Nio Inc.
NYSE: NIO
Company Profile:
NIO Inc., founded
in 2014 is a global start-up automobile manufacturer based in China,
specializing in designing and developing high-performance, premium electric
autonomous vehicles. NIO has R&D and design experts from around the world
with significant technology and management backgrounds from leading automobile
and high-tech companies, with more than 6,231 employees in its 19 locations. The
company is also involved in the FIA Formula E Championship, the world’s first
single-seater, all-electric racing series. The name for the company in China is
Weilai.
We propose Nio Inc. for Long term Investment
for the below cited reasons:
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With 1.011
billion shares outstanding expected after the IPO, the expected amount of cash
per share is $1.11. NIO expects to sell shares at a price from $6.25 to $8.25.
This means that cash in hand will represent 13-17% of the total share price,
which seems quite unusual. Bear in mind that this is a growth stock, a type of
stock that usually trades at many times its cash per share. The cash in hand
per share of Tesla, for instance, comprises of only 4% of its total stock
price.
-
Large
corporations, like Tencent and Baidu, opted to acquire a stake in NIO. NIO
expects to sell shares at a price from $6.25 to $8.25. This means that cash in
hand will represent 13-17% of the total share price. Assuming sales of $130
million and 17x forward sales, paying $3.9-4.1 for the shares seems reasonable.
With a low float, the stock price volatility could be high.
-
Reporting
15,778 model ES8 reservations in August, NIO Inc. (NYSE: NIO) seems to be the
new serious competitor of Tesla (TSLA) in China. Its business model, type of
electric vehicles sold, and financial figures reported make the NIO IPO a
transaction very similar to that executed by Tesla a few years ago. Using
multiples of TSLA, the shares seem affordable at $3.9-4.1. With that, the share
price could go much higher because the float on this name is very reduced and
stock volatility could spike up.
-
The
company's most relevant model, the ES8, was presented to the public on December
16, 2017. This car is a 7-seater suburban utility vehicle (SUV) capable of
moving at 100 km per hour in only 4.4 seconds. The model seems to have the
highest maximum power output as compared to other direct competitors Tesla -
Model X 75D, Audi Q7 45 e-tron, and Mercedes-Benz AMG GLS 63 and other SUV
models.
-
The
car, which is being sold exclusively in China, is interesting as it offers very
similar features to that of Tesla Model X at approximately half price, $67,765.
As of July 31, 2018, NIO had already delivered 481 ES8s and received more than
17,000 ES8s reservations.
-
The company plans
to launch its new model, the ES6, by the end of 2018 to start delivering in the
first half of 2019. The ES6 will be a bit smaller than ES8s. It will be a
5-seater electric SUV, which will target a larger customer base once the NIO
brand increases with the sale of the ES8.
-
NIO reported
revenues of $6.7 million for the six months ended June 30, 2018 after almost 2
years of reporting no revenues.
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The list of
facilities leased and owned is also overwhelming as of today. The biggest
offices are in Shanghai and Beijing, but NIO has also an office in California
in charge of software development.
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The state of
the balance sheet in 2017 shows that NIO has received large amount of cash very
recently. Additionally, it is very beneficial that the balance sheet is quite
clean. With $1.13 billion in cash, which comprises of 71% of the total amount
of assets in 2017 and $288 million in new net property, plant, and equipment.
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The use of
proceeds shows that NIO is not expending a lot, now, in marketing, which seems
beneficial. It is focused on developing great technology for the clients. Only
25% of the proceeds from the IPO will be used for marketing, 40% will be used
for research development, and 25% will be used for the development of the
company's manufacturing facilities.
-
NIO is losing
large amount of cash every year, which makes a lot of sense since the company
is still doing research and development and is developing the company's
manufacturing facilities. R&D represents 52% of the total operating
expenses reported for the year ended December 31, 2017. The loss from
operations was equal to $748 million in 2017, and the net loss for the year was
$758 million. The IPO proceeds are expected to be $1.106 billion, so NIO will
have cash for about two more years if cash erosion continues at the pace.
Further capital raising should be expected after this period, which could lead
to share price depreciations.
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As of August
31, 2018, the company had received 15,778 unfulfilled ES8 reservations with
deposits. With each ES8 being sold at $67,765, potential future revenues are
equal to $1.069 billion. I addition, 6,201 reservations had been made with a
non-refundable $6,750 deposit. This means that the company should be making
revenues of a minimum of $41.8 million.
Nio Compared with Tesla at the time of IPO launch
Since Tesla's business
model is very similar to that of NIO, comparing the two companies seems
acceptable. Tesla executed an IPO showing no revenues in 2006 and 2007 and only
$14 million in 2008. NIO had no revenues in 2015 and 2016 and only $6.7 million
for the six months ended June 30, 2018. They seem to be executing the IPO
exactly at the same stage of development.
Disclaimer:
Views are strictly
personal. This Interim Financial Results & News posts or
updates includes forecasts, projections and other predictive statements that
represent Vtrade's assumptions and expectations in light of currently available
information. These forecasts, etc., are based on industry trends, circumstances
involving companies and other factors, and they involve risks, variables and
uncertainties. The Group’s actual performance results may differ from those
projected in these Interim Financial Results. Consequently, no guarantee is
presented or implied as to the accuracy of specific forecasts, projections or
predictive statements contained herein.
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