Automotive Author: Niko Yang, Ivan Platonov Dec 22, 2020 06:39 PM (GMT+8)

Tesla has reportedly started manufacturing its Model Y in China.

Weilai power exchange

● China's passenger EV sales penetration rate topped 8.1%, a historical peak, which was higher than 7.0% in October this year and 3.7% in November 2019.

● Our new algorithm shows that NIO's share in China's EV market reached 2.84%, lower than October's 3.4%.

● Referring to NIO's November deliveries, we've lowered our estimate, still expecting the firm to first break even in 4Q 2022.

● NIO is now less likely to beat its 4Q expectations.

● We maintain the 'hold' rating.


When looking at NIO's November sales, we don't see anything spectacular. The 4Q 2020 expectations are not likely to be met, and a genuine threat is brought by Tesla's Model Y in the following months. In short, NIO's outlook is rather unclear now. Notwithstanding that the stock is now down 17.3% since our last publication on NIO (as of December 16, 2020), we still remain neutral, waiting for more positive signs.


Regardless of the downturn caused by the COVID-19 pandemic, major Chinese electric vehicle (EV) upstarts have been showing stellar performances this year. EqualOcean believes that these companies are likely to lead the next automotive revolution and play a larger role in the global high-end EV space. In this edition of our monthly overview, we analyze NIO, China's top EV maker, through five key dimensions: EV market penetration in China, sales and competition, financial projections, key infrastructure installation and technical risks, rewinding its critical developments and rating the stock.

EV penetration tracker

幻灯片1.PNG.PNG

In November 2020, China's passenger car sales saw delightful results, adding 8.9% MoM and 11.7% YoY. That showed the speedup of the market bouncing back since May, with the year-on-year rate turning positive for the first time in 2020.

China's passenger EV sales grew by 25.7% MoM, 143% YoY. The MoM figure resembles September's 25.2% boost. The YoY rate also surpassed the last month's astonishing growth, indicating the complete recovery of the EV market.

The EV penetration rate leaped to 8.1%, a new historical peak, up an absolute 1.1% MoM, 4.4% YoY. We attribute the MoM change to the accelerating trend of Chinese consumers accepting NEV, which can also be illustrated by the booming deliveries of MINI EV and Tesla's Model 3. We also attribute the YoY change to the last year's subsidy retreatment.

 

Sales and competition tracker

幻灯片2.PNG.PNG

To better measure the EV market structure, we substituted our approach from the previous article with the vendors' car deliveries divided by the total EV sales, received from the China Association of Automobile Manufacturers (CAAM), to calculate their market shares.

In November, NIO was losing its market share. It nabbed 2.84% of the total, which is lower than 3.42% a month ago but still higher than 2.53% in the same month last year. November is a weak delivery month for NIO – we discuss the sales in more detail below.

 

Profit Tracker

1608632413(1).jpg.jpg

After taking into account the latest deliveries data, our model shows similar results to the last estimate: NIO will turn profitable in 4Q 2022 for the first time. Per our projection, over the next four years, the EV maker's sales will grow at a 56.55% CAGR, delivering over 258,635 models in 2024. In that year, each vehicle is projected to generate revenue of CNY 346,770.

 

Charging pile tracker

1608632459.jpg.jpg

According to EVCIPA, charging piles reached about 696,000 in November, up 4.35% MoM, 40% YoY. The MoM change is still much greater than the year-to-date average of 2.78%, even though it crashed from an abnormal 10% a month ago. Per EVCIPA, the increase resulted from operating companies ramping up the building and accessing grid processes at the end of the year.

 

Technical risk tracker

1608632533(1).jpg.jpg

News tracker

Below are three events that occurred between November 15 – December 20 and may have affected NIO's market performance.

  • NIO, with plenty of cash on hand, reportedly restarted L4 autopilot development

As Cntechpost reported, "Chinese EV maker NIO has restarted the development of its own L4 autopilot technology, led by industry veteran Ren Shaoqing, and is currently in the team-building and data acquisition phase, according to LatePost."

  • NIO announces a private placement, priced at USD 39 per ADS

On December 16, NIO completed the offering of 68,000,000 American Depositary Shares at USD 39 apiece. It has granted the underwriters in the ADS Offering a 30-day option to purchase up to an additional 10,200,000 ADSs. So the company could raise as much as USD 3 billion. Later on, the underwriters committed to purchasing an additional 10,200,000 ADSs in full. The closing of the sale of the additional ADSs is scheduled on December 17, 2020.

NIO declared that 60% of this offering's proceeds will be allocated to "(i) research and development of new products and the next generations of autonomous driving technologies," 30% on "(ii) sales and service network expansion and market penetration" and 10% on "(iii) general corporate purposes.''

  • CAAM predicts that the sales of new energy vehicles will reach 1.8 million next year

CAAM held the 2021 China Automobile Market Development Forecast Summit. Thanks to the favorable market environment, CAAM made a short-term forecast for China's automobile market in 2021. Per the organization, next year, new energy vehicle sales' volume will hit 1.8 million, with a year-on-year growth of about 40%. There was also a claim that the current subsidies in the sector might be completely withdrawn in three years.

 

November sales may not be that disappointing

NIO delivered 5,291 vehicles in November, up by 109% YoY, 4.7% MoM. On the one hand, the ex post data shows that both November in both 2019 and 2020 were generally weak months for NIO. On the other hand, such results don't look positive, if we look at the management's guidance in the 3Q earnings call – 16,500-17,000 deliveries in 4Q 2020. It means the company will have to deliver at least 6,154 cars in December to reach the bottom line. Although Shanghai's new policy somewhat stimulates its sales, we think it is going to be rather hard to hit the upper target.

1608632559(1).jpg.jpg

Projection methodology

We adopted the minimal YoY rate in the last four months (which is October's 100%), as it has been cross-proved by historical YoY and MoM change trends. Meanwhile, NIO's YoY momentum has been hovering within the range between 100% in October and 133% in August. It implies that 100% may be somewhat conservative. What's more, the MoM change shows a choppy trend from September to December in both 2019 and 2020, which supports our result, to some extent.

 

NIO still has a chance to surprise us again

Another way to estimate December's deliveries is via averaging the last four months YoY rates. If so, the December figure would be 6,710, with the 4Q quarter result surpassing the 17,000 target. If we choose a more aggressive estimate – September's 133% – as the benchmark rate, the company can easily pass 17,000 in 4Q. But we believe it is hard to achieve as September 2020 has proven itself to be a cherry-picking month for the company.

 

Signs of intensifying market competition

NIO's performance depends on how the company hangs on in China's overly competitive EV market.

These days, Xpeng and Li Auto, NIO's rivals, are raising money extensively, building commercial and technical moats. Besides, as we mentioned in our SA article about Xpeng, most of the Chinese startups incorporated during the past several years are now about to start releasing their models, some of which can possibly shake the market. Other possible issues are coming from China's mighty tech industry. Alibaba is reportedly collaborating with SAIC, Huawei has deepened the cooperation with BYD on smart EVs. Recently leaked information revealed that Baidu is considering producing its own electric vehicles. Volkswagen has begun to provide BEV ID.4 model reservations in China.

Last but not least – what about Tesla? So far, NIO hasn't been directly competing with Tesla. On the demand side, SUV buyers and Sedan buyers have different consumption patterns, and Model Y hasn't been provided in China, while NIO was winning huge orders. According to some market rumors, the model will appear in the country in early 2021. More importantly, Tesla, by all appearances, will apply the same price-cutting strategy as it did for the Model 3. These initiatives are extremely effective, as proven by the MINI EV and Model 3's successes this year. At that time, NIO will have a hard time competing against cheap, well-branded Tesla cars.

 

We give a 'hold' rating to NIO's stock due to the unclear Model Y effect and likely worse-than-expected deliveries in 4Q. The management's 17,000-delivery goal is hard to hit. Even though the stock has been down by 17.28% since our last publication, the dip appears to be of a mark-to-market nature, not showing any potential to skyrocket again. This December is crucial for NIO, and our neutral stance may change in January 2021.