Author

Damien Robbins

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Summary

  • NIO posted another monthly record with September’s deliveries.
  • Triple-digit growth in monthly and cumulative sales is a positive for future growth and performance in the competitive EV industry.
  • NIO’s nearly 800% rally has shares valued almost identically to TSLA, but also reminiscent of TSLA’s P/S in 2013 in a similar stage of growth.

NIO (NYSE:NIO) released Q3 and September vehicle deliveries, which exceeded expectations and points to future success for the company in growing revenue streams. However, the EV sector has been quite red-hot, with all-electric leaders NIO up nearly 800% and Tesla (NASDAQ:TSLA) up over 350% over the past six months. With that in mind, NIO’s shares look to be priced just like Tesla in 2013, in its similar phase of growth, as strong growth for NIO likely lies ahead.

September’s deliveries hit 4,708 vehicles, up 133.2% YoY, as Q3 deliveries rose to 12,206 vehicles, up 154.2% YoY. These figures exceeded corporate’s high estimate for the quarter of 11,500, and another monthly record, after August delivered similar triple-digit growth.

August’s 3,956 vehicles delivered marked NIO’s “best-ever monthly performance on both deliveries and order growth…[as NIO] continue[s] to improve the production capacity for all NIO products, [and] monthly capacity will reach 5,000 units in September to support [these] future deliveries.” Bin Li also stated alongside the delivery results in August that the recent share offering will help the company to “be better prepared for the acceleration of [its] core technology development, autonomous driving in particular, and the global market expansion in the future.”

NIO is continuing to build its delivery numbers as it expands monthly capacity, but it is still small in comparison to Tesla’s deliveries and capacity in China. Yet the Chinese EV market has shown signs of a recovery from a pandemic-related slump.

NEV sales in China for August rose 26% YoY to 109,000 units for a second consecutive monthly increase, with NEV sales for the year expected to come in near 1.1 million vehicles, an 11% decrease from 2019. Expanded manufacturing capacities from NIO and Tesla as well as XPeng (NYSE:XPEV) helped contribute to the rise in sales.

Cumulatively, NIO still lags Tesla – the Chinese manufacturer has sold 26,375 vehicles in 2020 as cumulative sales reached 58,288 vehicles, while Tesla sold north of 50,000 vehicles in China in the first half of 2020. Tesla still holds the upper hand – the Model 3 was August’s top delivered EV, with 11,811 vehicles, while NIO’s ES6 sat in seventh on that list. YTD, the Model 3 has just over four times as many deliveries than the ES6.

NIO still has time to grow into its full potential, as it expects that annual production can reach 150,000 units without significant investment – that’s a 150% increase to September’s 5,000 units/month. Adding that with BaaS, potential future developments in autonomous driving, that future capacity growth and gains in deliveries and market share, NIO’s valuations are already rivaling that of Tesla, pointing to possible near-term perfection in share price and establishment of a new trading range (with a floor from $15/$17).

ChartData by YCharts

NIO and Tesla are valued almost identically based on P/S now and have been quite close since July – the two tend to trade in a sort of tandem as the EV sector has gained momentum. Yet NIO has higher revenue growth projections, like Tesla had in 2013, simply because its revenue streams are a mere fraction of Tesla’s – under $1.5B TTM compared to almost $26B. In comparison, Tesla’s revenues jumped to just over $2B in 2013 from $400M in 2012. So, NIO does have a certain ‘growth potential’ value added to shares, but that’s not certainly enough to keep justifying this multiple – it needs to find that profitability.

That’s the one other important factor – profitability – where Tesla has been able to show consecutive profitability, NIO is still likely five to six quarters away from its first profitable quarter. It still has net losses and negative EBITDA, but that’s reminiscent of 2013 Tesla. However, continually strong execution QoQ and significant growth each month in deliveries could see that profitability picture arrive sooner rather than later, but it’s still a stark difference to Tesla today.

NIO’s is still in that ‘startup’ growth phase, as its revenue streams still lag that of Tesla, capacity and deliveries are still small in comparison, and pretax and net losses will still occur for some time. Back in 2013, Tesla looked quite similar and was valued at 8.5x to 15x sales, similar to how both are priced today.

ChartData by YCharts

Yet the industry is vitally different now, seven years later, than what Tesla had been working with in 2013. NIO no longer will have a similar ‘first-mover’ stamp to its name; it’s not the first to do this at scale. NIO is a small fish in a big pond, but a fish that’s growing quickly.

But there’s still one main challenge ahead – as NIO continues to grow, can it continually keep taking market share not just from Tesla, but from other already established leaders in Chinese EV sales, like BYD (OTCPK:BYDDY) and SAIC, and competition from multiple other names? NIO’s innovations in developments like autonomous driving, if/when that happens, will come at a cost, and not just in money, but in time. NIO will be racing against Tesla and other auto companies in that space, which could prove difficult.

NIO does have exciting growth metrics in monthly and cumulative deliveries, and prospects in BaaS and autonomous tech, but it’s far from profitability. Valuing NIO almost identically to Tesla, which has the upper hand in market share, deliveries, global sales and proven profitability, makes NIO seem priced at perfection, even with similar strong revenue growth projections ahead like Tesla had in its initial growth phase. If NIO can post similarly strong quarterly deliveries two to three quarters ahead, such a valuation might be less daunting; NIO might still need more time to prove it’s worthy of being valued like Tesla, with that coming from sales growth, market share gains, and steps closer to profitability.

Author: Damien Robbins

Source: Seeking Alpha: NIO Priced Like Tesla In 2013

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