. Most cities will further reduce the number of new car plates available to buyers and encourage the use of new energy vehicles. China started car license plate lottery system several years ago to maintain a total of vehicles, as well as to reduce traffic gridlock and ease air pollution. Getting a license plate for a gasoline car can take years through a lottery, while an EV license is free and often can be obtained a lot faster. China now is the biggest EV car market in the world. Besides, the government has been offering subsidies to buyers of EVs of up to $11,000 per unit for NIO main product “ES8”.

It is said EV market in China could be separated by price and branding into 3 segments. 1. Entry market, 2, Mid-range market and 3. Premium market.

BYD, GAC and SAIC are the main automaker players in Entry market, while NIO belongs to premium car market. The price for NIO cars is around $60,000 to $80,000 and the price for Tesla is about $120,000, which is too expensive for most of the customers.

US Weekly_graph4

We see NIO’s competitors are as below:

Company Ticker  Main EV car model
SAIC 600104 ERX5
BYD 121.HK E6
Daimler AG DAI:GR  Mercedes-Benz EQC
Volkswagen AG VOW3 Audi E-ton SUV
Tata Motors TTM Jaguar i-Place
Tesla TSLA Model X

Also, from the market growth by segment chart as below, we can see Sedan cars will grow +1.9% per year in the future, while SUV cars will grow +9.4%, and MPV will grow +0.7%. NIO’s main car model “ES8” is SUV car, where the company is focusing on.

US Weekly_graph5

We can see China will lead the EV car market in the near future. NIO is a newcomer to the rapidly growing EV market in China. It released “Formula E”, “EP9”, “ES8”, “ES6” and “ET7” in the past 3 years. The number of employees is only 7 thousand, because they outsourcing their productions.

US Weekly_graph6

NIO has 80 battery swapping stations in China, and as planned, NIO will build more than 1,100 battery swapping stations and over 1,200 mobile charging stations by 2020, in total the company is planning to add 5 million more charging stations by 2022. It is known that the NIO ES8 can be 80% charged in one hour under the fast-charging mode. The NIO ES8 is a 7-seater high-performance electric SUV exclusively for the China market. It is a mobile living space on wheels with performance in its DNA. Both the onboard NIO Pilot system, an advanced autonomous driving assistant system, and the first in-car intelligent AI system NOMI redefine the car ownership experience.

NIO started to deliver ES8 from this June, and they could offer 2,200 cars currently. NIO only started generating revenue this year, with US$6.95 million for the first six months. But it suffered a net loss of more than US$502 million during the same period.

This report was contributed by Takao Hirose, Contextual Investments, LLC., published on 18/09/2018.

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