This analysis was first published on ChineseAlpha, an equity research platform that demystifies listed Chinese companies by providing in-depth, quality research. Read the whole article, including a DCF model.
Niu Technologies (NIU:NASDAQ) is a Chinese electric scooter company offering NQi, MQi, UQi, Gova series e-scooters; RQi and TQi series urban commuter electric motorcycles; and NIU Aero series professional mountain street bicycles under the NIU brand name.
NIU also offers accessories for cycles and lifestyle merchandising. The company sells and services its products through city partners and franchised stores, third-party e-commerce platforms and the company's online store. As of December 31, 2019, it operated through 235 city partners and 1,616 franchised stores in approximately 190 cities in China's mainland; as well as 36 distributors in 46 countries internationally. However, as of December 2020, more than 80% of the company's sales were coming from China.
After being founded in 2014, NIU grew initially thanks to four rounds of early-stage investment between 2015 and 2018. Then, on October 19, 2018, NIU went public on NASDAQ, where the stock opened at USD 9.00 per share. From this operation, another funding of USD 63 million was provided to the company.
While in the first two years of listing on NASDAQ the stock price remained volatile between the lowest of USD 5.90 per share and the highest of USD 9.41, it started skyrocketing at the beginning of March 2020, amidst the mainland's success in the COVID-19 epidemic control, to reach its (yet) all-time-high on February 16, 2021 – USD 53.38 apiece.
Industry
The electric scooter market size was estimated at USD 18.6 billion in 2019 and is expected to reach USD 21.4 billion by 2021. Between 2018 and 2025 the market for electric scooters is expected to grow at a CAGR of 7.3%. In particular, the growth will be driven by the increase in popularity in Europe and the US, as long as the employment of Li-Ion batteries with voltages of 48+V (like the ones implied in Niu Technologies' products). Right now, the market is dominated by the cheaper 36V counterparts, however, in the near future, we will experience a decrease in prices of Li-Ion batteries with 48V and the subsequent market dominance of companies, like NIU, which heavily invested in those new technologies development.
While NIU's technologies are advanced, an abundant quantity of other players is present. However, the strong focus on design and international coverage gives NIU the ability to have an edge and continue growing.
SWOT analysis: Strengths
Distribution and reach: Niu Technologies has reached 1,616 franchise stores in China's mainland, 36 distributors in international markets and 46 countries covered globally. In Q4 2020, the company was able to add 350 franchise stores around China's mainland to its portfolio. Its reach is supported by a strong distribution network that makes sure that its products are available easily to many customers promptly.
Cost structure: Selling scooters at an accessible price (compared to gasoline scooters) guarantees NIU a large customer base.
Dealer community: NIU has a strong relationship with its franchisees, which not only provides supplies but also focus on promoting the company's products and training.
Community of customers: Clients feel part of a revolution in transport and they get a community feeling, despite having sold millions of scooters worldwide.
Skilled labor force: NIU can count on highly specialized designers and engineers developing cutting-edge technologies.
Product portfolio: The large portfolio of products allows NIU to reach different customer segments and needs.
SWOT analysis: Weaknesses
Dependence on policies: The revenues are highly dependent on 'green bonuses' and incentives put in place by policy-makers. However, since the green economy is expected to grow in the following years anyway, we can consider it a mild weakness.
SWOT analysis: Opportunities
Global markets penetration: NIU's main market has been China for now, but it is slowly gaining grip in European and American markets.
Bigger factories and scalable plants: NIU is planning on upgrading their manufacturing sites in order to begin a mass production that could lead to even more affordable prices.
Expertise in 48+V batteries and performance electric engines: due to the company's heavy investments in R&D, NIU could become a leader in the production of scooters that in the future will be even more desirable, like the ones with high-voltage batteries.
SWOT analysis: Threats
Technological developments by competitors: while NIU could hold a competitive advantage in high-voltage powered electric scooters, it could suffer from technological developments by competitors, both Chinese and International.
Trade wars: with Biden's election, the threat of an increasingly stressful trade war between the US and China seems cancelled. However, there's always some kind of risk of collision between those two countries.
Constant technological upgrade expenses: NIU has to keep up with the peer's expense level in R&D. However, it could reach levels that do not justify the existence of the business itself.
Growth in Global Markets stopped by COVID-19: while the pandemic seems under control in China and other eastern countries, in the rest of the world it still represents a huge threat to the growth of the company.
Business model
NIU's business model is fairly simple: the objective of the company is to cover, with their products, all the needs of transport of individuals worldwide.
To do that they offer e-scooters of any kind and shape, for all transportation purposes. This main business accounts for 87.7% of its revenue generated. However, there is another 12.3% of revenues that are derived from other kinds of sales, such as merchandise and lifestyle accessories. The potential for growth of those parallel sources of income is big since people that buy NIU products are really design and style-conscious.
Revenues generated from the sale of e-scooters are mainly traced in mainland China, which accounts for 2020 to 86.7% of sales, while the rest of the world accounts for a tiny 13.3% of the total sales.
In the evaluation of those figures it has to be taken into account the fact that while in China every scooter sold brings on average a revenue of USD 495, in the international markets, this figure is tripled.
The current line-up of products sees seven different designs of scooters taking the stand. However, they are divided into three big model categories: NQi, MQi, and UQi.
NQi series was the first to be developed and proposed to the market. It equips a Li-Ion battery that allows having a battery capacity of 29 Ah, a weight of 10 Kgs, and a recharging time of 7 hours. The range is said to be in the order of 80 Km.
MQi is about design. Moreover, it equips a battery that is even lighter than the one of NQi with only 8.3 kg, a range of 65 km, and a charging time of 6 hours.
The UQi is a smart naked that has a tiny battery that weights only 5.2 Kg, while still allowing a range of 30-40 Km and a capacity of 21 Ah.
A new entry in NIU Technologies' lineup is the 'NIU Kick Scooter,' a stylish and compact e-scooter with a top speed of 25 km/h and a range of 50 km, powered by a 48 V Lithium battery.
This analysis was first published on ChineseAlpha, an equity research platform that demystifies listed Chinese companies by providing in-depth, quality research. Read the whole article.
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