NIO Stock Forecast: Is “China’s Tesla” Better Than Elon Musk’s?

NIO stock
iStock.com/taa22

NIO Stock Forecast

Not everyone can replicate the success of Tesla Inc (NASDAQ:TSLA), but NIO Inc (NYSE:NIO) just might pull it off in the Chinese market. This Chinese electric car company debuted on the New York Stock Exchange (NYSE) two months ago and NIO stock has experienced quite a bit of volatility since its initial public offering (IPO).

A report from Citron Research on November 19 only added fuel to the fire. For investors searching for an NIO stock forecast, here’s what you need to know.

Founded in 2014, NIO Inc made its name by developing the “EP9” supercar. The two-seater ran the Nürburgring Nordschleife in just 6 minutes 45.9 seconds, setting a record for electric vehicles (EVs) on that track.

The company then entered the premium electric vehicle market in China with the “ES8,” an all-electric, full-size SUV that can seat seven passengers. NIO plans to launch the “ES6,” its five-seater SUV, by the end of this year.

Advertisement

The company completed its IPO on September 12, 2018. At the NIO stock IPO, the company sold 160 million American depositary shares (ADS) at $6.26 each, raising $1.0 billion.

Known as “China’s Tesla,” NIO stock had quite a ride after its IPO. The stock nearly doubled on the second day of trading but has since pared most of those gains.

Why NIO Stock Is Going Crazy Right Now

The latest catalyst came on Monday, November 19, when Citron Research released a report saying that NIO stock will see little resistance on its way to $12.00 per share. (Source: “NIO short is a Tesla Déjà vu – Path to $12 Should Have Little Resistance,” Citron Research, November 19, 2018.)

Given that NIO stock closed at $7.19 on Friday, Citron’s $12.00 price target was quite bold. And indeed, Citron’s bullish stance sparked a rally, as NIO stock shot up by as much as 12% on Monday morning. Shares of NIO Inc closed at $7.84 apiece on Monday, marking a gain of nine percent.

One of the reasons why this release became a trigger event was that Citron Research’s Executive Editor Andrew Left was a well-known activist short seller. In particular, he wasn’t always a fan of the electric vehicle industry.

In September, Left filed a lawsuit against Tesla, alleging that the company’s Chief Executive Officer Elon Musk “attempted to manipulate the price of Tesla securities with false and misleading tweets, in a directed effort to harm short-sellers.” (Source: “Short seller Andrew Left sues Tesla and Elon Musk, claiming stock manipulation,” CNBC, September 6, 2018.)

Left turned bullish on Tesla in October. Now, he thinks NIO stock could be an even bigger opportunity.

Is NIO Stock Better Than TSLA Stock?

One thing NIO and Tesla have in common is that both companies have huge followings.

“Just like Tesla was not a simple U.S. electric car story, NIO is so much more than just a Chinese electric car story,” Citron Research said. (Source: Citron Research, op cit.)

NIO sells cars through its own sales network, including “NIO Houses,” which are not just showrooms, but also clubhouses for users with multiple social functions.

To give you an idea of how big of a fanbase NIO has, just look at what happened when the company hosted its first “NIO Day” in December 2017. That event, which revealed the company’s ES8 electric SUV, received over 110 million views.

“NIO is a brand that is connecting with a new generation of Chinese consumers by creating a moat of which even Tesla would be envious,” commented Citron Research. (Source: Citron Research, op cit.)

Moreover, NIO offers an innovative suite of charging solutions to its customers. The most notable one is “Power Swap,” which automatically replaces the battery pack for NIO’s vehicles in just three minutes. The company has already deployed 18 battery swap stations covering more than 2,000 kilometers in China, and plans to have 1,100 stations by 2020.

A long charging time is one of the main concerns consumers have before purchasing an electric car. With convenient battery swap stations, NIO’s charging solution could bring a lot more people on the EV bandwagon.

To compare NIO stock with TSLA stock, Citron Research looked at the delivery numbers. The report noted that NIO is guiding around 7,000 deliveries in the fourth quarter.

To put this into perspective, when Tesla produced 6,900 quarterly deliveries of the Model S in January 2014, the market valued Tesla at $20B. Within a month, Tesla was valued at $30B. At this valuation, NIO’s stock price would be worth more than $24 TODAY.

(Source: Citron Research, op cit.)

Given that NIO stock currently trades at around $7.97 apiece, that would represent some serious upside.

NIO Shareholders

One of the things Citron Research mentioned in its report is NIO’s big-name shareholders.

NIO Inc is backed by some high-profile investors, such as Tencent Holdings Ltd (OTCMKTS:TCEHY, HKG:0700), Sequoia Capital, Hillhouse Capital, and Baillie Gifford.

What’s particularly worth noting is that Baillie Gifford happens to be Tesla’s second largest shareholder, only behind Elon Musk. Last month, Baillie Gifford revealed that it had acquired an 11.4% stake in NIO Inc. (Source: “Schedule 13G,” U.S. Securities and Exchange Commission, October 9, 2018.)

Also joining the NIO shareowner club are Vanguard and Morgan Stanley (NYSE:MS), which purchased 19 million and 12 million shares of NIO stock respectively in the September quarter.

NIO Management

NIO is a new name for stock market investors, but its management is well seasoned.

The company’s founder, chairman, and CEO William Li was also a co-founder of Bitauto Holdings Ltd (NYSE:BITA), a leading automobile service provider in China. Lihong Qin, one of NIO’s co-founders, served as deputy general manager at Anhui Chery Automobile Sales and Service Company.

As Citron Research pointed out, NIO’s management team also includes a former Chief Financial Officer of Jaguar Land Rover China, a former Chief Technology Officer of Volvo China, and a former architect of Tesla’s “Autopilot Version 1.”

NIO Inc Financials

Having a large following, solid backers, and talented management are certainly good things for this new electric vehicle company. But to see how high NIO stock could really go, we have to take a look at its financials.

Earlier this month, NIO Inc released its first earnings report as a publicly traded company. In the third quarter of 2018, NIO generated $214.0 million in revenue, representing a staggering 3,095% increase from the second quarter. Adjusted net loss, on the other hand, widened 37.4% sequentially to $346.2 million. (Source: “NIO Inc. Reports Unaudited Third Quarter 2018 Financial Results,” NIO Inc, November 6, 2018.)

For an electric car maker, the two key metrics to look at are production and delivery numbers. In the third quarter—NIO’s first full quarter of production of the ES8—the company produced 4,206 units of that vehicle. Deliveries of the ES8, on the other hand, reached 3,268 units for the quarter.

“We have delivered 4,941 ES8s to users in over 170 cities in China by the end of October 2018. NIO Power has successfully supported initial needs of ES8 users and NIO Service has exceeded expectations,” said William Li. (Source: Ibid.)

Going forward, management expects to deliver between 6,700 and 7,000 units of the ES8 in the fourth quarter of 2018, which would more than double the amount it delivered in the third quarter.

At the same time, the company’s fourth-quarter revenue is projected to be in the range of $418.5 million to $436.0 million, which would represent a sequential increase of 95.6% to 103.8%.

NIO Inc Stock Chart

Chart courtesy of StockCharts.com

NIO Inc vs Tesla Inc

Given China’s pollution problem, the country has become very EV-friendly. For instance, in big cities like Beijing and Shanghai, it’s almost impossible to get a new permit for a vehicle powered by an internal combustion engine. Permits for EVs, on the other hand, are much easier to obtain.

Due to this regulatory environment, the EV industry is booming in China, and both NIO and Tesla are taking full advantage of the situation.

However, while both companies sell premium EVs, NIO’s ES8 is much cheaper than its Tesla competitor—the “Model X”—in the Chinese market. Also, NIO has ramped up its production at a much faster pace than what Tesla did when it first launched the “Model S.”

Of course, it cannot be denied that in absolute terms, Tesla is a much bigger player than NIO in the EV industry at the moment. In the third quarter of 2018, Elon Musk’s company delivered a whopping 80,142 vehicles, up 50% sequentially.

The company is ramping up production of the “Model 3″—an electric sedan geared toward the mass market. In just the last week of the quarter, Tesla produced over 5,300 Model 3 vehicles. (Source: “Tesla Q3 2018 Vehicle Production and Deliveries,” Tesla Inc, October 2, 2018.)

And as you would expect, Tesla generates much bigger financial figures than NIO as well. In the third quarter, Tesla’s revenue totaled $6.8 billion, up 70.5% sequentially and more than doubled from a year ago. The company even turned an adjusted profit of $2.90 per share, while Wall Street expected a loss of $0.19 per share. (Source: “Tesla Third Quarter 2018 Update,” Tesla Inc, October 24, 2018.)

Tesla stock went on a rally, soaring 33% in the last month alone. NIO stock climbed nine percent during this period. Notably, both companies were in the red on November 20, when the Dow dropped 551.8 points.

Analyst Take

As it stands, Tesla is a much more established company than NIO in terms of production, deliveries, and financials. But NIO is well positioned to capitalize on the booming Chinese EV market, and the lower price point of its product could give it an upper hand.

Because both companies are growing rapidly, their stock price movement will depend on how their production and delivery numbers and financials compare to their own guidance as well as Wall Street’s expectations. It should also be noted that in this market-wide sell-off, there has been a tendency to dump growth stocks first.