STOCK: NIO | 4/21/21 FIRST FOCUS NIO INC. (Ticker: NIO) LBIRLBIR Recommendation Recommendation Stock Price: $36.93 (4/21/21) Company Size: $55.9B Author: Janice Quek Industry: Alternative Energy Car Company Rank: 931 Sector: Consumer Cyclicals Manufacturers Nio is a leading Chinese smart electric vehicle manufacturer. IN THIS FIRST FOCUS WE’LL COVER: u Summary of the Business Nio designs and produces smart electric vehicles and offers a range of complementary services to Grab-and-Goä drive electric vehicle adoption and other revenue streams. THESIS u Recent Developments The pandemic impacted Nio’s sales adversely in An investment in Nio is a play on Q1FY20, but the company recovered well, returning premium electric vehicle demand in to pre-Covid production levels by the next quarter. China. The company is a leading It reported strong FY20 performance. manufacturer of premium smart u Competitive Environment electric vehicles in the country. Nio Nio is one of the leading electric vehicle brands in has a good competitive position and China. It has a premium, high performing vehicle can sustain or grow market share fleet, attractive battery swap design, strong support through innovation and aggressive infrastructure and solid branding, which are market penetration into China’s competitive strengths. smaller cities. u Conclusions/Recommendations We assess that Nio will grow rapidly in the next few years and has significant upside potential. We assign a “GREEN LIGHT” rating to Nio. SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 1 LEFTBRAINIR.COM . 630-517-9300 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS Data as of 4/21/21 unless specified Revenue Fwd $5,298M Enterprise Value: $55.9B Market Cap: $60.5B (TTM): ($2,355M) Fwd (TTM) 19.14x YTD Return: -24.23% RSI: 38.3 Price/Sales: (8.97x) Gross Margin Revenue Growth 11.7% 110.8% ROIC (TTM): -26.4% (TTM): (FWD, YoY): 200-day Moving 52-Week High: $66.99 52-Week Low $2.91 $35.22 Avg. EBITDA -$435M CFO $282.6M FCF $119.3M Insider Transactions: ADR transaction data is not available subsidies for vehicle sales, exemption of vehicle SUMMARY OF BUSINESS û purchase tax, exemption from any restrictions on Nio is a leading Chinese smart electric vehicle the issuance of vehicle license plates vis-à-vis manufacturer. Its vehicles are priced for the internal combustion cars, and local government premium market and have innovative features incentives to drive the build out of electric vehicle such as autonomous driving, AI-driven digital charging infrastructure. As a result of these technologies, electric powertrains and long range policies, over the last decade, annual sales batteries. The company also provides volume of new energy vehicles has increased complementary services such as battery from 8,159 units sold in 2011 to more than 1.2 swapping subscriptions and service stations. Nio million vehicles sold in 2019. Yet, the 1.2 million has four vehicle models in the market, vehicles represent only about 6% of total comprising three SUV models (ES8, ES6 and EC6) passenger vehicles sold in China that year, and one sedan (ET7). It currently only sells its cars reflecting the low market penetration and in China, but is considering expanding opportunity ahead. An E-Mobility Index report internationally. produced by international management consulting firm Roland Berger, forecasts that China would produce approximately 13 million Electric vehicle adoption is expanding rapidly in electric vehicles by 2023. Global electric vehicles China and across major regions sales are projected to expand from $162 billion in China is the world’s fastest growing electric 2019 to $802 billion by 2027, according to data vehicle consumer today. Pollution from exhaust from Bloomberg.com, as countries tightened emissions and environmental concerns have restrictions on automotive emissions, increase spurred the central government’s push towards incentives on electric vehicle use, and automakers new energy vehicles. Several policies and launch new electric vehicle models. government initiatives have been implemented to support the use of new energy vehicles, including SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 2 LEFTBRAINIR.COM . 630-517-9300 EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS Source: Statista and Roland Berger AI-powered companion, NOMI, that can interact with users and complete a range of tasks. The Premium electric vehicle with advanced suite of digital system has Firmware Over-The-Air capabilities and services to drive adoption (FOTA) and Software-over-the-air (SOTA) Nio is one of the top electric vehicle brands in capabilities to update the vehicle’s systems China, producing high performance vehicles remotely and install new features easily, with a broad suite of premium features. Its improving the vehicle’s connectivity, vehicles are equipped with its proprietary electric performance and overall driver experience. Nio is powertrain technologies, with progressively also one of the first automotive companies in more powerful magnet and induction motors on China to offer Autonomous Driving technologies. each new generation of powertrain upgrade, The system, Nio Pilot, uses a combination of increasing power delivery efficiency, acceleration sensors, cameras, and radars to park, brake, turn and range of its vehicles. For example its first on the high beam, switch lanes, maintain a safe vehicle model, the ES8, can accelerate from zero distance from another vehicle and alert drivers to to 100 kilometres per hour (kph) in 4.4 seconds, other important events. In early January 2021, while the ET7, built with its third-generation Nio launched Nio Autonomous Driving (NAD), powertrain, can achieve the same acceleration in a next generation autonomous driving 3.9 seconds. Battery packs are also designed in- technology on its ET7 vehicle that can house, and based on high energy density nickel- progressively cover expressways and urban cobalt-manganese (NCM) cells with its own roads. liquid cooling thermal and intelligent battery management system. Within each vehicle is a digital cockpit and digital system with an in-car SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 3 LEFTBRAINIR.COM . 630-517-9300 EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS Nio also offers a range of complementary services charged. A Nio mobile app supports locating and to enhance the brand experience and provide hailing these services, as well as other interactive monetization opportunities for the company. features such as configuring and ordering a new Some of these services attract regular car, controlling the vehicle, and accessing various subscription fees, such as battery swapping, or services to drive brand value and positive user Battery as a Service (BaaS), where depleted engagement. Finally, Nio also tries to batteries can be changed at automated stations differentiate by marketing itself as a luxury around the country; and Autonomous Driving as lifestyle brand. It builds Nio Houses and Spaces a Service (ADaaS), where drivers activate the that function both as sales offices and exclusive car’s self-driving capabilities for a monthly price clubs to foster a sense of community around Nio of RMB 680 (~USD105). BaaS has been seen strong owners. Nio Houses and Space have various adoption rates, and the company has 191 swap amenities that owners can enjoy and socialize stations in 76 cities. In Q1FY21, more than 50% of with one another. new orders added BaaS subscriptions. To drive electric vehicle use, Nio also has Power Mobile, a mobile charging service available through charging trucks in cities, and Power Express, its 24 hour on-demand valet charging service where cars are picked up and returned to owners fully Specifications 2020 NIO ET7 Tesla Model Y Long Range Price $69,350 $49,900 Horsepower 644 HP 384 HP Acceleration 0 to 60 mph 3.9 SECONDS 4.8 SECONDS Battery Capacity 70 – 150 KWH 75 KWH Estimated Range (Miles) 311 - 621 316 Comparison between Tesla Model Y and Nio ET7 SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 4 LEFTBRAINIR.COM . 630-517-9300 EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS Nio Power Swap Station (Source: InsideEV) Financial and Operational Metrics LB•LOGIC Nio’s battery swapping Nio has grown rapidly in a short span of time, service is creative and appropriate for the Chinese context as many of Nio’s driven by its strong vehicle demand and high customers live in urban areas without their delivery rates. It delivered its first vehicle in FY18, own parking space. Additionally, and since then, revenue has risen at a 2-yr CAGR customer and vehicle data and the Nio app makes it easier to optimize and plan more of 81%, reaching RMB 16.3 billion (USD$2.36 swapping stations in the future as demand billion) at the end of FY20. The number of vehicles grows. Battery swapping is also a much delivered annually has more than tripled from faster service (3 mins), compared to Tesla’s 11,348 in FY18 to 43,728 in FY20. Since the start of 19 minutes for its Model Y. business, Nio has delivered a total of 75,641 vehicles, and delivery rates continue to tick up. Unlike other automakers, Nio chooses to outsource its vehicle manufacturing. The company has an agreement with Jianghuai LB•LOGIC Nio’s BaaS and ADaaS services are the starting points of its long Automobile Group (or JAC), a state-owned term strategy to monetize its vehicles after automobile manufacturer in China with 50 years the initial sales. We can expect the of history manufacturing passenger and company to push out more of these subscription services as it adds new commercial vehicles, to produce its vehicles. capabilities to new vehicle models in the Jianghuai has the production capabilities to future. produce and test new energy vehicles with an annual production capacity of 120,000 units.