[China ] Autos May 20, 2021 NIO Buy (NIO US ) (Initiate ) Taking on Tesla with battery subscription model TP: US$51.0 Upside: 52.4% Mirae Asset Securities Co., Ltd. Yongdai Park [email protected] Recommendation Initiate coverage with Buy rating and TP of US$51 We derived our target price for NIO by applying an EV/sales ratio of 7.6x (Tesla’s average multiple during 2014-16). In our view, NIO is well-positioned to benefit from China’s growing electric vehicle (EV) market. That said, we do not see any significant share price momentum through 3Q21. Monthly sales volume expectations have been lowered (to around 7,000-7,500 units) as a result of the ongoing semiconductor shortage. For 2Q21, we look for revenue of CNY8.1-8.5bn (+2.1-6.5% QoQ) and sales volume of 21,000-22,000 units (+5-10% QoQ). We see potential for a rebound from 4Q21, spurred by: 1) the likely improvement in the global chip supply situation from 3Q21; 2) announcements related to the autonomous driving capabilities of the ET7, which will begin deliveries in 1Q22; and 3) capacity ramp-up plans for existing models. Investment points Position in China ’s BEV market to strengthen We forecast NIO’s sales volume to grow 49% annually through 2025 and its market share to reach 7.6% in 2025 (vs. 4.4% in 2020). We believe NIO is well-positioned as a luxury battery EV (BEV) maker over the long run, amid : 1) the accelerating transition to new energy vehicles (NEVs); and 2) China’s favorable social dynamics, such as increasing demand for luxury goods. The company will enter the electric sedan market with the launch of the ET7. Product portfolio expansion will likely help diversify the company’s revenue base. NIO has improved the EV customer experience by providing differentiated charging convenience and a Battery-as-a-Service (BaaS) subscription program. 1Q21 review Revenue beats guidance In 1Q21, NIO recorded revenue of CNY7.98bn (+482% YoY, +20% QoQ) and sold 20,000 vehicles (+423% YoY, +16% QoQ). Net loss widened to CNY4.88bn, but this was mainly the result of a buyback from strategic investors (3.305% of shares; CNY4.4bn). Adjusting for this, net loss was around CNY0.35bn (-79% YoY). Vehicle gross margin reached 21% (+29%p YoY, +4%p QoQ), a quarterly record, driven by ASP gains resulting from an increase in buyers opting for the NIO Pilot advanced driver assistance system (ADAS) and 100kWh battery pack. Risks 1) Production disruptions due to the global chip shortage; and 2) price cuts by Tesla Key data 1200 NIO US SPX INDEX Current price (5/19/21, US$) 33.46 Market cap (US$bn) 54.8 1000 Exchange NYSE Market cap (Wtr) 62.02 800 EPS growth (21F, %) - Shares outstanding (mn) 1,361.7 600 400 P/E (21F, x) - 52-week low (US$) 3.18 200 Market P/E (21F, x) 22.3 52-week high (US$) 66.99 0 Dividend yield (%) - 19.1 19.7 20.1 20.7 21.1 Share performance Earnings and valuation metrics (%) 1M 6M 12M FY (Dec.) 2018 2019 2020 2021F 2022F 2023F Absolute -9.0 -30.9 806.8 Revenue (CNYmn) 4,951 7,825 16,258 34,761 54,700 80,311 Relative -8.0 -39.9 544.0 OP (CNYmn) -9,596 -11,079 -4,608 -1,790 -1,492 2,553 OP margin (%) -193.8 -141.6 -28.3 -5.1 -2.7 3.2 NP (CNYmn) -23,328 -11,413 -5,611 -7,072 -1,787 1,915 EPS (CNY) -22.74 -11.08 -4.74 -5.19 -1.31 1.41 ROE (%) -287.7 -685.8 -41.5 -23.5 -6.0 5.5 P/E (x) n/a n/a n/a n/a n/a 153.0 P/B (x) 1.2 n/a 2.3 10.4 9.5 7.6 Source: Company data, Mirae Asset Securities Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. May 20, 2021 NIO I. Investment points 1. Favorable market positioning NIO has established itself as a luxury pure battery electric vehicle (BEV) brand in China. The company’s vehicles sell for CNY350,000-460,000, or CNY270,000-380,000 with a BaaS subscription plan. Notably, they do not lag behind other BEVs when it comes to specifications <Tables 2 and 3>; the ET7 coming out next year will have specifications on par with or surpassing Tesla’s Model 3. We believe NIO is well-positioned, amid: 1) the accelerating transition to NEVs; and 2) shifts taking place in China that are continuing to fuel demand for luxury goods. We forecast NIO’s sales volume to grow 49% annually through 2025 and its market share to reach 7.6% in 2025 (vs. 4.4% in 2020). Figure 1. Avg. price of EV models sold in China (CNY'000) 1,000 Luxury High-end Economy 800 600 400 200 0 NIO BYD GAC Tesla (Aion) Chery XPeng Li Auto Benz (Ora) Geely Mercedes- Great Great Wall (Geometry) Weltmeister (Baojun) BAIC (BJEV) SAIC-GM-Wuling Source: Company data, Mirae Asset Securities Research Table 1. NIO: Price overview (CNY) ES8 (full-size SUV) ES6 (midsize SUV) EC6 (coupe SUV) MSRP 468,000 358,000 368,000 Price after subsidies 450,000 343,600 350,000 Price after subsidies and BaaS subscription 380,000 273,600 280,000 Discount from BaaS subscription 15% 20% 19% Source: Company data, Mirae Asset Securities Research Mirae Asset Securities Research 2 May 20, 2021 NIO Table 2. Key EV models: Spec comparison ES8 ES6 EC6 ET7 G3 P7 ONE Model 3 Model Y BEV BEV PHEV BEV Type Mi dsize SUV Midsize SUV Sedan Compact SUV Midsize sedan SUV Midsize SUV sedan 468,000 - 358 ,000 - 368 ,000 - 448 ,000 - 150 ,000 - 230 ,000 - 348 ,000 - MSRP (CNY) 328,000 266,000 558 ,000 468 ,000 468 ,000 526 ,000 200 ,000 * 367 ,000 * 378 ,000 First delivery Mar. 2019 Jun. 2019 Sep. 2020 1Q22F Dec. 2018 May 2020 Nov. 2019 Jan. 2020 Jan. 2021 Doors 5 5 3 4 5 4 5 4 5 Seats 6/7 5 5 5 6/7 5 Length 5,022mm 4,850mm 5,098mm 4,450mm 4,880mm 5,020mm 4,694mm 4,750mm Wheelbase 3,010mm 2,900mm 3,060mm 2,625mm 2,998mm 2,935mm 2,875mm 2,890mm Curb weight 2,425kg 2,345kg n/a 1,609 ~ 1,657kg 1,865 ~ 1,935kg 2,300kg 1,745kg 1,997kg Engine N/A N/A 1.2L turbo N/A 180kW perm. 137kW Rear 202kW 160kW perm. magnet magnet + Front 145kW Rear 196kW 100kW + 140kW induction Motor perm. + 240kW induction 300kW perm. magnet perm. magnet perm. magnet +180kW perm. magnet induction magnet 0-100km 4.9 4.7/5.6 4.5/5.4 3.9 8.6 4.3/6.7 6.5 5.6 5.1 acceleration (s) Battery capacity 70/100/ 150 58/67 60/71/81 40 55 77 (kWh) Energy density 135 for 70kWh/185 for 100kWh/360 for 150kWh SS 180 170 Around 180 260 (Wh/kg) NEDC range 420/430/ 430/440/ 480/586/ 415/580 500/700/ 1000 460/520 800 468 594 (km) 600/610 605/615 670/706 Autonomous L3 L3+ L3 L2 L3 driving Map provider in NavInfo/Baidu AutoNav AutoNav Baidu China LiDAR x x x o x x x x x Processor Mobileye EyeQ4 Nvidia Orin x4 Nvidia Xavier Mobileye EyeQ4 Tesla HW 3.0 Processing 2.5 1,016 30 2.5 144 speed (TOPs) Notes: A new NIO model featuring a 150kWh solid-state battery (with a 1,000km range) is in development; price after subsidies for the G3 and P7 Source: Company data, Mirae Asset Securities Research Table 3. Comparison of key EV makers Tesla NIO XPeng Li Auto BYD Geely Voice interaction ● ● ● ● ● ● Over-the-air upgrades ● ● ● ● ● ● Digital Semi-autonomous navigation ● ● ● x x ● LiDAR x ● x x x x Self-owned manufacturing ● x x ● ● ● Direct sales model ● ● ● ● x x Self-sufficiency In-house batteries In progress x x x ● x In-house motors ● ● x x ● ● In-house autonomous SoCs ● x x x x x Battery swapping technology x ● x x x ● Ecosystem Battery leasing x ● ● x ● ● Public charging stations ● ● ● x ● ● Source: Company data, Mirae Asset Securities Research Mirae Asset Securities Research 3 May 20, 2021 NIO Accelerating transition to NEVs : We expect China’s NEV (passenger car) sales volume to increase 30% annually through 2025. In particular, we believe BEVs (NIO’s business area) will drive overall growth. We forecast BEV sales volume to expand to 4.2mn units in 2025, up from 1mn units in 2020. Table 4. China: Passenger NEV sales volume forecasts 2020 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F Sales volume (10,000 units) Total passenger vehicles 2,018 2,169 2,213 2,257 2,302 2,348 2,395 2,443 2,492 2,541 2,592 NEVs 125 170 221 293 368 470 575 684 797 915 1,037 BEVs 100 142 189 256 325 420 520 624 731 842 957 NIO 4 9 14 19 25 32 40 48 57 66 76 PHEVs 25 28 33 38 43 50 55 60 66 73 80 YoY growth Total passenger vehicles -6.0% 7.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% NEVs 14.6% 36.3% 30.1% 32.6% 25.5% 27.5% 22.4% 19.0% 16.6% 14.8% 13.3% BEVs 16.1% 41.6% 33.2% 35.6% 27.1% 29.2% 23.9% 19.9% 17.2% 15.2% 13.6% NIO 117.1% 105.8% 50.0% 40.0% 30.0% 30.0% 25.0% 20.0% 20.0% 15.0% 15.0% PHEVs 9.1% 15.0% 15.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% 10.0% 10.0% % of total sales volume NEVs 6.2% 7.8% 10.0% 13.0% 16.0% 20.0% 24.0% 28.0% 32.0% 36.0% 40.0% BEVs 5.0% 6.5% 8.5% 11.3% 14.1% 17.9% 21.7% 25.5% 29.3% 33.1% 36.9% PHEVs 1.2% 1.3% 1.5% 1.7% 1.9% 2.1% 2.3% 2.5% 2.7% 2.9% 3.1% NIO’s M/S (% of BEVs) 4.4% 6.4% 7.2% 7.4% 7.6% 7.6% 7.7% 7.7% 7.9% 7.8% 7.9% 1) Total passenger vehicle sales volume grows 2% annually through 2030 ( exception: +7.5% in 2021 ).