By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets
On September 12, NIO made its IPO on the NYSE, which is a very important event for all investors in the automotive sector. Founded in 2014 by William Lee, NIO is one of the first companies to compete with Tesla in the premium electric car segment. NIO is headquartered in Shanghai, China, and has already secured investment support from renowned companies such as Baidu, Lenovo, Temasek, Tencent, Sequoia and others.
There are currently over 4,000 employees at NIO.
In June 2018, the company started selling NIO ES8; Currently, 481 electric cars have been sold and another 17,000 have been ordered. This is the direct competition of Tesla Model X, while its price is twice lower thanks to good support from the Chinese government, which is interested in promoting electric cars.
NIO ES8 starts at $ 67,000 (basic configuration). It has two engines of 635 horsepower and can drive 355 km before recharging. A good difference from Tesla is an option to use replaceable batteries; The monthly subscription is $ 193, and it takes only about 3 minutes to replace a battery. Tesla planned to offer this option, but did not implement it.
NIO's underwriters at the NYSE were BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS. The initial price per share was $ 6.26. During the first day 160 million shares were sold, which allowed NIO to get around $ 1B and get a place in the US IPO ranking in 2018.
During the first day, the share price rose at $ 7, while the next day rose above $ 13, allowing investors to earn over 100%. This shows that investors are very interested in the company, perhaps due to the good pre-IPO promotion. Before buying NIO shares now, however, you should wait before the volatility calms down.
Comparing Tesla and NIO is not the best job now, since Tesla already has over 14 years of experience; however, this comparison could become valid in a year or two, when more data will arrive. While NIO is just starting out, its management can make accidental errors.
The lockup period (the period during which investors are not authorized to sell their shares) is 180d, which may also support the price, while the second quarter results will subsequently be released. Among the advantages of NIO, one could indicate government support as one of the largest. While the trade war between the United States and China is likely to remain, demand is high and the company could meet Chinese customers first. However, when it begins to conquer the US market, the conflict may have already come to an end. The company also admits that customs duties can indirectly influence car prices.
The issues that NIO may have to face are already known and the most obvious is to satisfy the demand. In the first 6 months of 2018, NIO had a loss of $ 502 million, while the profit earned thereafter is currently only $ 7 million.
Another risk is the news that Tesla has reached an agreement with the Shanghai authorities to build a factory car in the city, which means high competition for NIO. However, NIO will probably win thanks to the price, as the Tesla parts are produced only in the United States and are subject to customs duties.
The NIO Directorate also announced that it has had no experience of mass production of electric cars before, and this may have a negative influence on the company's growth – a problem already overcome by Tesla. Finally, for ES8, there are about 1,700 used from 160 sellers; With so many suppliers, delays in shipping could become quite common.
Many things depend on how NIO will increase its production volume and how true the management's statements are. Previously, we have seen how Elon Musk's words were sometimes very different from what actually happened.
One of the key issues here is funding, as development will require a lot of money. Even Tesla has not been able to book net profits so far, its losses and debts are still growing.
NIO shares will likely increase in the short term, as investors will play on the fact that the company is quite promising at first sight. Other conclusions can only be made after there are at least some financial data at hand.
Technically, there are two levels of support for NIO: one for $ 7 and another for $ 9.
All forecasts contained in this document are based on the particular opinion of the authors. This analysis should not be treated as a trading advice. RoboForex can not be held responsible for the results of trading resulting from the trading recommendations and reviews contained in this document.