We here at Insider Financial have been covering NIO stock since June when shares traded at just $6. Even after almost 500% gains, we are just as bullish today as we were then.
Our track record has been consistent and rewarding for our readers and subscribers. We said that NIO stock was a better bet than Nikola or Tesla, which you can read here. Then, when Goldman Sachs said to sell NIO, we said the smart play was to ignore Goldman Sachs, which you can read here. In August, after selling off after earnings, we said to buy the dip, which you can read here.
So far, we have called every opportunity on NIO stock. That’s why we are so confident in issuing our $100 price target for 2021.
First up, here’s a little background info for those look at NIO stock for the first time (sorry if you missed getting in early).
NIO Inc. is a pioneer in China’s premium smart electric vehicle market. NIO designs jointly manufacture and sell smart and connected premium electric vehicles, driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence.
NIO began deliveries of the ES8, a 7-seater high-performance premium electric SUV in China in June 2018, and its variant, the six-seater ES8, in March 2019. NIO officially launched the ES6, a 5-seater high-performance premium electric SUV, in December 2018 and began deliveries in June 2019. NIO officially launched the EC6, a 5-seater smart premium electric Coupe SUV, in December 2019 and plans to commence deliveries in 2020.
EV deliveries are trending in the right direction, despite manufacturing constraints. NIO delivered 4,708 vehicles in September 2020, representing a strong 133.2% Y/Y growth. The deliveries consisted of 3,210 ES6s, 1,482 ES8s, and 16 EC6s.
In October, NIO delivered 5,055 vehicles, +100.1% Y/Y. The deliveries consisted of 2,695 ES6s, 1,477 ES8s, and 883 EC6s. YTD deliveries reached 31,430 units, an increase of 111.4% over the prior year. As of October 31, cumulative deliveries of the ES8, ES6, and EC6 were 63,343 vehicles.
NIO Customers Love NIO
We have said time and time again that China wants a home-grown EV player to dominate the Chinese market. They are not going to let Tesla become the dominant player. The problem has been that Tesla had a first-mover advantage, but NIO is rapidly catching up and building a loyal customer base.
NIO is increasingly perceived by customers as a high-quality premium brand with best-in-class technology and service. The brand also has an impressive 62% referral rate and high ranking in a recent favorability study against major brands. As more Chinese customers learn about NIO, we believe that Nio can take a material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services.
Furthermore, in China, local brands are generally more preferred by the average consumer.
In September, China’s vehicle sales rose 12.8% Y/Y to 2.57M vehicles, up from August’s 11.6% growth, according to the China Association of Automobile Manufacturers (CAAM). Sales of passenger vehicles rose 8% for the month.
China is set to mandate 25% of car sales must be EV in China, which is the largest car market in the world. That would be 25% out of 26 million or 6 million EV per year in China.
NIO vs Tesla In China
NIO is the preferred option because of its battery-swap technology. NIO buyers are eligible for subsidies from the Chinese government whereas Tesla is not. The subsidy to purchase EVs under 300,000 yuan only applies to manufacturers that use swappable batteries.
Tesla doesn’t allow its batteries to be swapped. China is encouraging battery-swapping according to Miao Wei, Minister of Industry and Information Technology
“The ministry will encourage battery-swap technologies to alleviate mileage anxieties and introduce more new energy vehicles into public-service sectors including buses, street sweepers, and logistics vehicles.”
NIO has perfected battery-swap technology for its vehicles. As of August 25th, NIO has deployed 143 battery swap stations across 64 cities in China and completed over 800,000 battery swaps for its users.
In August, NIO launched the innovative Battery as a Service (the “BaaS”) subscription model and announced the establishment of Wuhan Weineng Battery Asset Co., Ltd.
The BaaS model allows users to purchase electric vehicles and subscribe to the usage of battery packs separately. If users opt to purchase an ES8, ES6, or EC6 model and subscribe to use the 70 kWh battery pack under the BaaS model, they can enjoy the vehicle purchase price with an RMB70,000 deduction off the original price and pay a monthly subscription fee of RMB980 for the battery pack.
Meanwhile, the users will continue to enjoy the existing favorable policies such as purchase tax exemption and government subsidies for EVs. The first vehicle under the BaaS model has completed the process of license plate registration, insurance purchase, and auto financing. All users who purchase NIO vehicles are now eligible to place orders with the BaaS model.
William Bin Li, founder, chairman, and chief executive officer of NIO, said:
“The BaaS model has long been planned with our unique battery swap technologies. The successful launch of the BaaS model will enable NIO users to benefit from the lower initial purchase prices of our products, flexible battery upgrade options and assurance of battery performance. The advantages of our chargeable, swappable and upgradable battery swap technologies will continue to enhance competitiveness of NIO products, promote conversion to our premium smart EVs and create more values for our users.”
Why $100 In 2021
Right now, NIO is able to manufacture 4000 to 5000 vehicles per month or 48,000 to 60,000 vehicles per year. However, by the end of next year, CEO William Li said that the company should be able to manufacture 150,000 per year. Furthermore, as of September 30th, just 26,375 vehicles were delivered in 2020.
By the end of 2021, NIO is set to deliver three to five times more vehicles. With a current market cap of $50 billion, we could easily see NIO have a market cap north of $100 billion. This is why we believe a $100 price is likely next year, especially when you consider that Tesla has a current market cap of $425 billion. We believe NIO is going to close the valuation gap with Tesla, especially once manufacturing constraints are alleviated.
NIO stock is on the same trajectory as Tesla. We believe its market cap will keep climbing as it closes the gap with Tesla. As we have said before, NIO is on pace to become the Tesla of China and William Li the Elon Musk of China. With 6.45% of NIO’s float short, we look forward to the shorts getting crushed by William Li, just like Elon crushed the shorts in Tesla. Buckle up and grab your popcorn. It’s going to be an exciting ride.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NYSE:NIO or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.