We relate the EV maker's somewhat bleak delivery numbers to seasonality.
January's stellar delivery figure is accommodated with the management's expectations in Q3 2020
The market is currently not optimistic about the firm
The company began to repurchase NIO China interest from the government-related entities
Institutional investors' stances on EV encountered a divergence: Hillhouse Capital closed its position, Bridgewater initiated one
We recommend buying the dip, anticipating more good news coming
In January, NIO (NIO) presented an attractive delivery figure as the production capacity has been growing. This is delightful given the background of breach of semiconductors in the vehicle supply chain. But the craze about EV seems to fade, following the recent decline of hot EV stocks, including institutional investors Hillhouse Capital and Bridgewater sharing different attitudes towards NIO, according to the newest 13F filings. Besides, the company began to repurchase NIO China shares as part of a deal with the Hefei government. We think NIO is worth investing in due to its decent fundamentals and market position amid the uncertainty.
January Sales Boomed by 352% YoY
2020 is a booming year for the NEV market. Along with this positive trend, NIO showed a fast-growing delivery figure with 7,225 units in January 2021, up 352% YoY and 3.11% MoM. This is primarily accommodated with management expectation in 3Q 2020 that CEO William Li forecasted the production capacity would reach 7,500 in January 2021. The company met the expectation in spite of the shortage of vehicle chips and EV batteries. Resulting from booming sales, NIO's share of China's passenger EV market hit 4.2%.
But the stock price did not go up accordingly. Since the figure disclosed on February 1, the stock sank by 13.84% (as of February 23, 2020).
Repurchasing interest of NIO China
Another key event of NIO is that the company will repurchase 3.3% interest of NIO China (the entity that owns major NIO assets) with a cost of CNY 5.5 billion from Hefei government-related entities. The company will also buy additional capital of NIO China estimated at around CNY 10 billion. Upon the completion of the Equity Interest Purchases and the Capital Subscription, the company will hold an aggregate of 90.36% controlling equity interests in NIO China.
The transaction recalled the deal signed by NIO and Hefei Government in April 2020. The latter, as a strategic minority investor, would invest CNY 7 billion in NIO China. To make the deal, NIO had to invest CNY 4.26 billion in NIO China located in Hefei. The company also accepted the valuation adjustment mechanism requiring NIO China to complete the IPO within 60 months. After carrying out the agreement, NIO holds 75.1% of NIO China.
In August 2020, NIO issued 88,500,000 Class A Ordinary Shares, using the proceeds to repurchase shares of NIO China and subscribing to its additional capital. NIO acquired 86.5% shares of NIO China after the offering.
Institutional investors' attitudes are divergent
NIO may be pressed recently by the news Hillhouse terminated its position in NIO. As a famous investor in China concept stocks, Hillhouse's position has been eyed by many investors. According to the newest 13F profile, it has cleared shares of NIO.
Like many other high-yield funds, Hillhouse has been trading EV stocks for a while. It is one of the most significant investors in NIO with different funding rounds, including its Series A, C, and C+. Interestingly, Hillhouse sold all his shares in NIO at the end of 2019. But the company didn't give up on the EV sector. In July 2020, it bought shares of NIO (2.4 million shares), Xpeng (0.92 million shares) and Li Auto (1.6 million shares). However, their tradings have turned out to be short-term. By the end of 2020, it gradually closed positions in NIO, Xpeng, Li Auto and Tesla.
At the same time, Hillhouse reportedly joined the seasoned offering of BYD.
Another active management fund, Bridgewater, has launched a position in NIO.
Future expectations
The stock market has been fluctuated unstably by irrational tradings from retail investors since the start of the pandemic. For example, Barclays has published new research indicating the surging bitcoin prices and the recent GameStop drama, proving the unprecedented irrationality in the stock market. More recently, the whole EV sector has been into a correction placing a huge risk for investors.
Amid the market uncertainty, we should care the most about a company's value and fundamentals. As we mentioned, NIO's 2021 performances are likely to be bolstered by few indicators, including monthly deliveries, and other news like the deliveries of ET7 and the possible EU and US expansion. Even though the market’s sentiment is changing, some investors are selling large-cap tech names while buying undervalued stocks. We believe that EV will continue to be the hottest sector in the next few years. This is the perfect timing to buy the dip. Read more about how NIO is dominating the Chinese EV scene in our 'Ultimate Guide.'