Can Nio Become The Tesla Of China?

neo may not be a recognizable name in the us but it's becoming a leading player in china's electric vehicle market we can really think of neo as sort of the original tesla of china they want to target the same market as bmw audi mercedes porsche and they're essentially the only local oem from china that's been able to do that but the company has had its fair share of problems along the way neo has racked up over 6 billion in cost since starting in 2014. it's been kind of a rocky few years if you look back 2018 you saw tremendous growth and then you ran into the worst downturn in our lifetimes for the china automotive market it was burning what half billion a quarter when the stock dropped to one dollar i mean it indicates that it's dying it's gonna go away just a year ago the company was on the brink of collapse but it managed to turn that around and become the world's fourth most valuable automaker neo is in serious financial trouble in fact they needed a bailout from the chinese government just to survive the first quarter of 2020 and here we are today neo valued in new york on par with dainler despite setbacks due to the chronovirus pandemic the company has continued to grow in the third quarter of 2020 it reached 628 million in sales and delivered up to 12 206 vehicles if we think of 2020 in stages the first third was a disaster for china sales at one point decreased by 90 percent in one month but as the year has gone on more or less life has returned to normal so they had their best month in november however the company still has a long way to go before it can dominate the chinese auto market you see a market that's still emerging it's still dominated by by combustion engine but eev is increasingly growing very quickly especially in the second half of 2020 the hot names like neo x-pun they are just like a very small fraction of even just the battery electric vehicle market neo is about seven percent expand is about four percent they're just starting up this seems like there's no turning back at this point with tesla's valuation just so sky high it's the technological trend we're going electric [Music] the company was founded by william lee in 2014 as next ev william lee made his first billion in the internet business and then was inspired by tesla in 2014 he went to paris auto show met an executive from ford motor company martin leach they connected immediately and they had a shared vision let's build the tesla for china from scratch this was a tech backed venture and you know had all the big names behind it you know sequoia hill house tencent itself took a huge stake still has a huge stake two years later it announced its first vehicle a limited run supercar called the ep9 as well as the introduction of the neo brand they put together this phenomenal vehicle handfuls of them only but just to establish the brand and the reputation like tesla neo has distanced itself from the traditional automakers associating more as a tech company they make no secret of the fact that they're a tech company first and they're highly inspired by tesla the cars have some high-tech touches such as an integrated smart assistant they have this cute little thing called know me it's an ai assistant and you can give it commands to do virtually everything you want to put the window up put the window down temperature music changes let's take a selfie neo is emphasized that it's a lifestyle brand owners get access to a social network and private social spaces called neo houses these gorgeous places called neo houses where owners gather to go to the library have their kids play drink coffee hang out it's just a house a community so that's one big way in which they've driven tremendous levels of loyalty and it's similar i think to what tesla has done here to what porsche has done you know for for decades you have people kind of associating the brand with more than just a vehicle but a certain certain lifestyle neo currently sells three vehicles in china the es8 a full-size suv the es6 a mid-size suv and the ec6 a crossover coupe not only is china the largest market for premium vehicles it's also the largest market by far in the world for suvs the chinese love their suvs similar to the rest of the world the suv vehicle segment in general and especially the premium end has been growing very quickly it's probably the most profitable in the chinese market there are lots of affordable evs but neo and tesla are on the higher end the pricing is premium so it's the most expensive battery car in the market in china now eos targeting premium customers who like technology and they saw what happened here with tesla in the united states that tesla stole sales from bmw mercedes and audi neo's beginning to do the very same thing in its home market they really pride themselves on white glove service for repairs someone will literally come pick up your car if you need to get charged they have mobile charging trucks that will come and charge it or someone will come pick it up you just don't get that from any other chinese automaker one unique approach the company is taking is battery swapping in 2018 it opened its first battery swap station in shenzhen and has built 162 locations so far within less than 10 minutes you can swap out to a new battery and be on your way now other people have tried that before tesla looked at it years ago and dropped it but neo seems to be convinced that this is the way to go and they're staying with it but some are skeptical that battery swapping is the future of charging it's not really a super long term solution i would say it's a short medium bridge until we can get batteries that can charge ultra fast more recently neo is now letting customers buy its cars without batteries instead letting them lease the pack paying a monthly fee they introduced a new battery as a service platform which they claim makes their vehicles just as cost efficient to operate and use as an equivalent vehicle from say bmw there are people interested in this battery as a service but majority people still prefer the traditional ownership in 2018 neo went public on the new york stock exchange raising 1 billion and valuing the company at 6.41 billion you sort of had this euphoric lead up to the ipo and then you had disaster strike in 2018 with a perfect storm of events both industry and company specific the entire auto industry was going through a slump in the last 18 months leading up to this summer not only did the market decline but profits also fell in addition to that the chinese government started making noises about hey subsidies are not forever we're going to make those go away too faced with continued losses and insufficient revenue neo was forced to rein in its spending it sold its formula e-racing team and poor performance at the beginning of 2019 forced the company to delay its et7 sedan they did have to halt a lot of operations things were touch and go earlier this year but you can bet that they're restarting those efforts to develop that sedan it was also dealing with a battery recall through the end of 2019 neo was struggling and in the first quarter of 2020 neo got to a point where they said in order for us to survive we require a bailout neo received a 1.4 billion dollar investment from the chinese government for a 24.1 stake as well as establishing a hafei headquarters to support the region's evie development they sold the stake to the government in exchange for the for the cash for the most part they were very favorable terms and the reason why that is is because the government is not really there to make money when the stock price came up again they're able to secure some new funding and more or less pay off that loan so they're not beholden to the government as they were the company was working on a shanghai factory but was forced to scrap it instead it turned to jac motors to build the es8 and the es6 they struck a deal with neo bring your products and your supplies here we'll do final assembly and then you take it from there the beauty in that is neo then says oh that two billion dollars we needed for a factory we keep that in our pockets for marketing or retail or service that was a big risk but it's worked out so at least so far neo you know they are responsible for some of the capital expenditures they have their own people there they don't own the plant but for all practical purposes that plant is there for them to use through the joint venture with jac motors it recently reached a milestone of 50 000 vehicles produced but neo's production output is still small especially compared to tesla's shanghai production tesla with this git factory 3 so it can make you know anywhere between 20 000 units to like 23 000 units a month by far the highest the capacity be the oem in china right now the gap is pretty wide it's going to take a while for neo there's room for both tesla and neo to succeed each one's success is actually fed into the other ones it's a battle between eevee and ice internal combustion engine not really a battle between those two china is the world's largest ev market largely due to generous government subsidies and efforts to promote new energy vehicles china was determined to lead the world in electric vehicle technologies and they put in place subsidies and other regulations to make sure that new startups like neo would have the street paved with gold the government spent lots on subsidies and there were a lot of companies that abused that policy to make it look like they were innovating and developing electric vehicles but actually they weren't doing that much and so when the government started to phase out that program that affected the ability of a lot of ev companies to survive as the economy recovers consumer interest in electric vehicles is growing ironically when tesla started making the model 3 in china it was beneficial to all the eb because it got people interested it got buzzed it was a sort of halo effect as tesla has grown more and more widely accepted the united states and in china consumers are having a rethink and going oh electric vehicle that that's a that's a real option in a recent survey of chinese consumers half of them said that they'd be open to buying an electric car that's way up from a few years ago but chinese customers are still price sensitive we are still developing countries so majority of the consumers are still extremely price sensitive one of the reasons tesla did extremely well in china this year is because it had price cuts a couple of times tesla where is now is 18 less compared to at the beginning of the year when uh made in china model 3 was just launched as china's eevee companies look to grow they may enter international markets going forward neo would look to expand globally no question about it they have their site set on europe and the united states neo said it plans to enter the global markets by 2023 and 2024 and would likely begin with europe first i think they'll go to denmark norway maybe netherlands first given the the consumer acceptance of evs there the subsidies the government incentives but it may be a while before we see neo in the u.s the chinese would love to step inside the u.s market but the reality is that in washington d.c tensions between the u.s and china are at their worst in 50 years if the geopolitics were to change maybe they would but there's chinese automakers that have wanted to enter the us for a while and they've never really found a viable path tariffs on chinese cars currently at 27.5 which would take their 60 000 car up to prices that no american would be willing to pay neo is likely to benefit the most from domestic growth in the near term the monthly figures are showing more people are buying their cars and if you're thinking about a future in which china is mandating let's say a quarter of vehicles sold in the future must be electric chinese consumers are also getting more used to the idea of electric once i think an aspirational brand takes off it's very difficult to stop i've talked to several people who never bought a combustion engine vehicle they bought a neo and people think they're cool for buying it and i can't remember a single time where someone told me it was cool to be driving a chinese locally made car in recent months neo has seen impressive investor interest whether it can keep up this momentum is yet to be seen increasingly more and more people believe that this is a winner in the eb world the you know the 60 billion 70 billion dollar market habit it's i think some people have a little bit of difficulty kind of comprehending that like how does that make sense it makes sense if you believe in the future that these guys will be a winner and they'll have an iconic and aspirational brand the extent to which the the market is valuing these companies with three small volumes you know we said 50 000 for neo in a annual global market of 90 million and yet to be valued on a par with daimler well above ford and nissan the market sees something now the market isn't infallible maybe investors have it wrong but boy it's worth taking a look at you

Channel: CNBC

Views: 1,179,950

Keywords: CNBC, business, news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, Elon musk tesla, tesla stock, tesla price, tesla short, tlsa, tesla short thesis, tesla long thesis, tesla model 3 china, tesla quarterly earnings, elon musk net worth, elon musk on twitter, elon musk grimes, elon musk meme, elon musk genius, tesla model 3, tesla china

Id: IS8_v6K2_Gg

Length: 14min 49sec (889 seconds)

Published: Thu Jan 07 2021

Reddit Comments

[u/Bmbiology]

When the planet wins, everybody wins.

[u/beagle_2498571]

NIO is going to be NIO. Tesla will be Tesla. What sets them apart is NIO will be a leader in a battery as a service though :).

[u/Sparkutis91]

Like Musk said 'He doesn't want to compete, just make the world green' My opinion Nio is great company and hope they're gonna succeed like they're doing now.

[u/ddoddotv]

Tesla will be the top EV company in the world. Nio will be the top EV company in China. I love both of them.

[u/External_Many280]

In June of 2020, I read an article titled “The Tesla of China?” I had started investing in the stock market about a month prior to this and I had no idea what I was doing, but I liked the sound of the article and decided to purchase 125 shares of the stock. Thank God I held onto NIO

[u/Brexly]

I really like the look of the NIO Sedan, makes me wanna buy one in the future!

[u/Mages17]

They will compete

[u/dmdim]

That sedan is their way into the European market!

[u/macro-2018]

no, Nio is not tesla, Nio is the Apple of EV!