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Analysis EO
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Aug 7, 2020 01:43 pm ·

Will NIO Lead China's EV Pack?

NIO (NIO:NYSE) was founded only six years ago and is a very young runner in the race, compared to market leader Tesla (TSLA:NASDAQ) for instance. For EV startups one of the biggest challenges is to expand production scale and assembly lines. Two years ago, Tesla encountered the very same obstacle in mass production. Fortunately for NIO, it adopted a different approach. In April 2016, NIO and Chinese state-owned automobile manufacturer JAC Motors signed an agreement to build a new manufacturing plant. Its construction began just seven months later in October 2016. Fast forward two years and in May 2018 the first model from NIO, the ES8, rolled off the assembly line. As of today, 26 months later, the very same factory has produced more than 50,000 NIO cars.  It took NIO two years to achieve the milestone of producing 50,000 cars, which is almost the same time that Tesla took to produce 50,000 Model S units.  Having your own factory helps produce cars cheaper – but at the same time, it takes several years and a lot of capital to build it. These are the two things NIO has been struggling with. The joint venture with JAC Motors is more like outsourcing.  In the second quarter of 2020, Tesla delivered 30,000 vehicles in China, equivalent to about one-third of the company's total deliveries. Although Tesla has performed well in China, in the future, local consumers will likely favor local brands. We can see that from the development history of smartphones. Apple led the trend with the iPhone, but several local brands such as Huawei, Vivo, Oppo and Xiaomi currently occupy most of the Chinese market. New energy vehicles might well follow the same trend.  NIO’s share price is still in the rising range, benefiting from record sales from 2Q 2020. Another positive piece of news for NIO is that company's latest model, the EC6, is expected to be delivered in September, several months earlier than the expected delivery date of Tesla’s Model Y. Other than that, the NIO battery swap is also an important part of the company's business. Tesla once promised battery swaps for its EVs to solve time and charging issues, before abandoning the idea. NIO on the other hand has succeeded where Tesla could not, completing 500,000 battery swaps in China as of May 26, 2020, just over two years after the first battery-swap station opened. In addition, NIO is also setting up a battery asset management company to sell or lease batteries separately. CATL is reported to be a potential investor, among others. Industry analysts are also speculating that NIO's battery services will be available to other EV brands. Since the Chinese government has released a series of favorable policies encouraging the construction of battery swapping stations, automakers as Geely and SAIC are all planning to launch swap-friendly battery models soon. If we come to think of it, with all the positives, NIO at the moment is facing some huge challenges. It will take time and a lot of capital to form an independent brand name like Tesla. NIO is still plagued by continuous losses. For now, each time NIO produces a car, it loses money.  NIO CEO and founder William Li – known locally as Li Bin (李斌) – has claimed that the company might turn a gross profit in 2Q of the year, and will keep ramping up the number gradually. Tesla only became profitable after selling more than 100,000 cars, but NIO has sold no more than half of that number till now.  Cash flow issues remain the most critical mission of new car startups like NIO; why NIO chose the Hefei government is partly due to the government's fast decision-making speed, no requirement on factories in the short term, and its location next to Shanghai. Moreover, as of now, NIO is still far from making any profit. The question is how long will it take the firm to become profitable.

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Analysis EO
Jul 31, 2020 01:46 pm ·

Tesla Share Prices Decouple from the Fundamentals [2/2]

This article is part II of our analysis on Tesla – check out part I before you read.  For the Model 3, we can expect a rise in sales as EV penetration increases in Europe. However, we think the sales for this model also hinge on two important factors: 1. The criteria for EV tax deduction and subsidies and 2. The corporate transportation preference. For the first factor, we have seen the EV tax policies in Europe being a crucial factor in demand for Tesla. For instance, as the benefit in kind tax was capped for EV below EUR 50k in the Netherlands, Tesla Model S and X sales dropped to near 0 from 1000 per quarter. In terms of corporate transportation preference, although each corporation’s preference may vary, it might be presumptuous to assume Model 3 will be the ideal substitute for existing corporate fleets solely based on cost. While corporate fleets in Europe are dominated by BMW 5 and Mercedes E class, both the size and the prestige of Model 3 are more in line with BMW 3. So, despite the short term cost benefit, we see that wide adoption of Model 3 in Europe could also be hampered by the demand for class. For Model Y, we currently see it as a growth driver for Tesla because of its unique design and pricing. In terms of design, Model Y is a crossover between sedan and SUV and is targeting a wide range of consumers. In terms of pricing, it is priced a little under USD 50k – it is not subject to competition with more luxury models like Audi e-tron and Jaguar i-pace. A concern for Model Y sales is the potential cannibalization. While Tesla Model 3 and Model Y use 70% of the same gears and are similar in many ways, a surge in demand for Model Y can replace the existing demand for Model 3. China – The arrogant Tesla is not about to beat local competitors Since Tesla delivered its first Shanghai-made Model 3 to Chinese consumers back in January 2020, the car model has become the best-selling EV. Tesla reached around 46,000 car deliveries in the first half of the year, dwarfing smaller ones like NIO (14,483), Li Auto (9,500) WM Motor (7310) and Xpeng Motors (3,381, ex-June). Tesla's production is ramping up meanwhile, and it aims higher. The Shanghai plant's current production capacity for Model 3 is 150,000 per annum; its Model Y production is expected to begin in early 2021 with a production capacity no less than Model 3. Factoring this, we assume it can reach a total 300,000 annum capacity in 2021.  However, we hold the opinion that the ambitious EV leader is not yet ready to reach lasting dominance in the massive and lucrative market. Experience tells us that it could be hard for overseas leaders to dominate the Chinese market easily – consider the failures of giants like Uber and Google. We see a high potential of the new-generation management growing on the ground to rule the market due to 1. favoring policies 2. deeper understanding of domestic customers and innovation in service and tech.  China's new electric vehicle (NEV) subsidy policy that came out in April continues to favor the local. It is now only applicable to NEVs with the pre-subsidy price of CNY 300k or below, with the exemption of those adopting battery swap models, like NIO. We see a critical signal here: Beijing supports new tech innovations and will foster more domestic brands. Some foreign brands' versions of Tesla and Mercedes products will not be eligible – rather they will be the 'catfish' that will motivate others.  Tesla reacted to the policy by cutting prices down, which will lead to a slipping gross profit margin of the car model (the lowest among other, 17%) and the overall automotive GPM, in our view. This activity sparked the anger of Tesla car owners as they had bought the car with higher prices before (and it happens from time to time).  However, Li Auto choose to remedy the subsidy gap caused by the changing policies for its customers (around 8,000 per Li One), showing Chinese brands providing better services to win mindshare. The company's Extended-Range Electric Vehicles (EREV) tech is helping it carve out a position for itself as a company that understands the tipping point of battery tech, and the insufficient charging infrastructure in China. Read more about Li Auto, the brand that broke NIO's record in reaching 10,000 deliveries.  Tesla's neglecting of Chinese consumers has been reported widely. For instance, it was accused of substituting promised new control chips with an older version without notice in March. Chinese customers might switch to local brands that know them better, with higher cost performance and better service.  

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Analysis EO
Jul 31, 2020 12:20 pm ·

Tesla Share Prices Decouple from the Fundamentals [1/2]

Recently the Tesla (NASDAQ: TSLA) share price broke above the $1,500 threshold, bringing its market cap to ~ $270 billion and making Tesla the largest car manufacturer in the world. In the past 52 weeks, Tesla share price has moved up by more than 500% despite a still negative return on equity. It is currently trading at a 730x P/E multiple vs a 10-20x in the industry, 40x multiple of luxury car maker Ferrari. Having 1% of the total car manufacturing revenue and 30% of global OEM market cap, investors are clearly valuing Tesla for far more than its sales. Although Tesla has a first mover advantage in the expanding Electric Vehicle market, we think the growth expectation baked in for Tesla’s current share price could be unrealistic. Technical Perspective – The end of the short squeeze A Short Squeeze happens when a stock rises higher sharply, forcing investors who bet on the stock price falling to purchase the stock at the market price to recover their positions, and as consequence, pushing the price even higher. We think short squeeze played a role in pushing up TSLA’s share price over a reasonable range, but now, with short bets on TSLA decrease, TSLA’s share momentum is likely going to face headwinds. According to data, TSLA shares shorted by investors were 23% of total shares one year ago, and this number decreased to ~ 8% recently. Along with short positions falling lower, the TSLA share price is also moving proportionally upward. Now, data shows it will take less than 1/3 of trading volume compared to last year to clear all TSLA’s short positions, meaning that a temporary sharp price increase will have less additional upward effects on TSLA’s share price because there will be less short sellers buying. Brand image and margin trade-off The success of Tesla in the EV market can be attributed to the brand image it has built with its technology and futuristic design. Tesla has traditionally been able to apply a premium value to its vehicles and shift consumer preferences. However, in Europe we see two headwinds regarding Tesla’s premium in brand image. 1. The high problem rate and low accessibility of relevant services are destroying Tesla’s credibility. 2. As Europe is the home court to many established auto brands such as BMW, Daimler, Volkswagen, Renault, and etc, Tesla is likely to face some headwinds as it expands. In addition, Tesla’s strategic shift, from high end S and X model sales to a focus on lower end Model 3 and Model Y sales, is further lowering margins and bringing both short term and long term bottom line concerns. Compared to the 24% gross margin of Model X and S, Model 3 and Model Y are currently running on 17% margins. With decreasing Model X and S deliveries and increasing Model 3 and Model Y deliveries, Tesla is further pressing its margins. While the increasing EV presence is a consensus, the pace of inflection is subject to debate. Given the volatility of taxes and various policy benefits in the past, Tesla might need to further lower its margin if existing tax and policy benefits are limited in any way. In the long run, as existing ICE (internal combustion engine) manufacturers launch more EV models at all price levels, Tesla might capture a smaller market share, resulting in weaker bottom-line growth. Europe – A big upside and big volatility In our view, Tesla sales in Europe have proven the high correlation of environmental law and Tesla sales. Currently, the two largest Tesla consumers in Europe are the Netherlands and Norway, accounting for 40% of total Tesla sales in the continent. Both countries are also pioneering in BEV adoption – while they account for 3.8% of total passenger vehicle sales in Europe, they accounted for 35% of the BEV market in Europe in 2018. Policy in Norway required all new light vehicles sales by 2025 to be ZEV (Zero Emission Vehicles) and 75% new heavy commercial van sales to be ZEV by 2030. In the Netherlands, the government also required an all ZEV sales target by 2030. Both countries also provided tax incentives for ZEV buyers. As a result, Tesla was able to quickly gain tractions and saw a jump in sales. With the EU's goal being to aggressively reduce carbon dioxide emissions by 2025, we might see Tesla’s adoption rate rise in other countries as purchasing and maintenance incentives come to light, especially in Germany and the UK. Policy is crucial, and growth is mixed To comply with the tough emission rules in Europe, EV penetration will rise by approximately 5.5x from 2018 to 2021, and Norway and Netherlands’ share will drop from 38% to 10%  by BNP Paribas’ estimate. Germany and the UK are likely to be the drivers for this EV growth. If sales in Norway and the Netherlands are any leading indicator for Tesla’s sales in Germany and the UK, Tesla could be capturing hyper growth in Europe and fully support a $400/share valuation given by BNP Paribas. However, we think the driver for Tesla’s growth in these two countries could be very volatile. The growth story in Germany and the UK was constructed upon the large corporate fleet demand in either country, accounting for 53% and 56% of total vehicle demand respectively. According to BNP Paribas, this could create a TAM of 3.2 million units. With multiple growth catalysts, it’s important to analyze how sales of each model for Tesla will perform under the current situation. For Model X and Model S, future sales are not looking very optimistic – 1. These two models might not be able to fully enjoy the tax benefits in Europe due to their high price, and 2. Model S and Model X are subject to quality concerns and can incur high maintenance costs. This article is part I of our analysis on Tesla. Please continue to part II.

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Jul 1, 2020 12:30 pm ·

H1 2020 at a Glance: Chinese EV’s ‘New Forces’ Come to the Fork in the Road

► The sudden epidemic has hit China's new energy vehicle (NEV) sales hard. The ‘new forces’ (the latest generation of new EV makers) are having to face a life-or-death situation sooner than they expected.  ► Only 11 new brands in China's EV market sold/delivered cars in the first five months of 2020. Among them, NIO (NIO:NYSE), Li Xiang, Xpeng and WM Motors showed overall stability in sales and thus form the tier-one team. ► Saleen and Byton, among others, suffered major operational, financing and production problems and are now facing an abrupt contraction or collapse. ► In contrast with the rigid financial situation for other players, the four tier-one players all raised new funding (NIO, Li Xiang and WM Motors) or planned to go public (Xpeng) signaling their advantages for the second half of 2020 in the EV car making competition. The life-or-death moment is coming Entering 2020, the sudden epidemic has hit China’s new energy vehicle (NEV) sales hard. Only 13,000 NEV units sold in February, down 72.4% MoM, 75.2% YoY. The downturn helped accelerate the polarization of the new forces, which had generally just begun to deliver models last year.  11 new brands sold vehicles in the first five months of 2020. Among them, NIO, Li Xinag, Xpeng and WM Motor showed overall stability and a strong growth in sales as the epidemic slowly got better – they thus formed the tier-one team, which accounted for more than 80% of market share in China’s NEV market in the first half of 2020. For the other players, however, things were not going that well. The slumping market demand brought by the epidemic worsened automobile manufacturers’ general health, especially among those who haven’t realized mass production and have a rigid cash flow. Just last week, Byton was exposed to a business crisis. Its Nanjing factory is being closed due to unpaid bills, while the Shanghai and Beijing offices have also been rented out, and the salary of employees for the past four months is still owed. Coincidentally, Bordrin recently announced that their capital chain was ruptured. The indebted CEO fled to the US. Saleen was sued by its state-owned shareholders for suspicion of embezzling state assets, while Qiantu Motors, Singulato and Enovate have postponed their mass production timelines repeatedly. Lack of money is a problem that almost all new companies have to face. Winning support from investors and entering mass production is even tougher when the top players already started generating revenues.  Capital investors haven’t lost all faith in the new forces – they are just getting smarter Though the negative news circulating around the business is doing harm, the investors still hold high expectations. Tencent saved NIO by purchasing USD 425 million in convertible debt. NIO raised another USD 354 million by issuing American Depositary Shares (ADSs) in the first half of 2020.  The company’s stock hit the lowest point in the first two months of 2020; however, encouraged by the company’s Q1 2020 financial performance, its stock price surged 40% in six trading days. Its domestic peers – Li Xiang, Xpeng and WM Motor – are all in the process of fundraising. Xpeng is reported to have secretly filed for an IPO on the US stock market, aiming to raise USD 500 million; Li Xiang is likely to close a Series D financing led by Meituan; WM Motors is also on going its USD 1 billion Series D funding.  In addition, the government released favorable policies this March, including extending the purchase subsidy and purchase tax exemption for NEVs by two years and encouraging the elimination of diesel trucks with national emission standards no. 3 or below in the Beijing-Tianjin-Hebei region and other key areas. The policy benefits are not only great news for the new forces but have also inspired investors to continue to support the business. But their support is not blind. Among the five investments with a total value of CNY 6.4 billion that occurred in neo-automaking industry in the first half of 2020, the four tier-one players account for four. This is in contrast with last year’s eight investments totaling CNY 22.6 billion occurring in the same period. Enough of such craziness, seems to be the consensus; the market is getting smarter on its bets by putting money on the top players. The giant competitors and the stubbornly high costs are still big obstacles  While the top four Chinese new forces are gaining positive growth in sales and from the market, they are still failing to make a profit and are falling behind international competitors such as Tesla on NEV production and sales. Tesla China's new version of the Model 3 was released in May in response to the new 2020 NEV subsidy policy that came out in March. The pre-subsidy price of CNY 323,800 is down to CNY 291,800. Along with the acceleration of localization and the development of new-energy batteries, Tesla's price advantage will gradually come to the fore, which will have an impact on the sales of domestic NEVs. The sales of Model 3 exceeded 10,000 units twice in the first half of 2020. The high-cost dilemma faced by the new forces is not likely to be solved soon. According to NIO’s quarterly report, the company posted a net loss of USD 1,691.8 million in the first quarter, with just USD 2.4 billion in cash reserves on the books. Ongoing losses at the current rate and the cash reserves won’t allow the company to sustain two such quarters of losses. Though the CEO is confident that the company will achieve 5% of the gross profit margin by the end of the second quarter, the rate remained minus in the first quarter. And that is the situation all the new forces are facing. For the new forces, in addition to ensuring that vehicles are delivered properly off the assembly line, the next step for them to achieve real profitability is to boost the mass production of NEVs. Tesla kept losing money for six years in a row until its best-selling Model 3 realized mass production (100,000 units per year). Under the pressure of high expectations from the market and dominant sales records from their international competitors, China’s tier-one new forces have no choice but to speed up commercializing their models with lower prices while competing with their tough domestic competitors. What can be determined is that, after the large sums of money concentrated in the tier-one players, the market will begin to look for results very soon.

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Feb 23, 2020 11:05 pm ·

During and after Coronavirus: China's VC, Supply Chains and Auto 

It's been nearly one month since the outbreak of the novel coronavirus in China, and the global economy is still shaking. While the plague may be slowing its pace, the negative resonance is still being felt by various industries. Analysts describe a gloomy outlook for the Chinese economy, downgrading the GDP growth forecast for 2020. Citigroup economists, for instance, expect 5.5%; Barclays has cut GDP growth forecast by 40bp to 5.4%.  From the production side, the manufacturing and services sector will drag on growth. A plethora of startups that are on the part of industry chains are taking a hit, for they rely on the upstream and downstream dynamics to adjust supplies; Internet enterprises that sell virtual products or services, however, are grabbing the one-time chance to scale. The big wait and see for us in the coming months will be whether further strife or a fast expansion comes for Chinese companies. Nimble investors will find out those who battened down the hatches and endured the thunderstorm, which in turn might generate fruitful returns.  Dim macroeconomics and the venture capital market The prospect of stagflation has baffled China for the past six months. The economy saw a 4.5% increase in the consumer price index (CPI) in November 2019, a near-eight-year high. Economists expect an acceleration in the first half of 2020 due to the depressed supply. The unemployment rate was nearing 4% as of the end of 2019.  On the other hand, venture capital funding plummeted by 60% in January from a year ago, halving the number of deals closed/announced. A slowdown investment pace in the first quarter, especially the days before or after the Spring Festival, is commonplace. This month, investors talked reported that their one of investment activities, due diligence, has indeed been impacted due to the epidemic’s rise in January. They are also helping with portfolio companies to review the cash flow model and downgrade expectations. At the same time, investors might adjust valuations decided before, or speed down term sheet and other negotiations.  In the wintertime of capital flow and the national economy, it's going to be a tremendous challenge for startups.  A fallout of the retail market in a crisis: building muscle in supplier networks  The logistics bottleneck has become one of the biggest challenges for retailers. As China's quarantine measures unwind, many warehouse and logistics practitioners are unable to go back to work. According to data collected by G7, one of the largest fleet-management firms in China, the crisis has highlighted a more severe hit taken by Less-than-Truckload (LTL) than Full-Truckload (FTL). The LTL market saw a wider gap between the recovery in 2019 and 2020 on February 20, compared with FTL. As consumer preferences become less dynamic and focus on daily necessities, LTL shipping is in less demand than before. Despite the short-term impact, we believe that LTL, a dynamic and agile way of shipment, will continue leading the way. Several days ago, Yimidida landed a near-CNY 1 billion (USD 140 million) Series D+.  On the other hand, consumer preferences changing under extreme circumstances is also an interesting phenomenon in China. In 2003, the SARS outbreak helped such online shopping sites as Taobao and JD.com penetrate the whole country. Likewise, the disruption caused by the COVID-19 may end up creating new winners and losers once again. The shift from online digital commerce to omnichannel retailing is set to accelerate.  In the retail industry, those who benefit from a short-term pickup in orders – such as online grocery firms, including Miss Fresh and Alibaba's Fresh Hippo, as well as established wholesales stores Sam's Club – are benefiting from a reliable supplier network. Besides, we can also see a clear path to leveraging business-to-business (B2B) marketplaces in this transformation. Although those marketplaces are facing challenges of imminent supply shortages, supply chain firms are expected to gain traction in the long-term. The lifting of confinement measures will likely trigger a pent-up consumer demand, which adds a higher requirement to the efficiency of supply chains; at that time, supply chain management (SCM) and B2B marketplaces will sit at the core position along the industry chain. We suggest startups and investors should focus on retention, growth & market share and UX in the long run. The shift from traditional stores to digital purchasing also asks for better user experience (UX), and thus, those upstream players maintaining its advantages on high operation efficiency, service levels and integrated procurement. Top players can consider M&As to expand and build stronger supply networks after the crisis, following the step of Sysco to be a billion-dollar company (Check out the story about its Chinese counterpart Meicai).  We tapped into an array of marketplaces in the report on China's Industry Internet (Check the report) Prepared OEMs, suffering middlemen, honing aftermarket players The harshness of the overall new car sales downturn in 2019 has been well expected by OEMs, as they already saw a 2.8% decrease one year ago.  The contracting electric vehicle market, however, was not expected by most market observers and industry analysts. At the end of 2018, energy vehicles (NEVs) recorded more than 1.3 million sales, and 2 million seemed reasonable in 2019. However, it reduced to 1.2 million, representing a 4% year-over-year decrease. The NEV market share had grown from 4.5% in 2018 to 4.7% in 2019. The goal of 5 million NEV sales in 2020 that China is heading towards still looks promising as more carmakers mushroom in the ‘Middle Kingdom’; it just needs more patience.  NIO, the so-called pioneer of the Chinese premium EV maker (NIO:NYSE), just raised USD 100 million through a convertible bond offering several days ago. The funding has saved the company sitting on USD 274.3 million cash as of September 2019 while losing USD 352.8 million in 2019 Q3. NIO maintains its highest awareness of Chinese EV brands among Chinese consumers; its sales in January reached 1,483 units, dwarfing Xpeng's 1,073 and WM Motors' 808. Another structural trend we see in the auto industry is that investors should pay attention to luxury car brands. Despite NEV sales' dive in 2019, China's luxury car market has taken off. For instance, car sales by German luxury carmakers in 2019 grew 4.1% from one year ago.  Similar to the retail industry, supply bottlenecks pose challenges to production capacity and supply chains. B2C car-selling platforms like Chehaoduo (the parent company of Guazi and Maodou) and Uxin are facing losses and uncertainties about when dealers will resume work, the upstream suppliers of their products.   While more consumers might consider car ownership due to the fragile public transportation systems seen in the crisis, the eventual demand increase remains uncertain. What remains as the long-term thesis is investing in aftermarkets (B2B auto parts marketplace), electrification (battery and charging station) and intelligence-related ventures (lidar, sensors, autonomous driving algorithms), as we described in the latest auto and mobility-themed article. The primary market has already reacted to these directions, as represented by fundraisings like autonomous driving company AutoX (Pre-Series B), Hesai (USD 173 Million Series C) and aftermarket player Casstime (USD 80 million), to name a few.  

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Feb 19, 2020 10:10 am ·

Automotive and Mobility in Shanghai, Top 20 Startups

China, the world’s largest automotive market in the world, is exhibiting its strong ambition to drive new demand from its domestic consumers and improve innovations as it embraces new challenges in a tricky market.  In 2018, the country’s auto scene saw a sudden drop; the passenger car sales went down for the first time in recent decades, with a 2.8% drop (year-over-year). Next year, the decline expanded to an estimated 8%, according to data provided by the China Association of Automobile Manufacturers (CAAM).  Contrary to this, China has become the largest Electric Vehicle market, representing more than half of the sales in 2018. The burgeoning market is expected to maintain healthy growth, along with used car sales and aftermarket.  China is a country with a relatively low car parc per thousand people (173, in 2018), compared to leading markets such as the US (837), Australia (747), Italy (695) and Canada (670), and even emerging markets like Malaysia (433) and Russia (373). This considerable gap creates significant opportunities to improve and move towards a mature market. Robust demand is set to drive the market forward. Technological innovation around mobility services, autonomous driving, digitalization and electrification is spawning along the way. Good examples in the battery industry are BYD and CATL, two of the top five players worldwide. Talents are abundant, meanwhile, for example, cross-industry entrepreneurs William Li and He Xiaopeng transferred from the Internet industry to auto, who founded NIO (NIO:NYSE) and Xiaopeng Motors, respectively.  Shanghai, one of the most shining centers of manufacturing and finance of the country, is the home to Tesla’s challenger NIO, and, from our perspective, will see the next line-up of automotive and mobility giants.  Below is a map illustrating Shanghai’s most valuable VC-backed startups. Although we do not see much billion-dollar companies among these yet, we are expecting them to contribute their power in the race towards the car of tomorrow.  How has the auto and mobility industry progressed through 2019? Despite the significant uptick in Shanghai’s automotive and mobility-related Venture Capital (VC) activity in 2017, the industry has inevitably endured its period of  turnaround in the last two years, due to macroeconomics, market correction and concerns on commercialization over cutting-edge technologies. As shown in the graph below, the aggregate deal value dropped by 14.7% (Compound Annual Growth Rate), with a significant slash in terms of the number of deals closed (from 87 to 29).  The consequences of the funding compression will be dramatic with structural changes in the local auto industry Along the value chain, car manufacturing & hardware has been playing a critical role, with the most money pouring into this sub-sector since 2017. Unicorn stampede (for instance, WM Motors and NIO) is driven by a surge in mega-deals from 2015 to 2019.  Mobility and transport saw a boom in terms of dollars invested in 2016 due to Uber’s Chinese division. Hellobike, a brand that has survived between the competition of two then-giants ofo and Mobike by focusing on tier-two and tier-three cities, only captured its Series A from investors like GGV Capital and Joy Capital in 2016.  Counterintuitively, Shanghai comprises a smaller chunk of China’s autonomous driving (AD) unicorn table in comparison to Beijing, where there is a group of big pure-play and later-stage AD technology companies. Beijing’s attraction can be attributed to the talent and innovation environment, with a selection of L4 companies such as Momenta, TuSimple and Pony.ai. In Contrast, Guangzhou has gathered a group of Waymo challengers like WeRide, probably due to the city’s fast pace in opening for autonomous vehicle road tests.  The modern automotive industry is moving from an era of manual control to one of advanced driver assistant systems (ADAS) and later autonomous technology. The shift requires a significant technological improvement in artificial intelligence (AI) algorithms, sensors, processors and electronic components. In Shanghai, there is NASN, Motovis and Zong Mu, who are researching on ADAS. NASN focuses on electronic control units (ECU) at the same time. Hesai makes Lidars for autonomous vehicles and robots. Investors' expectations about the timing and scope of autonomous driving deployment diminished as urban settings have been proven tough to conquer after years of effort. The appeal of low-speed options has started to become compelling. Regardless of different types of domains, the transition relies on the integration of all kinds of components – all the players participating in the new AD ecosystem have a chance to profit from the part of the value chain they are involved in.  Given the trend towards autonomous vehicles, players need to strengthen B2B sales and aftermarket revenue Automakers/dealers need to think about how to reclaim aftermarket revenue; mobility companies, on the other hand, have already shown ambition around the aftermarket (for instance, DiDi’s Xiaojuchefu).  When players change their value propositions from ‘manufacturer’ or ‘mobility service provider’ to ‘integrated mobility service provider,’ primary markets react to the change. From the graph below, we see a relatively high average amount of late-stage deals in aftermarket sub-sector. Startups like Tuhu, AutocloudPro and Haoqipei and Lechebang are leveraging software systems to change this fragmented and underdeveloped industry and provide customers with standardized and high-quality maintenance, repair and insurance services. 

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Oct 24, 2019 07:25 pm ·

NIO’s Path in 2019: A Long Road to Recovery or A Privatization Offer?

Car, a big-ticket item whose value depreciates fast, is easily exposed to economic uncertainties. The slowing economy and the US-Sino dispute have hit China’s auto market harder than anything else. Sales of electric cars and plug-in hybrids (collectively known as new energy vehicles) slumped 33.1% and 38.4% in September 2019 compared to last year. Even established automakers like General Motors (Its sales in China tumbled 17.5% in September) and Ford (its sales plummeted 30.3% in the third quarter of 2019) have been reeling from the impact of weaker consumer demand. While China is ramping up stimulus measures to boost consumer spending, it takes time for them to work magic on the economy. A slew of auto startups that are branded as “China’s answer to Tesla” are waiting to have their resilience tested by the market amid a major ongoing industrial overhaul that looks set to last well into next year.  It’s been a tough year for NIO, the Shanghai-based electric vehicle marker, as it seeks to survive a bleak macroeconomic environment and grapple with internal problems. Media, industry watchdogs and analysts have not been favorable to the company. Venture capitalists, for instance, have expressed concerns as the auto market has been struggling against a slowdown. Co-Stone Asset Management's Chairman Zhang Wei said he has not found a single Chinese EV maker worthy of investment. He also criticized NIO for its problematic money management.  Zhou Xiangdong, another manager with Demo Capital, claimed that NIO has been desperate for external financing to keep the company afloat. NIO's stock performance has been disappointing  A series of internal issues including declining sales, car recalls and a high turnover rate has wiped out 76.14% off NIO’s stocks to date, while its arch-rival Tesla’s shares have shed 22.79% and SPY (SPDR S&P 500 ETF Trust, which is designed to track the S&P 500 stock market index) has climbed 19.23%.   NIO stocks have experienced a previous ‘support’ period (support occurs where a downtrend is expected to pause, due to a concentration of demand) that starts on June 17 with an intraday low of USD 2.35. The support ends in the resistance zone created by a 17.34% plunge on September 24, when the intraday high of USD 2.24 is well below the September 23 intraday low of USD 2.71. A so-called ‘bullish engulfing’ reversal pattern has been created on October 2, when NIO’s stock recorded an intraday low of USD 1.19. Key resistance (resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply) remains and the stocks failed to recover lost ground. Chinese tech media 36Kr (the link is in Chinese) reported on Oct 15 that NIO was in talks with the government of Wuxing District of Huzhou City, a city in Zhejiang Province, about  a 5-billion-yuan (USD 707 million) investment deal and a plan to set up a car factory there that can churn out around 20,000 units. “The story is merely a publicity stunt to bolster NIO’s stock price,” Zhou said.  The contract turned out to be rejected by the local government on October 16, sending the stock plummeting 5.8% in afternoon trading. Houzhou government stepped back facing ‘high risks’ of the case. Previously, the government had shown unprecedented interests in car-making business and invested CNY 20 billion (USD 2.8 billion) in a ‘supercar factory program’ led by Leshi (300104:SZ) in 2016. It introduced another car program with Youxia Motors (the link is written in Chinese), which sees to start mass production in the third quarter of 2020, according to the company’s co-founder Li Wei. It is challenging for local governments to support two OEMs at the same time. In addition, observing Leshi's failure, officials became prudent in investing in car manufacturing.   NIO's Q3 outlook: A long way to profitability After an overview of NIO’s Q3 financial results, which likely triggered the long-waited  ‘bullish engulfing’ pattern, we believe the slump of its stock is likely to bottom out. Despite all the negativity engulfing NIO, the company has already started to steer itself towards a safer position.  # Assumption 1: Revenue  NIO’s ES6 sports utility vehicle ES6’s price-performance ratio has improved a lot compared with ES8, another SUV model. ES6 showed encouraging delivery results in Q3, compared with ES8. However, ES6 is cheaper than ES8. If we take the price gap into consideration, we expect ES8 and ES6 to generate yearly revenue of USD 62,000 and USD 54,000 per unit.  # Assumption 2: Cost of sales We use the cost-to-revenue ratio to assess how much it costs NIO to deliver vehicles in Q3. Historically, the ratio ranged between 1.07 and 1.33. We used a conservative number of 1 to cap the cost of sales at USD 260 million.  #Assumption 3: Operational expenses The debate over huge staff paychecks, especially if they are lured from Silicon Valley, has been over as NIO cut headcounts and closed its Bay Area office. A former NIO employee said that those laid off were mostly from marketing and overseas R&D departments. NIO had the ambition to build an EV ecosystem and it has been over-confident about what a new EV maker can do in today’s China  -- until the company fell on hard times.  NIO’s business has encompassed almost every aspect of a car’s lifecycle, from car making to marketing and sale. Its operations either represent future technology trends or its endless pursuit of better user experience. Examples abound of its huge investment in a host of segments including autonomous driving research (setting up R&D centers in both China and the US), NIO Power (which assuages car owner’s anxiety about the low battery), NIO App (car owner community) and NIO House (direct sales). NIO found it hard to sustain a business model that is underpinned by large capital infusions, which are hard to come by when the macro-economic environment deteriorates. In a bid to reinvent the business model, the company has been considering spinning off NIO Power to make it an independent unit. In the past five years, NIO is changing how this traditional industry sells, communicates and interacts with consumers, causing disruption to the value chain. While the company has just around 190,000 vehicles on the road, NIO App has logged over 800,000 downloads and over 200,000 daily active users (DAUs). Users of NIO app have formed a vertical community with tremendous ‘private traffic ’ – a marketing buzzword in China these days that refers to influencers and brands are marketing in vertical communities or websites. As such, NIO needs to think twice about streamlining its operations without harming the brand image.  To sum up, we believe that NIO is going to cut R&D expenses, as well as Selling General & Admin expenses (SG&A) in the third quarter. In the previous four quarters ending in 2019Q2, the average R&D expenses-to-revenue ratio was 0.67 and SG&A-to-revenue ratio was 0.86.   We decided to use 0.5 and 0.8 as our benchmarks for evaluating R&D expenses-to-revenue and SG&A-to-revenue ratios in Q3.  With all these factors put together, NIO is expected to report USD 339 million in operating loss in Q3,  a decline of 28% quarter on quarter. The dwindling loss would be a significant improvement but it suggests profitability is still a long way off. Moreover, we are still concerned about the sheer size of the company’s cash-burning game and its inability to service outstanding debts. In the second quarter of 2019, the company slashed borrowing but reported widening losses at a rate of 125% over the previous quarter, with its cash pile also shrinking by 54%.  By the end of Q2, NIO had CNY 3.46 billion (USD 489 million) in cash and short-term investment. NIO had around USD 689 million in liquidity at the beginning of the third quarter, with the USD 200 million convertible notes purchased by Tencent and its founder Li Bin (William Li). In our estimates, NIO has to spend around USD 339 million in the third quarter. On current trends, NIO will need another USD 1.2 billion for the next year.  “The worst thing that could ultimately happen to our company is that we end up becoming another Qoros (a car brand that has been acquired by Chinese conglomerate Baoneng), and that’s the last thing we expect,” says a NIO executive who asked not to be named. In this case, building a long position at some point may seem to bring profits as a buyout bid could be another lifesaver for the sinking boat.

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Oct 17, 2019 10:26 am ·

2019 Q3 Is a Cold Zone for NEV, Sales Volume Slipped to 61k in September

China's passenger vehicle market has experienced its first downturn since 2018.  According to the China Association of Automobile Manufacturers (CAAM), in September, 1.9 million passenger vehicles were sold in China, an increase of 16.8% on an M-o-M basis – but a drop 6.3% compared to the same period in 2018.  In recent years Chinese policymakers have provided significant policy support to cultivate the domestic NEV industry, and almost all automakers have devoted a certain percentage of their investment into NEV manufacturing. Accordingly, as the overall auto market cools down, the EV sector is being considered as the opportunity for a warm-up. Three quarters of 2019 have passed, and the NEV storyline has gone the other way. In fact, since July this year, the CAAM has downgraded the annual NEV sales expectation, from 1.6 million to 1.5 million. Even this is still not manageable if the downturn continues.  In September, the production and sales volume of NEVs fell 29.9% and 34.2% respectively over the same period. Among them, the production and sales volume of pure EVs were 74,000 and 63,000, with a Y-o-Y decrease rate of 26.1% and 33.1% respectively; the production and sales of PHEVs were 15,000 and 17,000 respectively, with a Y-o-Y decrease rate of  44.1% and 38.4% respectively. Although the sales of NEV have been declining for three consecutive months, in September there were some changes in the ranking of sales: the EU series from BJEV (北汽) led the list, with 8,710 cars sold. BMW 5 Series PHEV was the only NEV model of the premium segment in the TOP 10 list, and the ranking was upgraded to fourth. NIO became the only auto startup on the list and won eighth place with 2,190 units sold.  It is highly possible that the new energy passenger vehicle market in the rest of this year will continue to decline; for many observers the situation is not optimistic.  The CAAM believes that there are two reasons for this. First, subsidies have declined. The enthusiasm of car companies to make NEV has been affected by high costs. Second, the transition period of 'China 6' (国六), resulting in a large number of fuel vehicles sold at low prices, has grabbed the market share of NEVs. In addition, some analysts believe that the spontaneous combustion episodes, recalls, low-cost promotion and the low residual value of NEVs have also caused the sales to be sluggish this year. Higher depreciation has been a concern for the potential customer of NEVs. However, the situation may get better due to two main reasons. First, the separation of software and hardware will be the trend, which means even if the interior and exterior of the vehicles are old, the upgrade of the software will bring the latest driving dynamic to the drivers. Secondly, with the development of the charging infrastructure, the durability of the battery will improve. More importantly, the development of NEVs is still a key project promoted by the state. Although the sales volume is now in a downturn, the impact of subsidies on the market having gradually eased, the configuration and quality of new energy vehicles are still being improved. With the continuous launch of better performance models, NEVs will eventually usher in a new growth period.

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Sep 27, 2019 12:00 pm ·

NIO Battles for Survival after Posting Worse-Than-Expected Loss

NIO published its second-quarter financial report for 2019 on September 24. The financial report showed that NIO’s net loss in the second quarter was as high as CNY 3.3 billion (USD 482.7 million), and shareholders had negative equity of CNY 960 million (USD 134.6 million). On September 23, NIO's stock price already plummeted by 10%. After announcing its financial results, NIO's stock price sharply dropped 20% to USD 2.17, with an intraday low of USD 1.97, which was the lowest level in the past 52 weeks. NIO’s total revenue for the second quarter of this year was CNY 1.5 billion (USD 219.7 million), down 6% from the previous quarter. In the second quarter, the company delivered a total of 3,553 vehicles, of which 3,400 ES8 and 413 ES6 were delivered. The total vehicle sales reached CNY 1.41 billion (USD 206 million), a decrease of 7.9% as compared to the first quarter. After deducting the cost of vehicle recall, NIO’s gross sales margin for the second quarter was - 4.0%, whereas the number was 7.2% in the previous quarter. The company's net loss was CNY 3.3 billion (USD 482.7 million) which was expected to be CNY 2.9 billion in the market. Before NIO released its second-quarter financial report, it was reported that NIO’s losses in the past four years had reached about USD 5 billion, which is equivalent to Tesla’s 15-year accumulated loss. Considering the losses disclosed in the latest financial report, NIO’s total losses since its inception in 2014 will reach approximately USD 5.7 billion. In response to the poor financial performance, Li Bin (李斌), the founder, chairman and CEO of NIO, mentioned in the financial report that the electric vehicle startup optimized resource input and return by implementing comprehensive efficiency and cost control measures within the enterprise. These initiatives would further enhance efficiency and streamline operations in sales and service networks and R&D activities. Li Bin also said that by the end of the third quarter, the company aimed to reduce the total number of employees worldwide from 9,900 in January to around 7,800. By the end of this year, the company would further enhance operational efficiency through additional restructuring and splitting of non-core businesses. The company’s financial results are an alarming signal to the management. In the second quarter, the financial report showed that as of the end of June, NIO had total assets of approximately CNY 18.2 billion (USD 265.1 million) and total liabilities of CNY 17.75 billion (USD 258.5), which was close to insolvency. By the end of June, the company’s current assets amounted to approximately CNY 8 billion (USD 1.1 billion). Current assets refer to assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations, which can lead to their conversion to a cash value over the next one-year period. Current liabilities reached approximately CNY 8.2 billion (USD 1.2 billion). Current liabilities refer to the total amount of debts that need to be repaid with one year or in a business cycle that is over one year. In other words, NIO's current assets are smaller than current liabilities, and the current ratio is less than one. The current ratio reflects the short-term solvency of the company. Moreover, if considering redeemable non-controlling interests, the company’s common stockholders’ equity is already negative. As of the end of June this year, NIO’s common stockholders had negative equity of CNY 960 million (USD 134.6 million). Earlier this month, NIO announced that it intended to issue and sell convertible bonds with a total principal amount of USD 200 million to investors, and the deal was expected to be completed by the end of September. Tencent’s subsidiary and the company’s founder Li Bin will respectively subscribe for USD 100 million in convertible bonds. After publishing the financial results, NIO canceled the second-quarter earnings call conference which was supposed to be carried out on September 24. However, subject to investor feedback, the quarterly earnings call conference was reopened on 25. During the call conference, NIO’s management did not answer any questions about future financing or cash flow as the company’s chief financial officer Xie Dongying (谢东萤) said NIO’s current financing plan was in a positive process and the financial report had given enough information. NIO explained six points in the conference: The company did not follow price reduction adopted by most EV companies in July and August after Chinese government reduced its subsidies to the market. EV recall was a very large expense, involving all aspect of production and transportation, which is a reasonable share of the cost. Delivering more vehicles is sure to help improve profit margins. But the decisive factor of profit margin is still the manufacturing cost and transportation cost. Negative profit margins are expected in the third and fourth quarters of this year, ranging from -6% to 10%. NIO Space will be a very economical sales solution with a construction cost of around USD 1 million. More NIO Spaces will be built in small and medium-sized cities. Free exchange of electricity is sustainable and financially friendly. NIO’s battery costs are expected to fall by 10%-15% compared to the same period last year, and from now until the fourth quarter of next year, the cost has room to fall in every quarter. Li Bin clarified the rumor of USD 5 billion in losses at the end of the conference call. He said that some media reported in their unprofessional reports that NIO had accumulated a loss of USD 5 billion, and this was incorrect. The figure he gave was CNY 22 billion, of which 10 billion was spent on research and development. Last month, Li Bin said in an internal letter: "From this year on, we really entered the qualifying stage. There will be no quick wins, no miracles, and our journey is a marathon on the muddy track. Entrepreneurship has never been easy. In fact, the entrepreneurship of smart electric vehicles is even more difficult. Everyone should be prepared to meet more difficult challenges and more setbacks."

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Jul 13, 2019 07:10 pm ·

Where Will NIO Be?

As China's economic slowdown dampens new-car sales and consumers grew tightfisted given the uncertainty around U.S. trade relations, the Chinese auto market in June slumped for a 12th straight month. The deliveries in the Q2 2019 was 3,553, Chinese new car manufacturer NIO said in a statement on July 10. Shares dropped 1 cent to close at USD 3.68 apiece after it reported second-quarter deliveries that were well above expectations but still lower than in the first quarter. In the Q1 2019, NIO delivered 3,989 vehicles on losses of USD 395.2 million. The company said that the results exceeded the company's previous guidance range of 2,800 to 3,200 deliveries. Erratic sales NIO announced a recall of 4,803 ES8 cars because of the defective battery on June 27. As a startup, this recall issue will certainly bring NIO many challenges and doubts. The share price of NIO fell to USD 2.55 after the recall statement. As of May 2019, NIO ES8 has delivered 17,600 vehicles, accounting for 27.29% of the total, which means that for every four NIO ES8 vehicles delivered, at least one will be included in the recall. According to the average price, the battery cost of new energy vehicles is about 100,000 yuan, which roughly means that NIO will lose at least 800 million yuan due to the recall. NIO has undergone a dramatic change in fortunes this year. After its share price surged to near all-time highs in March, investors lost their enthusiasm, and in recent weeks, this is inseparable from the company's sales volume. New energy vehicle manufacturing is a highly concentrated and intensive market with capital, which has shifted from the period of capital + imagined the growth of grass and grass to the period of fine and deep cultivation with management and operation + industrial chain integration ability. Some people hold different views on this matter that new car companies are in their infancy, their products gradually began to mass production. Therefore, these safety risks in NIO can serve as a warning and demonstration for other automobile enterprises, including traditional automobile enterprises. He thinks that manufacturers have to pay for the transition from traditional cars to electric cars. Treating accidents as an alternative 'wealth' will be very good for the industry in the long run." NIO in throng NIO was founded by William Li (李斌), the Chairman of Bitauto (易车网) and NextEV (NIO's previous name). After launch, several companies invested in NIO, including Tencent, Temasek, Baidu, Sequoia, Lenovo and TPG. Its first model, the NIO EP9 sports car, debuted the same day the brand was established. In October 2016, NIO announced that it had been given an "Autonomous Vehicle Testing Permit" by the California Department of Motor Vehicles and it would begin testing on public roads under the "Autonomous Vehicle Tester Program" guidelines as part of its autonomous vehicle program. According to the company, it planned to launch vehicles with level-three and level-four autonomy.  In May 2018, NIO opened its first battery swap station in the Nanshan District of Shenzhen, Guangdong, China, dubbed the "Power Swap Station". Only batteries for ES8 cars would be available from this station. In September 2018, the company filed for a USD 1.8 billion initial public offerings on the New York Stock Exchange. It raised USD 1 billion from the offering and gone public on Sep 2018, well short of the earlier USD 1.8 billion targets NIO had set. The stock was priced at USD 6.26 per share, just a cent above the bottom of the range NIO was hoping to achieve. It quickly fell below USD 6 when it began trading, but later bounced back to close up more than 5% at USD 6.60. The IPO valued the company at USD 6.4 billion. Diversity of roles NIO is in the midst of a recall after three fires in two months. The company's share price has plunged 75% since it went public. Its in its biggest crisis since it listed on the New York stock exchange last September. It took NIO less than four years to go public and build an ecosystem that is different from that of traditional car manufacturers and to make this huge ecosystem work successfully. However, NIO is still far from its ideal state, and there is still a lot of room for improvement in terms of products, services and capital. In addition to taking money from the capital markets, NIO has also started investment business。 NIO and NIO Capital held an agreement signing ceremony on December 11, 2016, in Wuhan, to announce they had reached a strategic cooperation agreement with Hubei province. According to the official agreements signed between NIO Capital, the Hubei Yangtze River Industry Fund, and officials representing the Wuhan East Lake High-tech Development Zone, NIO Capital will be established in Wuhan, and fund the construction of the Yangtze River NIO New Energy Auto Industrial Park in the Wuhan East Lake Development Zone. At present, the investment strategy of NIO capital is to take the mobility platform as the basis to jointly develop the entire automobile industry form. Its investment mainly involves three major automotive sectors: energy, technology and vehicles. In the field of autonomous driving, it has invested in Momenta, Pony. Ai and black sesame. In terms of mobility, it has bet on the first car and the first tick. The NIO Capital was co-established by NIO, Sequoia Capital (红杉资本), and Hillhouse Capital (高瓴资本). Its initial fund raised CNY 10 billion, with a life span of seven to nine years and will primarily invest in innovative supply chain enterprises in the electric vehicle industry. The Fund also signed a cooperation agreement with the Hubei Yangtze River Industry Fund, considered one of the biggest domestic government industry leading funds. This agreement makes the Hubei Yangtze River Fund a cornerstone investor of NIO Capital. "2019 will be the last year for new car manufacturers in China, with none of the more than 100 companies worth investing in." At the beginning of the year, Co-Stone Venture Capital (基石资本) chairman Zhang Wei's remarks directed at the new car companies including NIO, Xpeng Motors, also let the new energy car once again involved in the public opinion storm. NIO Capital management partner Zhang Junyi thinks this view is biased. The automobile industry is an industry with a large amount of capital, at least three successful products in a row are required for enterprises to be able to stand, which requires new enterprises to have the ability of sustainable development. "The industry has gone to the state where only the top enterprises can survive. In recent years, many automobile enterprises will die out, not as traditional manufacturers or new manufacturers, mainly depending on the self-development ability and follow-up sales of these enterprises." Zhang Junyi said. Multiple challenges NIO has faced mounting pressure on its business since the beginning of the year. Apart from a slowdown in the Chinese auto market and economy, the company has fallen victim to government measures to battle overcapacity in China’s bloated automotive sector. Besides,NIO has just lost two of its top executives recently, according to the 'Technode' reported. Zhuang Li, vice-president of software development, and Angelika Sodian(安格利卡·索迪亚), UK managing director of the company, have both left.  A company spokesman confirmed the pair's departure. Zhuang Li joined NIO in July 2016 as Vice President of software development. Software is crucial to the operation of electric cars, so Zhuang’s departure is kind of "a big deal". According to a person familiar with the situation, Zhuang li was "pushed out of the NIO because the software was always very bad". In January this year, when an NIO ES8 drove to the intersection of Chang 'an street in Beijing, the information of the car's upgradable system popped up. After the owner of the car hung the P block and agreed to upgrade, the car screen suddenly stopped working went dark and the car did not move. The driver had no choice but to sit and wait for the software update, as the car was parked in the middle of the road and attracted the police. Software is one of NIO's weaknesses and a major source of customer complaints, according to a person in charge of NIO's operations. NIO has cut its U.S. workforce in the past few months. Padmasree Warrior(伍丝丽), the company's chief development officer and chief executive of North America, left late last year. Risky corporate structure "It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide," NIO said in its prospectus. Like many Chinese Internet companies with listings outside of China, NIO is a variable-interest entity (VIE), a structure created in the 1990s as a workaround for Chinese companies that are not allowed to have direct foreign ownership. VIE refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. Under the VIE structure, the Chinese company creates two entities, one in China that holds the permits and licenses needed to do business there and the other an offshore entity, in this case in the Cayman Islands, in which foreign investors can buy shares. The Chinese entity, which is usually owned by top executives, pays fees and royalties to the offshore company in contractual arrangements. The risk with this setup is that foreign investors don't actually own stock in the company, and local management or even the Chinese government could decide or force a split with the listed company, leaving U.S. investors high and dry. Bet on ES6 In the first half of the article, we mentioned that NIO delivered 1,360 new vehicles in June, including 927 ES8 vehicles and 413 ES6 vehicles. For the NIO brand, the sales figures seem to have improved as a result of the ES6 delivery, but this is a big gamble by the company. In fact, the launch of ES6 has undoubtedly put NIO in an awkward position. ES6 has almost all the configuration of ES8, except the size is slightly smaller, its product force and actual experience are even better than ES8. However, the starting price of ES6 is much lower than that of ES8, which will further reduce the market size of ES8. Combined with the adverse effects of recent recalls, ES8 sales are likely to decline further in the future. The market performance of ES6 is not bad so far. However, it can be imagined that ES6 is currently in a period of ramping up production capacity, and its delivery volume does not reflect the actual growth of orders. Whether ES6 can save NIO or not should be observed again after all existing orders are consumed. In May this year, NIO announced CNY 10 billion in financing. The company will also produce its second generation model, the ET sedan, which will debut at the 2019 Automobile Shanghai. ET will go on sale in NIO Day at the end of this year. Facing the cruel market competition and the pressure brought by limited resources, as an "emerging growth" company, where will NIO be?

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Jun 14, 2019 08:44 pm ·

NIO is Deep In Competitive Vortex

Ministry of Industry and Information Technology of the People’s Republic of China released a statement on June 12. According to the announcement, Chinese new car manufacturer WM Motor will launch a new model, EX5 500+. Currently, there are three versions of EX5 (a compact all-electric SUV) on sale, with a range of 300km, 400km and 460km. The new model will have a battery pack with a capacity of 69kWh and a range of 520km. Xpeng Motors, another Chinese new car manufacturer, will launch an upgraded version of the G3 with a 67kWh battery pack, in two versions with a range of 480 km and 520 km. As for the ES6 that was released last year, it has a maximum range of 510 km. At the company’s annual "NIO Day" 2018 at the Shanghai Oriental Sports Center, NIO unveiled the ES6. They described the SUV in a press release: “The ES6 high-performance long-range intelligent electric SUV hit the market with a high-strength aluminium & carbon fibre reinforced plastics (CFRP) hybrid structure, the ES6 features 4.7 seconds 0-100 km/h acceleration, an NEDC range of over 510 km, and 33.9-meter braking distance from 100-0 km/h. The ES6 expands the design language of the NIO product line with a stylish and sporty exterior plus a refined, high-tech interior.” Both WM and Xpeng will be big competition for NIO, which was overtaken by WM Motor and Xpeng Motors in terms of sales last month. Data shows that the sales volume of Xpeng G3 was 2,704 In May 2019, WM Motor delivered 2,056 units EX5, NIO delivered 1,089 ES8. Xpeng is expanding rapidly in sales channels. Up to now, it has opened experience centres in Guangzhou, Beijing, Shenzhen, Shanghai, Hangzhou, Wuhan, Dongguan and other cities, and plans to add more than 100 offline stores in 2019. The relatively mature and smooth manufacturing system and the growing sales system have gradually improved the delivery of Xpeng G3. Xpeng started relatively late, delivering G3 in December 2018. By the end of May this year, the total delivery volume of Xpeng G3 has reached 5,500 units. The change in monthly sales volume shows that new car manufacturers have basically entered the market test stage in terms of delivery. NIO and WM Motor both had orders for close to 10,000 vehicles in the lead-up to the deliveries, and both have now run out of "order stock", meaning that the current sales volume is the true market volume of these brands. In addition to poor sales, NIO also faces mounting losses and a plunging share price. With sales below expectations, NIO shareholders are impatient to wait. The company's share price began falling in March when the company cut its delivery forecasts and cancelled plans to build a factory in Shanghai. NIO's share price fell further last month after it said car sales fell by 55% in the first quarter of this year and that demand would fall further in the second quarter. Li Bin (李斌), NIO's founder and CEO, said in an interview that investors should understand the cost of making cars, even though the company has lost more than 70 percent of its value in three months. NIO went public in New York in September 2018, and Li Bin said the company is moving forward with the financing announced in May to fund product development. Under the deal, Beijing Yizhuang Investment will invest CNY 10 billion (USD 1.4 billion) in NIO, taking a minority stake in a new entity called NIO China. NIO China will be controlled by NIO. "It's unrealistic to expect a company like ours to make a big profit from the start. The long-term investment value of NIO is not fully understood by the market,"   Li said.  The latest news about Xpeng will no doubt put more pressure on NIO. According to CNBC, Xpeng Motors says it's hoping to close a funding round this year which will probably be a "comparable amount" to the last round that was about USD 600 million.  Anyway, from the second half of this year, the major new car manufacturers will enter the real market competition, how they compete with traditional car companies in the market and get survival seat, will be the key to determine the future.

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Analysis EO
Jun 5, 2019 10:10 am ·

Three Pillars of China's Electric Vehicle Industry

In the previous article, we dissected China's Electric Vehicle (EV) industry, talking about its historical development and the present posture of affairs. We traced out the growth trajectory, describing both the big picture and the micro-level state of things within the car market. One of the key findings there: the EV industry has been cementing its market presence with a six-year market share CAGR of 88.6%. This report is an attempt to go deeper in our analysis in order to delineate substantial conditions that led to the industry's rapid growth. Here we pay particular attention to the three interconnected pillars of EV success: government support, investment and infrastructure. Indeed, the three are interrelated, and it is extremely hard to puzzle out the causality: Was it the government that indicated the importance of the new industry and, by this, ignited the markets' interest, or vice versa? Do companies get involved in the new EV infrastructure-related projects owing to the state support, or because of the future prospects foretold by the thorough VC players? Chicken or the egg? At least, we can say for sure that the motivation of government and major investors to directly affect the EV market varies, as the core interests of political and business institutions are unalike. Another point to stress: infrastructure construction is rather the result than the cause of the abovementioned two. Let's dissect the triad one by one. 'Helping hands' We closed the preceding article using the argument: "Investment and state support are those helping hands that new EV enterprises have to rely upon." This rule is applicable to any other newborn subindustry that somehow disrupts the current order. Thus, there is a spacious room for the conceptualization of the phenomena related to the appearance of newcomers challenging the market incumbents.  The matrix above depicts five possible stages of a new sector development shaped by the two factors that are closely discussed in this chapter: government support presents the axis of ordinates, investors' optimism is on the axis of abscissas. The coordinates determine the short-term position of a certain industry in each case, and the arrows indicate changes as time goes by. As for the zones, the brief description is below. Hyping – Being highly acclaimed by investors due to the cutting-edge nature of business and/or a breakthrough technology backing it; Industry players consistently attract funding. Reaping the fruits – Investors consider the industry as a promising one; the government, at the same time, is willing to support it; Companies representing an industry collect funding and use preferences such as reduced taxes and subsidies. Stepping-stoning – Low or moderate investors' interest is accompanied by a high level of government support (that usually doesn't last long); Businesses within an industry are subsidized widely but aren't considered as game-changers by the market. New normal – Moderate level of benevolence coming from both the state and investors; Resulting from that, a new model gradually substitutes the incumbents, elbowing them out to the annals of history. Dying out – the "dead zone" of the map; Industry verticals that have been substituted by newcomers or disruptive technology may find themselves within this area. The five zones have blurry borders, but, being connected schematically, show all the possible transitions. Clearly, it is feasible to put any new market sector (and any subindustry, industry vertical as well) onto this map and track its historical path. Some markets might have experienced stochastic waves in terms of performance, investors' perception and state support. Consequently, in a number of cases, an industry might even return to the same point on the graph over time.  EV market emerged from the junction between the two lower quadrants: the public officials (except for those rooting for sustainability) at the beginning didn't really consider the incipient industry as a strategic dimension in their internal political lines. In China, the issue became viral due to severe problems caused by the negative outcomes of the fast-growing economy. Still, it took the Chinese government six years to realize that the budding EV segment might become a decent solution to the air quality problem: in 2007, historically the first list of the national standards directly affecting the EV market was promulgated. We recorded every step undertaken by the state as well as the path of the EV in the "Industry chronicles" part of the preceding article. Throughout one and a half dozen of years, industry investors' mood has undergone some changes; In order to illustrate these attitude shifts, the share price records of the global behemoth (Tesla, Inc.) could be used as a bellwether. We argue that, internationally, the first wave of hype about EV was already over in 2016, and this trend found an echo in China too. This is bound up with the market maturity process: once the market gains scale, the final products become commodified. The competition also contributed here, lowering prices and expanding the scope of products available in the market. And the industry zoomed in China: in 2017, almost half of all the battery electric vehicles produced worldwide were manufactured in the country. 579,000 cars of this type were sold in the country within the same year – the number grew 72.32% since 2016. In the following chapters, we talk about the two dimensions in detail. VC laid the foundation of the EV industry Investors' optimism is always reflected in the amount of money collected during funding rounds; another acid test is the share price when it comes to the post-IPO companies. New car manufacturers' rapid development exceeded industry experts' expectations. Local leaders in this segment (NIO, Xpeng Motors, WM Motor, CHJ and SITECH) gained more than USD 8 billion from investors over the last five years. Xpeng Motors (est. in 2014) and WM Motor (est. in 2015) have already become unicorns (that is usual for the auto market, where production costs are high); CHJ and SITECH are close to the status. NIO is a local high roller with the historical track showing a prime example of comparatively fast growth and, at the same time, it is one of the two pure EV listed companies in the world. Taking the view that the rest of newborn EV companies will walk a similar way, we decided to learn from NIO's example. Founded in 2014, NIO was listed in the United States on September 12, 2018. In April 2018, media reports said that SoftBank had been in talks with NIO to buy a stake of about USD 200 million in the latter's IPO. SoftBank's presence boosted investors' confidence in NIO, but the Japanese multinational conglomerate ended up backing away from buying a stake. This motion had dented the car maker's chances for a successful IPO. NIO still went public without a hitch. According to its prospectus, the company raised CNY 2.26 billion (USD 327.2 million) in 2016 through completing Series A, B and B+ rounds of equity financing. In 2017, NIO raised CNY 12.23 billion (USD 1.77 billion). By the end of the first six rounds, NIO had raised CNY 14.5 billion (USD 2.1 billion). Li Bin, founder of NIO said that the number of investors betting on the firm has reached 56, and each of them is willing to help the company financially on an ongoing basis. On May 28, the company released the first quarter of 2019 earning results. Having net loss of CNY 2.62 billion (USD 390.9 million), NIO announced the new financing: according to the company's statement, Yi Zhuang International Investment and Development Co., Ltd. would invest CNY 10 billion (USD 1.45 billion) in NIO China through its designated investment company or other organizations, in order to obtain yet undistributed shareholders' equity. Investors are not just interested but utterly dedicated to the company. Subsidies lighten the market burden Government support is essential, and this is the case when interest happily coincided with the duty. Helping the emerging sector, the Chinese government killed two birds with one stone: contributed to the environmental problem resolution and cultivated a number of potentially highly competitive companies. On October 22, 2015, the National symposium on energy efficiency and NEV industry development was held in Beijing. Li Keqiang, China's Prime Minister, issued an important directive, emphasizing that accelerating the development of new energy technologies, including NEV, is an urgent task to fuel transformation of the automobile industry. According to the high-ranking official, modernization is vital for China that is striving to become a major player globally. EV might be also a key part of the qualitative structural shift in the economic system that's recently pursued by the Chinese government. Meanwhile, it is obvious that these goals can't be reached without taking measures such as: stimulating independent innovation ability and enhancing overall technical level; Implementing and improving the set of supporting policies; optimizing logistics and communication lines, ameliorating environment and rationalizing energy consumption. Under the government's promotion, electric car makers have been reaping the benefits. However, on March 26 this year, the Ministry of Finance of the People's Republic of China issued a notice to state that the subsidies for new energy vehicles will be significantly reduced. 2020 will be a hard year for the small-scale enterprises that lingered and, eventually, didn't ride the waves of the government-originated aid. Besides subsidies, there are other various measures used by the Chinese government to promote EV. In overpopulated Beijing, for instance, conventional cars can be used only on certain weekdays, according to the license plate number. This and other rules of a similar nature don't affect EV at all. Queueing to get the plate number is a normal practice for those buying traditional cars in the capital city, but there is a tiny number of formalities to pass when you buy an EV. Charging infrastructure must be considered as a tool Managing core electric-vehicle infrastructure is utterly important due to the two main reasons. Firstly, if the demand for the new vehicles keeps up, lack of charging stations and other auxiliary infrastructural elements might become a tough barrier in the course of wide EV adoption. However, if the regulators approach this issue rationally, the charging system might become a decent tool of demand-stimulating. Li Ye, executive director for regulation at the National Energy Administration of China, said on January 12, 2019, that by the end of 2018, the number of charging piles countrywide hit 760,000, around 300,000 of which were public-based. According to Mr. Li, the percentage of home-based piles is increasing dramatically, especially in first-tier cities. By the end of November 2018, 219,000 new energy vehicles were registered in Beijing. At the same time, the city possessed 147,000 charging piles, among which 73% (108,000 units) were privately used. In Shanghai, 231,000 new energy vehicles were in the list, the number of piles amounted to 206,000 (and 67% of them are home-based). Nevertheless, other regions are yet to catch up.  As we can observe, some of the key provinces having a vast market potential lag behind in terms of EV infrastructure adoption. Highly populated Henan is an excellent example of such a region. We also expect Sichuan, Hunan and Liaoning to overtake within the next 5-10 years. Yet, natural, self-sufficient sector growth and faster EV adoption are infeasible in these and other trailing regions. State support can be the very impulse that China's periphery needs. Asymmetric regional subsidy programs might be invigorated in the near future, but, like any other unbalanced measure, can also cause a heated debate. The half-grown urban charging system isn't the only concern. In general, EV battery structure is a way simpler than the engine used in conventional vehicles, and the technology is not mature enough; lately, charging duration and safety issues are widely questioned by the public. Some cases of spontaneous combustion of NIO ES8 were recorded last month. After-sales service and insurance are other issues to talk over. Neither these two nor other auxiliary services and mechanisms are excellent. There is a long way of "learning by doing" and "improving by trying" ahead. The path of new car manufacturers has been shaped by the objective (market) and subjective (the state) forces. New industry leaders have formed a solid, complex competitive landscape domestically. But have they prepared for the global EV leader's impending arrival? We are going to work out the answer in the following article.

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May 28, 2019 05:08 pm ·

NIO Releases its Q1 Earnings Report

NIO released its first quarter 2019 earnings report on May 28. Data shows that the company's revenue in the first quarter of 2019 was CNY 1.63 billion (USD 243.1 million), down 52.5 percent from the fourth quarter of 2018, and its net loss was CNY 2.62 billion (USD 390.9 million), down 25.1 percent month-on-month and up 71.4 percent year-on-year. Financial Highlights for the Q1 of 2019 Excluding the share payment fee, the adjusted net loss (non-GAAP) was CNY 2.504 billion (USD 373.1 million), down 25.5 percent month-over-month and up 68.2 percent year-over-year. In terms of product deliveries, NIO ES8 delivered 3,989 units in the first three months of 2019, down about 4,000 units month-on-month. The company delivered 1,124 ES8 vehicles in April 2019, fewer than expected. NIO said the reduction was mainly affected by the Chinese government's announcement in late March that subsidies were on the decline, the Spring Festival holiday, China's macroeconomic development and Sino-U.S. trade frictions. The company will release the full contents of NIO's earnings for the first quarter of 2019 tonight. On the morning of May 29, Beijing time, NIO's chairman Li Bin and President QIN Lihong will join the media to answer questions in the earnings report. NIO will receive USD 1.45 billion Despite the continued losses, NIO reported good news in its earnings report. In May 2019, NIO signed a framework agreement with Beijing Yi Zhuang International Investment and Development co., LTD (亦庄国际投资发展有限公司), an investment company headquartered in Beijing economic and technological development zone. The agreement said that NIO will set up a new entity "NIO China" in Beijing economic and technological development zone, and inject specific businesses and assets into "NIO China". Yi Zhuang will invest CNY 10 billion (USD 1.447 billion) in "NIO China" in cash through its designated investment company or other joint investors, in order to acquire the non-controlling shareholders' equity in "NIO China". In addition, Yi Zhuang will also assist in the construction of "NIO China" or introduce a third party to jointly build NIO China advanced manufacturing base to produce the company's second-generation models.  NIO Starts ES6's Mass Delivery Next Month On the same day as the earnings report released, NIO's second large-scale production model ES6 officially rolled off the production line On May 28. The ES6 will be the first commemorative edition and will be delivered to customers in late June. In terms of ES6, Li Bin announced that orders for this model have exceeded 12,000 units, of which 5,000 have been received after the Automobile Shanghai. According to the NIO's arrangement, ES6 and ES8 will be Co-produced in the JAC-NIO Hefei factory. "We have three main jobs: selling cars well, improving operational efficiency, and develop new products," Li said. New Product Development In April 2019, the Company showcased a preview version of the ET7, its high-performance premium electric sedan, at the Shanghai Auto Show. Recently, the Company made the decision to design and develop the ET series with the future NIO NP2 platform, our next generation product platform featuring Level 4 autonomous driving capabilities, and will provide an update on the launch timeline of the ET series in the future. Meanwhile, the Company plans to leverage the platform technologies from the ES8 and ES6 to create a new model design and expects to launch the third vehicle model in 2020. In its outlook for the second quarter of 2019, NIO expects: 1. The company expects to deliver 2,800 to 3,200 units of ES8 and ES6, about 29.8 percent to 19.8 percent less than the first quarter. 2. The total revenue of the company is expected to be CNY 1.13 billion ( USD 169 million) to CNY 1.29 billion ( USD 193 million), down about 30.5 percent to 20.7 percent compared with the first quarter.

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May 7, 2019 11:35 pm ·

Who Will be the First One to Suffer from Mr. Trump, NIO or Tesla?

According to CNN, the top US trade negotiator said Monday that the Trump administration will be moving forward on President Donald Trump's threat to escalate tariffs on USD 200 billion of Chinese goods effective Friday. Trump tweeted that he would raise import taxes on USD 200 billion worth in Chinese products to 25 per cent from 10 per cent as of Friday. That's on top of a 25 per cent duty on another USD 50 billion worth of Chinese imports. Beijing had imposed penalties on USD 110 billion worth of American goods. If Trump sticks to his decision, the U.S. carmaker Tesla, which have built a factory in Shanghai, China and have many employees, will be seriously affected. Because the core computer of Tesla's Chinese-made Model 3, known as the 'Brain', was rejected for exclusion from Donald Trump's 25% tariffs. Tesla's Layout in China Tesla and other Chinese-made products, including aerospace parts and biotechnology equipment, have been denied tariff exemptions because they are seen as strategically important for the made in China 2025 program, according to the filing of the United States trade representative office. The 3.0 Autopilot electronic control unit (ECU) will bear the full tariffs. In addition, the tariff exemption separately applied by Tesla for the Model3 central control screen manufactured in China is still in progress. Tesla did not immediately respond to a request for comment. According to Reuters, Tesla has filed a complaint with the office of the United States trade representative (USTR) since first applying for a tariff break in 2018. Tesla told U.S. officials at the time: “increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact to profitability.” Moreover, Tesla claims it cannot find capable manufacturers anywhere outside China. They told the U.S. trade representative's office: "If another supplier is chosen, the project will be delayed for 18 months due to cleanroom setup, production line validation and staff training." Tesla claimed that: "For a product as safety critical to consumers, and critical to the essence of Tesla, we turned to industry experts who could achieve this quality and complexity in addition to the deadlines, which was not possible outside of China." China is the world's biggest NEV market as well as Tesla's biggest market outside the United States. On June 16, 2018, the tariff commission of the State Council announced that the first batch of goods imported from the United States, including American-made automobiles, with a 25% tariff increase will be worth about USD 34 billion from July 6. That means most U.S.-made cars declared after that date will be subject to the 25 per cent surcharge. Subsequently, Tesla, which has always been the world's unified selling price, had no choice but to increase the price in China. The price of Model S and Model X generally increased by more than CNY 100,000, with the highest price rising by more than CNY 250,000. The cheapest Model S costs CNY 850,000, this has put a squeeze on Tesla's sales. The biggest advantage of Tesla in building a factory in Shanghai is that it avoids high import tariffs and has lifted the restriction on foreign shares in new energy vehicles. It is really good news for the company, which has always insisted on building a factory solely by itself. For now, it looks like Tesla will be caught in the crossfire for years to come unless it changes its production base. Because industry commentators say tariffs will remain in place regardless of the outcome of the U.S.-China trade talks. Again, this is not a short-term bargaining chip, but a long-term economic attack. Trade frictions with China could make the Model 3 more expensive globally. In addition to the possibility that the Chinese government could impose high tariffs on American cars, Trump's tax could make it difficult for Tesla to obtain supplies of core components. NIO Known As the Tesla of China Tesla sells about 20,000 vehicles a year in China, less than 10% of its global sales. About 70 per cent of its revenue comes from the U.S., but it wants to reduce its dependence on the U.S. and boost sales in China. Tesla now ships cars from the U.S. to China, putting it at a cost disadvantage there. Trade friction has prompted Beijing to impose additional tariffs on American-made cars. Tesla's revenue in China fell by 13 per cent in 2018 from a year earlier. The company hopes the Model Y, a popular compact SUV, will change that. But the rise of local electric car start-ups in China poses a threat. The most prominent example is NIO, known as the Tesla of China. The company launched its first car three years after its founding and went public on the New York stock exchange last September. NIO has brought together the world's automotive and technology leaders across our offices in San Jose, Munich, London, Shanghai, and eight other locations. NIO has been called "the Tesla of China" because its strategy to attract customers to the electric car market is similar to Tesla in many ways. The company currently sells two high-performance SUVs, the ES6 and ES8, which both have advanced (not yet operational) autonomous systems and in-car driving systems. However, these are all Tesla features currently enjoyed by Tesla drivers. Last year, NIO hit its goal of delivering 10,000 vehicles, all of them customized. Because of China's manufacturing capacity, LI Bin, the CEO of the company expects to ramp up production quickly in the next few years, and he eventually hopes to have NIO cars on the road in the United States. The company already has offices in San Jose, California, and employs more than 700 people in its global software development centre. But NIO's development in the United States has not always been smooth. A few days ago, statistics from a filing with California's Employment Development Department show that Chinese EV startup NIO has laid off 70 employees across two Silicon Valley offices, one of which is now closed. NIO's layoffs are mainly due to the high operating costs in the United States and aim to improve management efficiency. At the end of 2018, the company had 640 employees in its San Jose office alone and about 10,000 employees worldwide, according to NIO's financial documents. The cuts are small relative to its total number of employees, but they're a sign that the company's early momentum is cooling. These Companies' plans to Enter the U.S. Market May Fail In the long run, trade frictions may benefit some new energy automobile enterprises and force the technological innovation of China's own brands. For example, make a major technological breakthrough in the new energy battery, and reduce costs. But the strategic pace at which some Chinese brands want to enter the U.S. market could be affected. According to statistics, the trade war may lead to a greater impact on the business of enterprises, including BYD, NIO, JAC, and CHJ, and other car companies that operate sharing services abroad, as well as some low-speed electric car companies. In early 2018, NIO CFO XIE Dongying told CNBC that the company has announced its next steps to investors and said the first 10,000 ES8 all-electric cars have sold out. XIE also highlighted NIO's plans to enter the U.S. market by 2020. On March 10, 2016, NIO unveiled its North American strategy and the first concept car EVE at the global technology trends conference (SXSW) in Austin, Texas. The company said it would launch driverless electric cars for American consumers by 2020. In October 2016, it obtained a test license for a driverless car issued by the California government. In addition, some other Chinese electric vehicle manufacturers have plans to enter the U.S. market, usually starting with the establishment of R&D centres in the U.S. XPeng Motors debuted its first product, the G3, at CES in January 2018. Its self-driving road test permit is obtained in California, U.S., in September 2018. Another Chinese start-up, WM Motor, also has an AI research institute in silicon valley. In December 2017, WM officially displayed its brand LOGO in times square, New York, and announced that its first mass production model will be officially unveiled on December 11. SHEN Hui, Founder of WM Motor, said in an interview that the company has a team studying IPO proposals in the United States and China, but did not give a possible time frame. On January 12, 2019 (U.S. west time), WM Motor launched "Project W" in Silicon Valley. The plan is to evolve WM into a data-driven smart hardware company. On October 11, 2017, CHJ, a Smart Electric Vehicle startup, signed a letter of intent with SCOOT Networks, a timeshare rental operator in the United States. The two sides will launch a pilot project of Shared travel service based on CHJ SEV (Smart Electric Vehicle) in San Francisco, the United States. About China-U.S. Trade Friction The trade friction between the U.S. and China was one of the biggest stories of 2018. The conflict concerns not only the two countries but the entire global economy. President Donald Trump blamed China for the U.S. trade deficit and signed an executive memorandum on March 22 imposing tariffs on up to USD 60 billion worth of Chinese imports. A few weeks later, the White House released a list of 1,300 Chinese goods that could be subject to a 25 per cent tariffs. The list worth USD 50 billion and specifically targeted Chinese high-tech industries. For the automotive sector, the biggest impact of the U.S. tax list will be on sensors and navigation devices for autonomous driving, and motors and batteries for new energy vehicles. Sensors and navigation devices are the key technologies that will enable autonomous driving in the future. However, these areas are dominated by American manufacturers, so China exports less to the U.S. Motors and batteries are the core of new energy vehicles. At present, domestic battery products of CATL are exported to BMW, Volkswagen, Mercedes and other car companies, accounting for a small proportion of exports to the United States. Compared with an annual sales base of over 20 million vehicles in the Chinese market, the changes in the Chinese and American automobile import markets will not have much impact on the overall automobile market. Therefore, the impact of Sino-us trade friction on the auto industry will not be large for the time being. However, in the long run, when the industry enters the white-hot competition stage and China fails to master the core technologies, the tariff list may hinder China from mastering the core technologies of low carbon, information and intelligence of automobiles. For the domestic automobile industry, it is necessary to master core technologies such as intelligent driving, motor and battery as soon as possible.

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Apr 25, 2019 03:28 pm ·

Tesla's Continuous Losses Does Not Make NIO Its Opponent

Tesla said on April 25 that it lost USD 702 million in Q1 2019, a sharp reversal from the profits it made in the second half of last year. The loss, equivalent to USD 4.10 per share, was far greater than the USD 1.81 per share that Wall Street analysts, surveyed by FactSet, had forecast. The quarter’s revenue of USD 4.54 billion fell well short of expectations. Previously, Tesla usually didn't report Q1 earnings until early May of each year. In the first quarter of 2019, Tesla ended two consecutive quarters of profit, lost USD 702 million. When Tesla reported its 2018 annual report earlier this year, Wall Street analysts predicted a loss of USD 2.5 million in Q1 2019. " Musk's reliance on 'luck' has made it virtually unprofitable to sell the long-endurance Model 3 in Europe and China and the medium-range Model 3 in the U.S., raising questions about the company's profitability in selling the long-promised USD 35,000 vehicle,"  an analyst said. Tesla is Trying to Restore Investor Confidence On the evening of April 22, Tesla held Autonomy Day at its California headquarters. The company unveiled fully autonomous driving 3.0 hardware and its self-developed autonomous driving dedicated chip to investors and global users live. Elon Musk called it ' the best chip in the world, objectively.' Its a 260 square millimetre piece of silicon, with 6 billion transistors, the company claims offers 21 times the performance of the Nvidia chips it was using before. Musk said that after a software update, which activates a feature called Navigate on Autopilot, all future Tesla vehicles will have self-driving functions. While many tech companies and traditional automakers are researching autonomous driving, Tesla is different in that it relies on radar and cameras around the car, not LIDAR sensors. Musk believes that vendors that rely on LIDAR are 'doomed to fail,' and he predicts others will abandon LIDAR. The chip is called a 'fully autonomous computer' or FSD (Full Self-Driving) computer chip, is a high-performance, proprietary chip (made at a Samsung plant in Texas) that takes full account of autonomy and security. According to Tesla, FSD's neural network can process 2,100 frames of images per second, has 144TOPS High Rate, and consumes only 250 watts per mile. However, Musk's ambitions go far beyond fully autonomous driving. On the day of the event, he announced the 'RoboTaxi' initiative and said that one million Tesla vehicles with fully autonomous hardware will be on the road next year. FSD Chip's Five Features According to iHoushi, The FSD chip has five remarkable features.  1) It adapts to the redundancy requirement of automatic driving. In the AV system, the redundancy of the system means that if one of the modules fails or is damaged, the software can detect and mark it in time to isolate the failure module, while the other module has an independent power supply and storage system and can continue to undertake the corresponding work uninfluenced. 2) Higher Performance. A general-purpose CPU can't match the performance of a dedicated GPU, which lags far behind the performance of a computing chip designed for neural networks. Pete Bannon says that when they analyzed a lot of the data and found that a lot of the AV computing was a particular kind of mathematics, they tried to adapt the chip design to that, and the result was a huge improvement in chip performance. Coupled with high-speed RAM and storage, AV computing in any of the most complex scenarios is stress-free. 3) Chip Clock Synchronization Function. FSD chips are designed with an emphasis on clock synchronization to ensure that both modules are processing the same batch of data at the same time point. If the clocks on the two modules are out of sync with each other, or with other external systems, the consequences could be catastrophic, since the primary problem with autonomous driving technology is time accuracy and minimizing delays and response times based on that. 4) Chip Data Encryption and Security. Data security is also a highlight of FSD chip design. The chip encrypts instructions and data and also reviews data to prevent malicious intrusion by external hackers. For AV system, human life is the most important, and external invasion is absolutely not allowed. FSD chip strictly monitors the input and output data, aiming to find any suspicious data, such as forged video input data (deceiving the car that there is a pedestrian in front of it). And maliciously tampered output instructions (if the vehicle does detect a pedestrian in front of it, the maliciously tampered output instructions may prevent the vehicle from taking appropriate response measures). 5) The Chip is Compatible With Existing Tesla Models. The biggest benefit for owners of the new custom FSD chip is that it is compatible with existing Tesla models. Tesla said owners who had previously purchased a "fully autonomous driving package" would receive a free hardware update in the coming months. However, Tesla shares fell after the news (down about 4%), down about 30% from December and about 9% from a year ago. On the second day (April 24, Beijing time), Tesla announced a new version of Model S and Model X, which not only have new transmission system, wheel bearing, tire, suspension and other hardware and components but also have improved range and charging efficiency. The new Model S and Model X will have an EPA range of 370 miles and 325 miles, respectively, the company said, with production starting this week at the Fremont, calif., plant. The good news announced two days before the earnings report, has led to speculation that Tesla is trying to boost investor confidence further. China Will Be The Focus of Tesla's Expansion Plan Tesla is the global leader in electric vehicle manufacturing industry, but it is still suffering from losses. But in terms of a single Model, the Tesla Model 3 is now the top-selling electric car in the United States. While it leads the second-placed Chevrolet Volt by less than 10,000 units, the Volt has been on the market for nearly 9 years, and the Model 3, which was only delivered in 2017, which is only 3 years. On January 7, 2019, Tesla Shanghai super factory officially started construction, the company announced that the factory is expected to achieve mass production by the end of 2019. On March 1st Tesla officially unveiled its cheapest Model 3, the standard Model 3, for USD 35,000. What's more shocking to the old Tesla owners in China is that Tesla has adjusted the selling price of the whole series of its models in China. The price of Model X has dropped by CNY 174,300 to CNY 341,100, the price of Model 3 has dropped by CNY 26,000 to CNY 44,000, and the price of Model S has dropped by CNY 11,400 to CNY 277,500. The Model 3 will be the focus of production at the Shanghai plant. When production starts at the Shanghai plant, the Model 3 will be exempt from the 15% tariff. With the mass production of the Shanghai plant and the adoption of domestic suppliers, the price of the localized Tesla will be greatly reduced compared with the current price, and it will have fierce competition with the new car manufacturers in China. Domestic New EV Manufacturers Are No Match for Tesla It has been 16 years since Tesla was founded in 2003, domestic new car manufacturers only began to appear in large numbers in 2014. And the reason is closely related to the domestic new energy passenger car subsidy policy. So unlike Tesla, which was born into the market, China's new car manufacturers carry the subsidy gene. In addition, it lags behind Tesla in starting, and the 'hematopoietic capacity' and self-built capacity of domestic new car manufacturers are much worse. Take NIO, which is listed in the United States as an example, the net loss of Q3 in 2018 was more than USD 2.8 billion, which increased by 56% compared with that of Q2 in 2018. The NIO with the largest shipment volume in China is still not equipped with the 'self-hematopoietic ability', so the situation of other enterprises can be imagined. As a manufacturing enterprise, technical ability often determines the real strength of the enterprise. We can find the gap between domestic new car manufacturers and Tesla by comparing Tesla and NIO. In terms of battery, Tesla develops batteries in partnership with Panasonic, and NIO buys them from CATL; In terms of chips: Tesla made the chips itself, and NIO bought EYEQ4 from Mobileye. As we all know, technology research and development is very expensive, and car manufacturers have to face the pressure of mass production. Even so, Tesla chose to make its own chips rather than find a supplier, and the fundamental reason must be to master the core technology. The research and development of Artificial Intelligence chips have gradually become a hot topic since 2015. However, in China, only a few companies like Cambricon Technologies (寒武纪) and Horizon Robotics (地平线) have launched their own smart chip products adapted to the scene. While Google, Intel, Nvidia and other international giants are developing their own smart chips in different fields of smart chip application, Chinese chip companies are far from their competitors at present. 'Tesla Will Comprehensively Overwhelm Domestic New Car Manufacturers' Although there are a large number of domestic first-class institutional investment endorsements behind the new car manufacturers, Tesla is bound to comprehensively suppress them. Coupled with the decline of subsidies, it is difficult for the new car manufacturers to exceed the expected performance under domestic and foreign troubles. In addition, the fundamental reason why domestic investment institutions invest a lot in new automobile manufacturing enterprises is that new energy passenger cars are in the ' tuyere period'. Actually, they are laying out the track of new energy vehicles, and the way to participate is to put eggs in multiple baskets. For example, the famous VC Sequoia Capital participated in NIO (蔚来), WM Motor (威马汽车) and LEAP Motor (零跑汽车), etc., betting that a domestic giant will be born on this track. In general, Tesla's eagerness to launch a Chinese offensive is aim to " shoot three birds with one stone". 1) They are eager to change the negative image created by China's market failure in the past 2018 and restore the confidence of the market, investors and potential investors. 2) Its likely to beat China's new carmakers in their infancy -- or at least slow their growth. 3) Cutting prices mean it can help Tesla increase market share. However, no matter how powerful the would-be rivals are, making good vehicles is now the most important thing for domestic new manufacturers.

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Analysis EO
Apr 22, 2019 04:40 pm ·

NIO Officially Starts Investigation to ES8 Fire During Maintenance

In response to today's incident in Xi 'an where an NIO ES8 vehicle caught fire while being repaired by the authorized service centre, NIO announced that it has opened an investigation into the cause of the fire and will release the investigation results in a timely manner. NIO shares fell sharply on the news before the market opened today. NIO shares were down 26 cents, or 5.43%, at USD 4.53 in premarket trading as of 16:47 Beijing time, according to SINA financial data. In the previous session, NIO shares were trading at USD 4.79, up 4.36% from the previous session. EVs Have Had Many Fire Accidents Coincidentally, on the evening of April 21, one day earlier, a fire broke out in an underground garage of a residential area in Shanghai. The fire was caused by a Tesla Model S parked on the first floor of the underground garage, which spontaneously ignited and quickly ignited the surrounding vehicles. It took about an hour for 15 fire trucks to extinguish the blaze. However, the incident has caused the first floor of the other cars almost all burned, the second floor of the car underground because of the fire spray were all flooded. Fires in new energy vehicles have been a regular occurrence in recent years. In the more than one month period from August to September 2018, there have been as many as 12 fires on electric vehicles in public. On August 25, 2018, a WM EX5 electric vehicle suddenly caught fire and spontaneously ignited at the WM Motor research institute in Chengdu. It is not just new car manufacturers,  BYD, an old EV manufacturer, has also burned cars. In August of that year, a BYD song SUV with a petrol-electric hybrid also burst into flames at Shanghai Hongqiao railway station. In addition, BAIC BJEV, NISSAN, and other brand products have had similar accidents. Why EV Battery Fires and The Consequences So Serious? Although the brand is different, the cause of the fire is very similar, the most common of which is a short circuit inside the battery. When the positive and negative terminals of the battery are short connected, the instantaneous current exceeds 5A and generates a lot of heat, which can make the short junction reach a high temperature and cause the battery to catch fire. External collision and lineaging will lead to no diaphragm on the cell, diaphragm damage, protection plate instability, cell internal diaphragm paper instability, and then lead to short circuit. Traffic accidents are also an important cause of spontaneous combustion of batteries. However, most of the power batteries on the market fail to pass the acupuncture test. In fact, related experts have been calling for a long time, and the acupuncture test has not become a mandatory standard for the whole industry because it is too difficult and exceeds the level of technological development, which can be said to be one of the biggest safety risks of electric vehicles at present. Why do new energy cars always burn and burn so hard? For example, the Model S has a battery capacity of 85kWh. The battery pack consists of 16 batteries in series, and each battery pack consists of 444 lithium batteries and 74 batteries in parallel. As a result, the vehicle's power battery pack consists of 7,104 lithium batteries, with an average capacity of 12Wh per lithium battery. That translates to 43 kilojoules, or about 100 grams of TNT, stored in 16 cubic centimetres of space. If the battery shortens, the resulting energy release can be scary enough to set a car on fire. As Tesla pursues energy density with ternary lithium battery, its electrolyte will produce carbon monoxide, toluene, hydrogen sulfide and other toxic and combustible gases after combustion. In addition, oxygen will be generated during the reaction process to fuel the combustion, which makes the fire of electric cars often erupt in a flash and the fire expands rapidly. However, because of the generation of oxygen, it is difficult to use the traditional fire extinguishing methods such as isolating air, spraying carbon dioxide and dry powder, and firefighters can only use a lot of water to cool down the fire. So electric cars often catch fire because the rescue is not timely, causing irreparable damage.

Analysis EO
Analysis · 2
Analysis EO
Apr 4, 2019 07:11 am ·

New Auto Manufacturing Enterprises Feel Blue as Subsidy Declines

NIO is an electric-car startup founded in 2014 and is listed on the NYSE since September 2018. However, last month was a rough month for the investors of NIO; its shares lost nearly half of their value within a month falling from USD 9.57 to USD 5.10. There are a couple of factors behind the free-fall. First, NIO's stocks have sharply dropped after it got reported on March 5 since its fourth-quarter earnings were below Wall Street's expectations. In these days, investors are increasingly concerned about Beijing's decision to cut subsidies for the EV industry. NIO has often been compared to Tesla during the nascent stage of it. Recently, however, it is hard for one to compare NIO with Tesla. On the one hand, China is in the midst of a cyclical slump in auto sales; for the first time in several years. With the subsidy cuts, it will be tougher for small companies, such as NIO. NIO's administration for first-quarter deliveries wasn't excellent, but the company stated that it did better than it expected. NIO is planning to deliver 3500-3800 vehicles in the first quarter of this year, and the actual number of delivery is around 3989; and, NIO has delivered 1373 vehicles in March. Maybe it means something, but not enough to be wildly optimistic about NIO's near-term sales prospects. After launching the incentives to encourage the development of the EV industry in 2010, Beijing had begun paring the subsidies since 2017.  Companies are facing a decline in orders and struggling to cover the gap. The resulting loss of profits has forced many companies to rethink their strategies; some EV makers seem destined to be eliminated as this support ends in 2020. What's more, some fraud cases arose surrounding the subsidies in 2016 and 2017, and Beijing has begun to close the spigot since 2017. China's EV makers are struggling to break their dependence on government incentives. BYD has announced a massive decline in net profit in 2018 as the company spends heavily to keep prices attractive. Diminishing subsidies for new-energy vehicles have put pressure on the earnings, BYD said. Net profit fell by 31.6% to CNY 2.78 billion ($414 million), even as revenues surged by 22.8% to over 130 billion yuan. Electric-car unit sales roughly doubled to nearly 248,000. Last year, BYD's operating profit margin shrank to 3.3% from a peak of 5.8%. Why big cuts? Part of the reason is domestic Chinese politics; China's subsidies, which depends on how many units have automakers sold. Beijing doesn't want local and regional governments to give advantages to local automakers using protectionist policies. The government wants to ensure that up-and-coming manufacturers of electric vehicles and plug-in hybrids aren't just relying on subsidies as well. "Five Chinese automakers, led by BYD, controlled a majority of the green passenger car market, " said the China Passenger Car Association. The trend has spurred many automakers to revise their plans. In March, BYD halted its business at a Guangzhou electric bus factory because of the facility had entered the off-season. It is suspected that the closure stems from the decline in bus orders. NIO was cancelling plans for the Shanghai manufacturing plant, as well.  The Chinese government began requiring both domestic and overseas-based automakers to produce a number of new-energy vehicles, equivalent to 10% of their total production and import volume.  Domestic automakers still hold the lead, but overseas players are preparing an offensive as Beijing's support approaches its end. In April 2018, China said it would roll back restrictions on investments by foreign automakers into the domestic new-energy car ventures. Next month, U.S. electric vehicle maker Tesla moved ahead with plans for a wholly owned Shanghai electric vehicle factory under a local branch. In this process, the new forces of car making bear the greatest pressure on the whole market. Of course, the introduction of new policies and the reduction of subsidies are within the expectations, and auto companies must have countermeasures. The new 13% VAT rate came into effect on April 1, after some carmakers began to cut official guidance prices ahead of schedule. It seems that this price cut started with Tesla and some multinationals cutting their guidance prices, too. Several price cuts of Tesla can be understood as benefit improvement brought by tariff reduction and scale reduction. What's more, it is a free advertisement for Model 3 and Model Y. Auto enterprises usually have two promotion methods; traditional one always maintain the original price, the new one always guarantees the price after the subsidies subtracted. It is rare for multinational automobile enterprises and independent brands to reduce prices at the same time, which is to follow the policy adjustment, but also to cope with the cold winter of the automobile market and a more intense market. Price is an important weapon when branding is not enough to change the market. With the decline of subsidy policy and direct competition from traditional automobile companies, the new automobile manufacturers will face a life or death situation in 2019. If the USD 200,000 Model 3 arrives in China, the scene may be even more nervous. By 2020, subsidies may be negligible, but the "double integral" policy, popularized charging piles and faster-charging speed are all expected to bring sustainable development power for new energy vehicles. Both the design, manufacture and sales of the new models need to be more forward-looking to cope with the rapidly changing market. Of course, the key to the success of EV will be the range and autonomous driving in the future.

Analysis EO
Analysis · 2
Analysis EO
Apr 1, 2019 08:51 pm ·

Reducing the Deposit of ES6 May Not be Enough for NIO to Attract More Customers

On April 1, 2019, NIO announced that the deposit payment channel of its SUV model ES6 is officially launched on its mobile application. The company has adjusted the deposit amount for ES8 and ES6 models officially, from the original CNY 45,000 to CNY 20,000 respectively. The amount of intention money has also been reduced from CNY 5,000 to CNY 2,000 for both ES6 and ES8. Meanwhile, NIO also announced that it would upgrade its financial products from today on. A series of time-limited financial products including zero-interest installment loans, low-down payment and low-interest installment loans, as well as a variety of flexible loan schemes,  were launched for users who have already paid the deposit in April. How it works? According to NIO's delivery schedule, the initial limited edition 70 kWh battery version will be delivered first, in June. The performance version will be delivered from August, while the standard version will not be delivered until October. However, the earliest delivery time in Beijing and Shanghai is later than the other regions. Because some cities need to complete the local registration procedures before the delivery. The ES6's initial commemorative edition is limited to 6,000 units, any number of a limited edition can be chosen between 0001-6000 after paying the deposit. Users can engrave the number of limited edition on the badge on the B column. The limitation will not affect the pick-up order; the number can be selected or changed at will before the order is settled, but cannot be changed after the order is locked. Users need to upgrade the NIO APP to the latest version (V 3.5.0), and then click the order details in “Car Love" page to pay for the order. Several payment methods can be used.  Besides, there are many versions of ES6 models and the launch time of each model is different.  Therefore, the corresponding order locking and production scheduling time are different too. The first batch locking time of ES6 models is as follows: >The initial commemorative edition: the production will be arranged on May 20 if the users pay the deposit before 24:00 on May 19. >Performance version: the production will be arranged on June 20 if the users pay the deposit before 24:00 on June 19. >Standard version: the production will be arranged on August 20if the users pay the deposit before 24:00 on August 19. >The user can modify the configuration or model before the order is locked; Production will be arranged after the order is locked, and the order configuration cannot be changed. Acceptance of the New Depositing Model: Will it Work? ES6 -high-performance, long-endurance, smart electric SUV- is the most promising product NIO. As the second model of the company, ES6 is even affordable than ES8, and its range has also improved. NIO had previously planned to deliver the standard ES6 in December 2019, but now the delivery date is two months ahead of schedule. According to EqualOcean, NIO has chosen to reduce ES6's deposit price rather than publishing the factory supplement based on two reasons:First, the company is short of money. The second reason is, NIO wants to test the acceptance of the pricing model. The company will follow other automakers to publish the preferential policy immediately to stimulate order growth if the results are less than expected. Founded in November 2014, NIO is a pioneer in China’s premium EV market, and it has operated R&D centres in Beijing, San Jose, Munich and London. The company was listed on the New York Stock Exchange last September. However, the company accumulated a loss of CNY 9.6 billion in 2018.  As for the gradual decline of state and local subsidies, NIO has not launched any corresponding preferential policies yet. However, NIO's competitors, BYD (比亚迪), GAC NE (广汽新能源),ROEWE(上汽荣威) and other EV manufacturers in China, have already launched their own preferential policies. According to the new subsidy policy in 2019, the subsidy for NIO ES6 and ES8 will decrease by CNY 65,000 and CNY 53,100 respectively. The maximum subsidy for ES6 is only CNY 27,000, which will be an ordeal for NIO's potential users. This is because the actual price paid by users was about CNY 50,000 higher than the price when the new car was released. William Li, founder, chairman and chief executive officer of NIO, said in the report that NIO will focus on the market penetration for its ES6 and ES8 variant products and services in 2019. Indeed, the automotive industry is always evolving, but there’s still only one thing that truly matters— performance, Whether you can get government subsidies or not, making good cars is the real competitiveness of an enterprise.

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