NIOtime #12: Q3 Earning Call Recap - Long Solid EV That Eating ICE Market Pie
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Dear folks,
It’s NIO time, Blue Sky is here!
Happy Weekend! Bravo for all of us who long NIO together. NIO just had the earning call on past Tuesday. In summary, NIO delivered a very nice quarter report which has beaten wall street analysts’ expectations with a series of rating upgrades following the last few days. This week we would like to recap the earning call and summarize the key Q&A highlights. There are many good questions asked by analysts and insights from top management on the future direction.
Before we head to the technical chart this week, we want to bring up one clear message: Long solid EV that can compete positively for ICE makers market pie.
Another observation on the market right now, we may see a new riding wave on any stocks that are relating to EV concepts. Sometimes we may feel that missing the boat for not identifying these tickers in time and FOMO into getting the stocks without understanding them in depth. It’s okay. In our view, the ability to identify the solid EVs in this industry and build conviction gradually to invest for the long term is the most critical acumen as an awesome investor.
Technical Chart
This week NIO closed the week at $49.25 which is 10.6% higher than last week’s closing price ($44.50). NIO managed to hold the downward trend tradition after earning calls. Despite a minor pullback after earning call, NIO quickly bounced from this week’s low and consilidate between $50.00 and $45.00 zone.
From the technical indicators, NIO is now looking normal and falls within BB bands. There are two strong supportive level: EMA8 ($45.99) & EMA21 ($40.22). Watch out for these price level and we think that any pull back to the range would be good dip buying opportunities for long term investment.
At the moment, NIO is cooling off from the earning report hype and entering a consolidation phase. Despite the high price target by the analysts, the stock is antipicating next exciting news for sustainable upward momentum. This is likely the November vehicle delivery number happening in earlier December. Anyway, invest safe!
This Week’s Top 7 Highlights by NIOtime
Q3 Earning Report Recap
Analysts Updates Summary
Production Capacity & Other Updates
NIO Day Preview
Internalization Plan and Focus
Tesla Model Y Price Reduction Impact on NIO
NIO Power Update: 160 (1) -69 (0)
NIO House & Space Update: 22 (0) NIO House & 162 (2) NIO Space
News
Q3 Earning Report Recap
In our view, the Q3 earning report is wonderful as it double beats on revenue ($666.6M) and EPS expectations (-$0.12) with improved double digits profit margins, about 15% QOQ lesser net loss as well as positive delivery guidance (16,500-17,000 units) in Q4. These metrics showed NIO’s high confidence in delivering another strong fourth quarter.
Analysts Updates Summary
This week we saw 7 analysts updating their previous price target with Credit Suisse giving the highest price target, $60.00, and Morgan Stanley giving the lowest price target, $33.00. In addition to the US bank analysts’ rating, there are two upgrades from the local bank analyst in China: CICC with a Buy rating at $52.00 and US Tiger Securities with a Buy rating at $53.00.
Production Capacity and Other Updates
During Q3 Earning Call Q&A section, Li Bin noted that the current production capacity and supply chain production capacity has already reached 5,000 units per month in September. The teams are working diligently together with other partners to further elevate our production capacity. They target to expand the overall supply chain production capacity to 7,500 units per month, in January 2021 to meet the growing user demand.
Moreover, NIO is developing a second-generation power swap station with lower costs and a better experience. And our planning to deploy the second-generation swap station in the first half of 2021. As our user base continues to expand, the NIO user community is becoming ever more vibrant. November marks the second anniversary of the NIO user volunteer initiative.
As of November 10, 2020, there are 3,101 user volunteers from 118 cities. They take it upon themselves to promote NIO and contribute to the community as showroom auto shows, live streaming platform, delivery centers, and the NIO Day. Users trust and support have always been the biggest motivation for NIO to do more and to be better.
NIO Day Preview
In the conference call, Li Bin mentioned the next debut model will be a sedan and also revealed they are working on a future debut model which is on sedan style as well. We think that the next Sedan would be first targeting the premium market and the following sedan targeting the mass market with reasonable pricing.
In addition to the new model debut, the core technology platform - NIO NP 2.0 Platform will also be revealed during NIO day 2020. Li Bin quoted that this is going to be the industry-leading mass-production autonomous driving system that is designed to dominate the market for the next few years.
When asking about the chipset selection and Mobileye partnership. Li Bin revealed that this is not the right timing to disclose such information despite an internal decision that has been made on the technology execution plan. More, Li Bin promised that the most advanced chipset with the best performance for Autonomous Driving Technology R&D will be revealed at NIO Day 2020.
We are anticipating what would be the new features on the NIO NP 2.0 platform: what type of hardware improvement, software integration, additional advanced functionality, etc. This is unusual to us that Li Bin didn’t mention their partnership with Mobileye when speaking about autonomous driving system. Instead he acknowledged NIO has the in-house capability to develop and execute the technology. There is high likely that NIO is going to develop its own chipset. The question to us is to what extend and how far NIO is going to control within the critical autonomous driving technology.
To us, this is a good decision to NIO for long term as they may realize that the final battleground of EV brands are not only by the quantity they have, but also depending on the advancement of the software as a service piece in their EV ecosystem. This software stack would be a key to future larger enterprise valuation, so far we witness Tesla is a big player in their software stack as well as in cheaper battery revolution technology. We do hope NIO can leverage the increasing market capital to deploy more on the critical and emerging R&D areas.
NIO Internalization Plan and Focus
In short term, NIO will enter the global EV market in the second half of 2021 and has not mentioned where would be their first market country.
In long term, NIO is a global brand from the beginning and NIO is very patient to implement this strategy step by step with three core principles.
First, NIO will stick to the user enterprise model. We believe it's our global and universal philosophy.
Second, NIO will emphasize the premium brand positioning to compete with our key competitors such as BMW, Audi, and Tesla.
Third, NIO will localize aftermarket service to the international customers' needs.
In this conference call, we are pleased to hear that the globalization efforts have been planned accordingly and their vision for user enterprise, premium EV brand and localized services are still intact for the global market. We clearly understand that the time and efforts to set up an ecosystem with these three principles are much longer and harder.
In our view, the globalization is not done on purely exporting the cars but more works on building a user enterprise community from the ground. Will the user centric brand effect work in international markets giving the difference in western and eastern cultural? We have no answers but eager to find out.
One discussion question for NIOtime gang:
If NIO is coming to your country, how likely would you buy NIO cars and how willing are you contributing to NIO community i.e. setting up NIO space, establishing business partnership with NIO, sharing NIO with others, sponsoring NIO in ads space, volunteering at Auto Shows, organizing local events, etc. ?
Please let us know your comments below or shoot us an email (theniotime@gmail.com) of your thoughts. This would be good if we can gather some feedback from you all and send them to NIO IR.
Tesla Model Y Price Reduction Impact on NIO
Li Bin Takes on Tesla Model Y Price Reduction Impact
Tesla has officially announced that they're going to have local production of the Model Y. We believe that this is actually good for the users because if we have more options for the users, then this can help us to accelerate the popularization of the EV in the market. Of course, we believe that Tesla's strategy is quite different from NIO.
The most recent one is around October, 1, the price cut is around 10%. We didn't see any specific impact on over order intake. Actually, in October, our order intake has broken the historic record and exceeded our expectations. Our transaction price is around hundreds of thousand RMB higher than Tesla's average selling price.
Li Bin believes that this proves that NIO has its own unique advantages with the products and services. Model Y's introduction to the China market is going to be beneficial for the overall market. For the market situation, basically, we believe the pie is growing bigger, and our main competitors in this market should be the gasoline parts.
Our take for this price reduction impact aligns with Li Bin’s view:
In the China market, the current situation is not “the winner takes all” scenario, there is definitely room for solid EVs to compete positively for ICE makers market pie.
A healthy competition among EV brands is good for end-users as they would benefit from the technology innovation and price reduction for mass EV production in near future. The traditional ICE makers shall worry here and are advised to allocate larger fund for EV adoption plan like GM & Volkswagen.
The EV dominance race is just beginning, all EV brands including NIO have to catch up with technology innovation, capture a larger user base, and compete for a larger ICE market share.
NIO Power Update: 160 (1) -77 (0)
So far NIO has 160 power swap stations in 71 cities in China.
NIO House & Space Update: 22 (0) NIO House & 162 (2) NIO Space
In regards to the sales and service network, NIO has opened 22 NIO Houses and 162 NIO Spaces in 107 cities.
Summary
In general, we are inspired by NIO’s consistent efforts to push the enterprise limit for a better user experience to enjoy technology advancement. One last key highlight that is not much in media coverage that we want you to know is the 35% take rate of the BaaS model in the recent new order.
What does this 35% take rate implies?
In addition users don't have to worry about the problems caused by battery degradation and battery technology upgrades, they can also greatly reduce the purchase threshold, i.e. the ES6, which is also comparable to the X3 and Q5L (priced between 350,000 and 500,000 RMB), will only have a purchase threshold of around 280,000 RMB if the BaaS model is adopted, and the vehicle hardware and driving experience is completely better compared to traditional fuel vehicles. For those who are good at investing or running a business, the money saved from the BaaS model can be used much more efficiently.
However, there is a concern about the deployment rate of the power swap station meeting the user demand. We need higher efficiency power swap station deployment so that more users would buy into the BaaS model with a better user experience. It’s a positive cycle, the more power station deploys, the higher chance of users adopting the BaaS model. We are putting hope on the rapid launch of the next-generation power swap station which falls in the first half of 2021.
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Disruptive technology company eats ICE dinosaur companies for breakfast!