NIOtime #7: Why NIO scored 33% in one week?

Technical Chart. Media News Recap. NIO App Stories. All from a group of NIO global fans exclusively for the NIO community.

Oct 17, 2020

This week let’s welcome 20 new members to join us on board to grow together with NIO! If you’re reading this but haven’t subscribed, we invite you to join the 545 NIOtime community by subscribing here!

Dear folks,

It’s NIO time, Blue Sky is Limitless!

Happy Friday! Bravo for all of us who long NIO together. How do you plan to celebrate another high moment this weekend? Please do let us know your plan in the comment below!

Technical Chart

Last week we commented that the stock was looking for potential momentum news to hit another uptrend wave. Here NIO go this week jumping high on major wall street analyst rating upgrades from three banks.
Finally, NIO broke out the range of US$ 21.00-US$ 22.00 after being consolidated for 10 days. In one week NIO has soared 32.85% and touched US$29.40 52W high and closed today at US$ 28.48.
From technical indicators, NIO is currently extended out of upper bollinger band and 15% uptrend above its EMA 8 (US$ 24.78). However, based on our observation, the rally might not cool off yet awaiting further news around October vehicle delivery number as well as next quarter earning call likely falls on early November. We shall expect the stock trying to push toward US$ 30.00 next week.
Let’s see if the stock can break through this whole number magic and thus look for another high. Otherwise, the stock is looking its EMA8 for support.

This Week’s Top Eight Highlights

Stock Rating Upgrades from Citi, JP Morgan, and DB
Why NIO Establishes FoodLab
What Happen after NIO Reduces Free Battery Swap Benefits for Future Buyers
NIO Production Capacity Issue
NIO NOP In-Depth Review
China Upcoming EV Policy Benefits NIO in Long Term
NIO Power & Space Update
NIO’s Active Prep for International Market

News

Stock Rating Upgrades from Citi, JP Morgan, and DB

Citi analyst Jeff Chung upgraded NIO's stock rating from "Neutral" to "Buy" with a price target of $33.20. The analyst raised expectations for the company's delivery volume and margins, as well as the stock's valuation multiplier.

Chung expects NIO's cumulative backlog of orders to increase 100% from the end of September to 7,000 units, which will significantly improve its margins. Chung added that he raised his forecast for NIO's 2021 to 2025 sales because he believes the state will likely introduce supportive policies to spur demand.

JP Morgan analysts including Nick Lai raised their price target on NIO to US$40.00 from its previous target, US$14.00 which means NIO has 85% upside potential. In its latest report, JP Morgan gave NIO an Overweight rating and admitted that

"We missed the stock's major rally YTD."

In addition to these two analysts’ rating, Deutsche Bank analyst, Edison Yu reiterated a Buy rating on NIO and raised their target to US$26.00 from US$24.00. In the report, Yu commented below with a bullish tone on NIO.

We believe the very strong September indicates that underlying demand is quickly outpacing supply, likely leading to further capacity increases in early 2021. Impressively, NIO only recently increased production capacity to 5k/month in September (from <4k) and already sold 4.7k in the month; we highlight this occurred with immaterial contribution from the EC6, absence of longer range 100 kWh battery pack option (launching in 4Q) and likely minimal benefit from the BaaS roll-out. As these new products/offerings ramp up, we expect NIO to reach its max output in 4Q, with sales then essentially being constrained by supply until it can boost production volumes at its plant.

(News Source: Citi, JP Morgan, and DB reports)

In our humble opinion, it’s great to witness NIO stock moving higher along with analyst rating upgrades. However, as a group of long term investors, we should remind ourselves that our thesis on NIO is not built on someone’s rating reports but because we do deeply believe in NIO from our slowly developing conviction through doing our own due dilligence. Let ask yourself this question, what if today the analysts downgrade NIO and a heavy pullback to the stock, are you panic selling or checking your conviction that this is a good chance buying dip because the market doesn’t see NIO as you did in the long term?

NIO Life Establishes FoodLab

NIO Life establishes food research institute FoodLab-cnTechPost

Recently, NIO Life established the FoodLab food research institute in Beijing Auto Show, and entered into strategic cooperation with SGS, an authoritative international quality inspection agency, to establish ISO9001 quality management system and BRC food safety management system.

Why "FoodLab” for NIO Life?

In order to provide users with peace of mind and a pleasant experience, NIO set up the "NIO Life Food Lab" with the concept of "only making food with peace of mind".

In 2019, NIO Life launched its first cookie product, which won the 2020 WFA Asia Pacific Food Award and has developed more than 20 products of its own, selling a total of 100,000 units.

"Only safe food" is more than just a phrase; it stands behind it: traceable ingredients assured production processes and no additional food additives.

In terms of taste, nutrition, and food safety, NIO Life develops new products with stringent standards, and strictly controls the selection of partners, procurement of raw materials, production processes, and warehousing of finished products. (News & Photo Source: NIO App)

NIO Life is part of NIO’s vision to create a brand associated with your lifestyle. This strategic is completely alligned with Li Bin and his team when they start the brand. When asked in an interview during NIO IPO day at NASDAQ, Li Bin don’t purely see NIO as a car manufacturer, instead he viewed NIO in achieving three levels of a successful lifestyle brand which first level is with the evolution of product with technology, second level is the evolution of user experience and ultimate level is the evolution of car intrinsic brand. Li Bin’s ultimate vision for NIO is to becoming a user oriented community with emphasis on lifestyle and technology. Some of us might not get it directly as devoting resources to form a food research team is necessary to build a lifestyle brand that revolving in your daily routines.

What Happen after NIO Reduces Free Battery Swap Benefits for Future Buyers

Following NIO's previous announcement, the changes to the free battery swap benefits for buyers came into effect from October 12, 2020. This is another critical milestone for NIO as it is letting go of battery swap benefits subsidiary to its future users.

For users who have already taken delivery of their cars and those who pay a deposit of RMB 20,000 before October 11, 2020 (inclusive) and take delivery of their cars normally, the free battery swap rights will remain unchanged.

NIO reduces free battery swap benefits for buyers after Oct 12-cnTechPost

For users who pay from October 12, 2020, the free battery swap entitlement will be reduced as follows.

For users who give up their exclusive charging station entitlement, the first 6 battery swaps per month will be free. If the user chooses to keep the free exclusive charging station privilege, the first 6 monthly battery swaps will be free of charge. From the seventh battery swap, the full charge will be applied, battery swap charge = battery swap * (charge + service charge).

Since the first battery swap station went into operation on May 20, 2018, NIO has laid out 156 Power Swap stations in China, providing more than one million free battery swap services to users in total.

NIO claims that, based on the cost of RMB 180 for a single session, this service has saved users more than RMB 100 million in cumulative costs. (News & Photo Source: NIO App, cnTechPost)

Not a single benefit comes free forever as one of the enterprise’s goals is to make profits from the products and the users. This is a good news for NIO to step out of its very generous offering of free lifetime benefit to attract more first generation owners. In term of the balance sheet, this is good for company as reduction in battery swap benefits is making company spending less on the subsidy. On the other hand, this is also a challenge to NIO as it is testing its demand for future NIO users whether they would still entice to NIO with a revised batter swapping benefit reduction. We shall see this reflecting in November and Decemeber delivery vehicle number.

NIO Production Capacity Issue

This is first time Li Bin talked about the latest production capacity in public appearance. In the video, he mentioned a few exciting news which are the starting of NIO-JAV factory expansion which is likely completed by the end of next year. With the completion of the factory expansion, he is expecting NIO can achieve 300,000 units produced under a double shift working system. He also indirectly tells us the current production capacity is capped at 150,000 units, 12,500 units per month.
On another source from MIIT via D1EV Research, we observe NIO is already achieving 5,000 units per month in September. This is as promised by Li Bin in earlier interviews and we shall see this production to increase under double shift in this upcoming months to fulfill recent heavy backlog order.

NIO NOP In-Depth Review

NIO product manager Zhang Nan said in the Workshop that NOP is essentially a new feature in the NIO Pilot autopilot package, but the official R&D project was established in the middle of last year. The decision to do NOP R&D, in addition to hardware redundancy and the possibility of functional realization brought about by technological advancement, is also because of the feedbacks and demand of many users.

NIO Pilot (NP) is NIO's advanced driver assistance system. After the NOP function launch, it can be roughly said to be close to the L3 that everyone knows. Many core functions of NP have been gradually released since March last year. Over the past year or so, NP's user feedback is good in general. From the data point of view, more than 50% of NIO users have chosen the NIO Pilot package, and the current mileage has exceeded 7 million kilometers and 1 million hours.

However, after the NIO Pilot function was launched, many car owners gave feedback, hoping to expand the scene further and iterate on the functional experience. As a result, NIO began to establish a project to develop NOP in mid-2019.

In just one year, from the project's establishment to the completion of the development and the upcoming release, NOP has made rapid progress. Zhang Nan believes that this benefits from two aspects:

1) Independent research and development

2) Hardware redundancy

The NP hardware specifically includes 1 Mobileye EyeQ4 processor, 1 front-facing three-lens camera, 4 surround-view cameras, 5 milliwave radars, 12 ultrasonic radars, and 1 driver monitoring camera.

A question in the workshop to Zhang Jianyong, one of the leaders of NIO Pilot System Development:

What is the difference between the functions of NIO's NOP and Tesla's NOA?

We cover all urban elevated roads and expressways. For example, all elevated roads and highways like Shanghai and Guangzhou are allowed. Like Beijing, for example, on the Fifth Ring Road, our NOP pilot assistance can be used. Tesla may not be able to use the Fifth Ring Road, but it can be used only at high speeds. As for the elevated highway, Tesla cannot use NOA on the elevated highway. (News & Photo Source: NIO App)

The reasons we bring NOP to highlight this week is because we want to show that NIO has the R&D capability to launch any product demanded by users within a short period of time. NOP is the second driving assistance system after Tesla and the first one offered in the China. The advantage of NOP over NOA is its localization to adapt China’s complicated streets and highway systems. Some analysts may question about their in-house R&D team especially autonomous driving technology. Although NIO don’t develop their own AI chip, NIO is good at leveraging the best resources to integrate them onto their vehicle platform. In near term, we would see this is not an issue for NIO not having their own control over hardware but specialized in advanced software development building on the leading edge tech.

China Upcoming EV Policy Benefits NIO in Long Term

On October 9th, China’s State Council passed the “New Energy Automobile Industry Development Plan” in conjunction with the Ministry of Industry & Information Technology (MIIT).

The aforementioned plan lists four major requirements which summarizes:

Stepping up research on key technologies and encouraging innovation in the development of vehicle operating systems and power batteries.
Developing national infrastructure including public charging system as well as encouraging the application of battery swapping technology.
Strengthing international cooperation with local EV brands.
Increasing policy support for Next Energy Vehicles in the public service sector.

During the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) this year, the government stated: new charging piles and promoting NEV are included in the “new infrastructure” category. (Source: NIO Weibo)

As mentioned in JP Morgan’s report, 14th Five-Year Plan later this month is a near term event to watch for EV brands where China is expected to unveil its NEV ambition in the global market place over 2021-25. (Source: JP Morgan)

In general, this is clear for us that China government is pushing a lot of efforts on NEV architecture and launching a series of supportive policy including battery swapping facilities. China is in favor of going full for NEV instead of relying heavily on ICE which consumes on oil which is not a commodity China owns a larget part. Therefore, with support of government in next few years, we are bullish on NEV market in China in which more and more people as well as public service sectors would buy into EV trends. This is just beginning for NIO as well as other EV brands.

NIO Power & Space Update

This week we did not observe any new update from either NIO Power and Space updates across NIO social media platforms and app.

This is interesting, first time to witness no new development reported on the social media. Let’s review again what’s current status of both facilities.
NIO Power: We have 156 Power Swap and 65 Power Charge from last week. If not mistaken, we believe that around 200 units is the year end target for both Power Swap and Power Charge (we need to check the source again).
NIO House: We have 174th NIO House & Space, this number is close to 200 stores nationwide which is set earlier this year.

NIO’s Active Prep for International Market

Interview Video Source

On the premise of ensuring China's leading position in the market, entering the global market is a very good foundation, and NIO will work actively on global market expansion from next year.
He revealed that, NIO is now actively preparing to enter the global market, and will definitely enter the European market next year, entering the global market is a step-by-step work, a long-term plan, Li Bin believe we will enter more and more global markets.
He said that seeing that the global auto industry is investing around smart electric vehicles and so on, he believes that the next few years will be a time when the whole auto product will accelerate the shift to smart electric vehicle products.

Summary

This week we witness NIO breaking another high again within one week and closed the week at US$28.48. As a group of long-term investors, we are pleased to see our portfolio flying green and high. In addition, it is also our wish to outreach more investors to let know about NIO.

Despite several upgrades from analysts, we are excited about the upcoming October vehicle delivery number as well as the upcoming quarter earning report. In the meantime, we will periodically post quick updates on our NIOtime Instagram and NIOtime Twitter.