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Highly motivated and results-oriented professional with 5+ years of experience in Financial Services, Investments and Communications. Demonstrates a strong understanding of portfolio reconciliation and asset management with a record of success transforming strategic plans into operational campaigns. Passed CFA Level III Exam. Managing a portfolio of C$500K. Implicit Geek.
NIO reported the 3rd quarter 2019 result on 12/30/2019. The stock price has been fluctuating recently, and it related to several factors. This article will discuss some highlights and advantages of NIO, issues NIO is facing, and the X-factor. In the end, I will also give my recommendation for NIO's short-term investment.
Highlights of 3rd Quarter 2019 Result
Based on NIO website releases, the first highlight I would like to bring is its cost control. NIO has noticed its most significant issue – the cost. NIO managed to decrease its gross margin from -33.4% to -12.1%, compared with last quarter. I was also impressed by the NIO’s altitude on controlling cost: NIO cut cost by laying off unnecessary functional departments, and by reducing negative pay-off services. NIO shows it is on the right track on improving the operational abilities as an automobile company.
The second highlight I would like to mention is the delivery number. The delivery number of an EV company, in my opinion, shows if the customers accept its technology. It also shows the brand influences. Increasing delivery number (from 3,553 in Q2 2019 to 4,799 in Q3 2019) indicates customers accept this brand and the value behind the brand. If customers accept the brand, NIO will have better delivery in the future (and NIO proved my view as NIO’s December delivery increased again to 3,170 vehicles).
General Advantages vs. Chinese EV Makers
The biggest competitor of NIO in China is Tesla. In most areas, NIO is at a disadvantage compared with Tesla. However, NIO has advantages against other Chinese EV makers, including BYD, Xiaopeng, and Lixiang. The first NIO’s advantage is technology. NIO has the top tier electric vehicle control and operation system around the world, and its battery technology is in the top tier as well. The NIO EVs’ range is lower than Tesla but longer than most other Chinese EV makers. The driving experiences, according to various tests and customer feedback, are better too. From the technology aspect, NIO can grow its business.
The second NIO advantage is reputation. Most NIO EVs buyers support NIO, just like how Tesla buyers support Tesla. I talked with several NIO EV buyers, and they said they were admired by NIO EVs and would like to recommend others to buy.
Issues NIO Facing
The Year of 2020 will be tough for NIO. The first reason is raising competition. Tesla built a factory in Shanghai, China, and it started delivery model 3, the bestselling EV around the world, from 1/7/2020. Model 3’s price is closing or even lower to NIO’s current productions, and it will affect the NIO’s delivery. However, it is unclear on what degree Model 3 will affect NIO’s delivery, and my guess will be a 30% decrease. Q1 2020 will be critical for NIO.
The second issue is the negative margin. Although NIO showed it understood how to cut costs, it has not yet confirmed it knows how to make a profit. No company can ever survive without positive profit in the long run. Given NIO is a relatively new EV company, if NIO cannot prove it can make provide in recent several years, the stock price will not be beautiful in the long run.
As NIO is at the leading position among Chinese EV makers, I believe it is worth to review the move of the Chinese government carefully. I think the Chinese government will highly likely influence the situation if NIO had to face bankruptcy. I also foresee the possibility that some Chinese companies, with the Chinese government behind, will buy NIO, once Tesla has ‘finished’ its mission to ‘share’ EV technologies. We have seen similar stories before, and I believe it may happen on NIO too.
With the positive offsets the negative, I give recommendation of HOLD for NIO. However, investors should carefully review the move of the Chinese government related to NIO.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NIO over the next 72 hours.