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 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. . 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.

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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 (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

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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

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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

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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. Most recently, with infusion of RMB500 million of

capital, Nio has an agreement to hold 49% equity interest in JAC.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

n Total Addressable Market (TAM) From a margin standpoint, Nio’s profitability is The total addressable market for global electric improving quickly as it ramps its vehicle delivery vehicles sales is estimated at $203.6 billion today, rates quarterly. Gross margin for FY20 was 7.9%, and projected to expand to $802 billion by 2027, but in Q4FY20, gross margin reached 17.2%. growing at a CAGR of 25.6% during this period. While the company is still not profitable, its operating and net margins are becoming less negative, and Nio could deliver a positive bottom n Special/Unique Characteristics of line in a few years. However, investors should the Company expect that Nio’s expenses would continue to be substantial for a while considering its Nio produces high performance electric vehicles investments to expand aggressively across China with several premium features – one of the best with more support infrastructure e.g. power electric vehicles in the Chinese market. It also has swap stations, sales offices, production line an innovative monetization model where services expansion etc, while maintaining a high pace of are provided on a subscription basis, and vehicle innovation with new vehicle models, battery and batteries can be swapped at stations across the in-vehicle technology upgrades. To raise funds country in three minutes. for growth, Nio has had a few rounds of RECENT DEVELOPMENTS convertible debt offerings and a secondary û offering of its ADS, in addition to investments The pandemic impacted vehicles sales from other large Chinese companies and private significantly in China when strict lockdown investors. measures were implemented by the Chinese government in Q1FY20, resulting in factory closures and production halts. Overall passenger LB•LOGIC Electric vehicle production is a vehicle sales fell by 41% YoY in China during that new, complex and capital intensive quarter, and Nio’s revenue declined by almost business. We think that Nio’s decision to outsource its vehicle and battery pack 16% YoY. By Q2FY20, Nio’s business started to production gives it a stronger balance improve, and vehicle delivery increased 169.2% sheet, while relying on outside expertise sequentially from the first quarter, up 190.8% and their operational scale/equipment to from Q2FY19. Vehicle delivery numbers meet sales demand. This has enabled Nio to ramp production and delivery with far continued accelerating quarter-on-quarter less hiccups than competitor Tesla in its sequentially in Q3 and Q4, and Nio has recovered early stages. However, there are also risks well, returning its manufacturing and delivery involved in this decision, primarily relating to technology protection, capacities to pre-Covid levels by Q2FY20. operational control and standards maintenance. Financial and Operating Results Nio announced total revenue of RMB6,641 million (USD$946.2 million) in Q4FY20, up 133.2% YoY from Q4FY19. The outperformance

was driven by strong vehicle delivery numbers of 17,353 cars during the quarter, a growth of 111%

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

from the same quarter the prior year. This brought the total number of deliveries to 43,728 LB•LOGIC Nio’s positive operating cash in FY20, an increase of 113% from FY19 – flow performance may not continue in impressive considering that the company FY21. The company experienced net losses weathered a pandemic and operational (RMB 5.3 billion) in FY20 but managed to achieve positive cash flow from registering challenges during the year. Demand for its high trade payables of RMB 3.3 billion vehicles was also strong across all three models during the year, which would eventually currently in the market (ES6, ES8 and EC6), and need to be paid off to its suppliers. Nio’s vehicles continued to receive industry recognition for their quality and performance. Product Developments and Company Expansion For the full year, Nio reported total revenues of RMB16,257.9 million (USD$2,491.6 million), a growth of 108% from FY19. Majority of its Nio unveiled its newest vehicle model – the ET7 revenue came from vehicles sales, which at its NIO Day on January 9, 2021. ET7 is the increased 106% YoY. The remaining revenue company’s first flagship sedan and will be fitted came from other sales comprising automotive with several new technology upgrades, including regulatory credits and sales of home chargers and its NIO technology platform 2.0, its third accessories. generation powertrain, and NIO Autonomous Driving (NAD) capabilities, which has enhanced sensors, high-resolution cameras and a faster NIO Nio reported positive profitability results in Q4 as Adam Super Computing processing unit. NIO higher deliveries, increase in average selling NAD will be offered through a monthly prices, sale of EV credits and cost efficiencies subscription service for the first time. The ET7 not lifted gross margin to 17.2%, compared to -8.9% only represents a new vehicle type launched by in Q4FY19, and 12.9% in Q3FY20. Operating the company, it is also significant in the margins also improved from -97% in Q4FY19 to - technology improvements and leading edge 13% in Q4FY20, as expenses dropped from better capabilities achieved in a smart autonomous operational efficiencies, cost-reduction measures, electric vehicle. Nio announced that the ET7 will and a decline in R&D expenses from bringing the become available sometime in 2022. EC6, its third car model to mass production in September 2020. Similarly for the full year, operating margin improved to -27.2% for FY20, compared to -137% in FY19. Nio reported positive cash flows for the quarter, and for the first time for the full year FY20 of RMB 1.95 billion. As of the end of FY20, it had cash and cash equivalents of RMB 42.5 billion against total long term debt of RMB 6.32 billion.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

The company also announced its new Power In the longer term, Nio has several growth levers, Swap Station 2.0, which has triple the service which includes manufacturing capacity capacity and lower cost than its first-generation expansion, new innovations, expansion into its swap station. Additionally, its latest 150-KWh Tier 3 and 4 cities in China, and entry into new solid-state battery pack was also launched, which international markets. In increasing production would enable the older Nio vehicle models to capacities, management commented that its travel more than 500 miles, and the ET7 to travel partner JAC has already started plans to grow its up to 620 miles without recharging. The new manufacturing footprint and add another shift at batteries would become available in the fourth its plant. It expects JAC to reach annual quarter of FY22. production rates of 300,000 vehicle units by the beginning of next year. Nio also intends to ramp up EV support infrastructure in more remote LB•LOGIC Nio vehicles can be fitted with a variety of Nio battery packs and easily regions in FY21 to drive EV adoption, and add swappable, depending on the driver’s more sales showrooms in smaller Chinese cities. needs and budget. Older vehicle owners Finally, management announced that Nio plans can also upgrade to a newer generation to enter the European market in FY21, and is battery pack, allowing them to benefit from improved range without purchasing a studying the U.S. market for a potential entry. newer car model. This is a strong selling point for those considering an EV purchase. LB•LOGIC Entry into Europe and the U.S. market will require significant research and planning given a very different operating landscape. For example, a BaaS model will be less popular in the U.S. as Outlook and Estimates most Americans have garages and can charge their vehicles at home, making it less lucrative for Nio to sell their vehicles. The outlook for Nio is positive considering the Data privacy laws in Europe and the U.S. are also much stricter, which may require company’s highly innovative vehicle range, Nio to modify its digital systems. business model and the current scale of its supporting infrastructure for its electric vehicles. Vehicle production and delivery have also expanded at a strong cadence over the last few years, with the exception of Q1FY20 when the pandemic first started. In the near term, the company guided for vehicle deliveries in Q1FY21 LB•LOGIC It is unclear what Nio’s to be about 19,500, representing an backlog currently is, but if JAC reaches its target annual production capacity rate of approximately 12% sequential increase from 300,000 by the beginning of FY22, Q4FY20. Guidance took into account the industry manufacturing will not be a limiting factor wide semi-conductor shortage, which resulted in to Nio’s revenue growth. a temporary shutdown at the JAC-NIO manufacturing plant in Hefei for five days at the end of March.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

û COMPANY MANAGEMENT û COMPETITIVE ENVIRONMENT Bin is the founder and current CEO of The Chinese market for electric vehicles (EV) is Nio Inc. Prior to starting the company, Li founded highly competitive with many homegrown six other companies, including Bitauto Holdings, brands as well as international automakers Bitauto E-commerce, Creative & offering various electric vehicle models to Interactive Advertising Co, Cyreddy Chinese consumers. Many of these global brands New Energy Vehicle Automobile Co. These are are traditionally internal combustion engine either automotive or automotive services (ICE) automotive manufacturers who are adding companies. Li served in senior management electric vehicle models to their fleet. This trend is positions at these firms. He also served as vice- gaining momentum in the wake of many Chairman of China Automobile Dealers countries globally introducing policies in support Association. Li is a graduate of of electric vehicle adoption. The Chinese with a Bachelor’s degree in sociology and a minor government has been one of the most active in Law. policy makers driving EV consumption, rolling out several initiatives to incentivize its citizens to

purchase EVs instead of ICE vehicles. These Nio was founded in 2014 by William Li as Nextev efforts have resulted in tremendous EV growth in Inc, who later changed its name to Nio. Its the last decade, making China the world’s largest Chinese name is “Wei Lai”, which means “Blue EV market, but has also made it more crowded. Sky Coming” in English. Nio launched its first However, the competitiveness appears to not commercially available electric vehicle, the ES8, deter new entrants. Many technology companies to the public in December 2017. A year later, the are still exploring expanding into the EV company added another SUV to its portfolio, the industry, such as Baidu, , Apple and ES6, a 5-seater high performance vehicle. Today, Huawei. In order to better position itself against Nio has four different EV models in its fleet, with its competitors and not compete in the mass the latest – the ET7, launched as recently as market where prices are trending downwards, January 2021. Through the years, the company Nio has chosen to operate in the premium electric has also released several innovative vehicle vehicle segment, competing with the likes of technologies and distribution models, enabling Tesla, Mercedes, BMW and Audi, as well as other Nio’s vehicle owners to enjoy a high quality, premium electric vehicle brands like Xpeng and reliable and stress-free driving experience with . access to many premium in-vehicle features. Nio’s innovations have made the company one of the top EV brands in the premium car segment, receiving recognition from the government and industry analysts. The company went public in November 2018, listing on the NYSE. Headquartered in Shanghai, China, the company has research labs and office locations in Europe, the U.S. and several sales offices and production facilities all across China.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

brands at JD Power’s 2019 China New Energy Vehicle Experience Index Study. It was ranked LB•LOGIC Subsidies have spurred the growth of EVs in China, but the the highest in quality again in the same study in government is planning to reduce these 2020, and its EC6 was awarded the best safety subsidies gradually as EV adoption gains rating in a study conducted by the China momentum. Premium EV makers like Nio Insurance Automotive Safety Index. could experience more impact to sales given its high vehicle price tag. Nio has other competitive strengths including its Despite its limited operating history, Nio has battery swapping model, and the scale it has achieved and built an impressive line of vehicles managed to achieve with its battery swapping and pace of delivery to meet order demand. Its infrastructure – a strong selling point for drivers vehicles have a good set of specifications, that travel frequently outside of cities. The particularly relating to range and power, and company has performed about 2 million battery continues to improve rapidly with each new swaps since its inception, more than any other generation of technology upgrades. Nio also competitor in the market. Additionally, its competes in , an electric vehicle version services are offered on a subscription basis, of the Formula One championships with its NIO making it easy for consumers to upgrade and 333 team, winning the 2014-2015 championship ensure vehicle battery and other capabilities are season. The company also launched the EP9, an updated and operate reliably. Advanced electric supercar in 2016, which set a world record technologies like Autonomous Driving features as the then fastest all-. While not are also leading the industry in EV performance. directly contributing to revenue, these projects While its vehicles are priced higher than have showcased the capabilities of Nio’s vehicles, competitors, Nio offers substantial value for its building hype and interest in the brand. As it vehicle quality, and market prices have remained relates to its commercially available vehicles, Nio fairly stable for Nio. In comparison, competitor ranked the highest in quality among all EV Tesla have dropped prices recently for its Model Y to compete for market share.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

Source: CleanTechnica, Statista1 From a market share perspective, Tesla remains network. However, not to be outdone, Nio also the market leader in the EV industry, offers a robust network of battery swap stations differentiated by a strong brand name, vehicle and range of charging services. Nio is also performance and a relatively affordable price in planning to team up with China’s State Grid EV its segment. Its price cuts have further accelerated Service, a government owned electricity demand for its vehicles. Tesla also has good distributor, to build 100 stations across China for supporting infrastructure, with more than 700 Nio’s vehicles in 2021. supercharging stations around China. The company also plans to increase production of its superchargers at its Gigafactory plan, exponentially adding more chargers to its

1 Wuling Hong Guang, GAC, BYD, and SAIC are not premium EV brands.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

LB•LOGIC Ford also released its Mach-E LB•LOGIC The intense competition and EV in China recently, and announced a Tesla’s market share may force Nio to cut partnership with Nio to use its charging its vehicle prices over time, although we networks. With few competitors having believe that Nio will continue to grow the resources to build the scale of rapidly given the massive market infrastructure that Nio has for EV opportunity, low EV market penetration, charging, we believe that charging stations and Nio’s branding and vehicle partnerships could be a new source of technologies. revenue for Nio.

û TREND ANALYSIS: VALUATION Nio‘s stock and valuation have seen an shortages) led to some downward price action. At extraordinary climb in 2020, reaching a peak in a forward P/S ratio of 8.97x, the recent contraction February 2021, before a downward revision of its has made Nio’s valuation reasonably priced guidance on vehicle deliveries announced by relative to competitors. management (due to global semiconductor chip

LB•LOGIC We believe the outlook for Nio is very positive considering its competitive position, business model and growth levers ahead. As its subscription services gain momentum, we think investors can see very strong and sustained revenue growth, which will drive multiple expansion.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

Fwd. Revenue Revenue Forecast Fwd Gross Enterprise Value Forward P/S Growth (%) (Millions USD) Margin (%) (Bils USD)

Nio Inc ADR (NIO) 110.8% 5,298 17.7 55.94 8.97

Tesla Inc. (TSLA) 57.9% 49,798 22.7 853.3 12.57

XPeng Inc. ADR (XPEV) 139.5% 2,146 13.3 19.97 9.10

Li Auto Inc ADR (LI) 100% 2,898 18.1 12.84 4.81

Nikola Corp (NKLA) 185% 18.6 -33.8 3.38 40.44

performance, branding, support network and CONCLUSION / û swappable battery vehicle design. We also like RECOMMENDATION how its subscription services are a further Nio is an impressive business at its very early opportunity to expand revenue streams stages. The company has a very high quality and substantially beyond vehicle sales. Furthermore, premium fleet of vehicles with industry-leading we also think operational execution has been specifications and features, and an enviable strong, and delivery rates have risen rapidly battery swap infrastructure and service network without many internal challenges. This puts Nio that gives it a competitive edge to other players. on a steady trajectory to becoming profitable in a Although the EV market is intensely competitive few years. While competitive and financial risks and more players are entering the industry, we are present, we assess that Nio’s operating history believe China’s market is sufficiently large to and current growth trajectory give us confidence accommodate more players considering current to gain exposure at an early stage where upside EV penetration rates, and Nio’s several potential is huge and very likely. We rate Nio a competitive strengths such as vehicle “GREEN LIGHT”.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS n Stock Chart for Nio Inc. (NIO)

n Performance Data 2015 2016 2017 2018 2019 2020 RETURN ON INVESTED CAPITAL (%) - - - -116.2% -215.8% -29.1% GROSS MARGIN (%) - - - -12.3% -22.0% 7.9% EARNINGS (MILLIONS USD) - - - -1,460 -1,651.7 -812.9 YoY Earnings Growth (%) - - - -97.9% -13.1% 50.8% REVENUE (MILLIONS USD) - - - 748.2 1,132.4 2,355.5 YoY Revenue Growth (%) - - - - 51.3% 108.0% n Valuation Data 2015 2016 2017 2018 2019 2020 SHARE PRICE (USD) - - - 6.13 4.10 51.20 SHARES OUTSTANDING (MILLIONS) - - - 770.3 783.9 1,249.7 MARKET CAP (MILLIONS USD) - - - 4,907 3,151 60,913 PRICE/SALES RATIO - - - 2.8 3.7 24.5

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

A word about First Focus: These reports are meant to be produced quickly, giving our Portfolio Manager the information he needs to make an investment decision in a short timeframe. This report is produced the first time one of our analysts researches a particular company. The “First Focus” is the method by which we determine whether a name is worthy of further study in future earnings reports. You will notice the “Traffic Light” at the top. This is a scale indicating the likelihood that we follow a name in future quarters, with the intention of producing a rating of Buy/Hold/Sell after we study the company further. “Green Light” means we will definitely do more work on this company. “Yellow Light” means we will add the ticker to our list, for coverage if we have the research capacity. And “Red Light” means there is no chance we will continue coverage. By making these reports public, we intend to give the broader investing community a window into the Left Brain investment process. Since many of the names we cover lack Wall Street research, sometimes these “First Focus” will be some of the only publicly available analysis on a particular stock/bond. We believe that even our rapid-fire reports on certain names will provide great value for the reader. Given the time- sensitive nature of First Focus, these are raw, unfiltered documents. You may see a typo here or there, or perhaps a note from an analyst written directly to our PM, Noland Langford. That is all part of the process. The methodology here is the analyst reads the most recent 1-2 earnings calls, along with the Management Discussion & Analysis section of the most recent Annual Report, along with compiling the key quantitative metrics that we value most at Left Brain. The result is a short report that gives us just enough information to take a position in securities where time is of the essence: sometimes the market doesn’t give us enough time to consider every angle before we take action. We hope you find these previously “internal use only” documents useful in your understanding of the investment markets.

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EQUITY 0.94 STOCK: NIO | 4/21/21 FIRST FOCUS

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