Nio in Consolidation Phase - Buy on Dip, Sell on Rise​

By Mihir Gupta (UCL), Ameya Joshi (UCL), Sukrith Kumar (UCL), and Filippo Palacino (ETH Zurich)

Stock Name: NIO Inc

Ticker: NYSE: NIO

Sector: Automobile, Electrical Vehicle

CMP: $45.77 (as on 25th December, 2020)

Recommendation: Buy on Dip / Sell on Rise

Target: $50.00 - $52.00

Stop Loss: $44.00

Duration: 2-3 weeks

Company Overview

  • Founded in 2014 as Nextev Inc, NIO is a pioneering Chinese player in the premium electric vehicle market. Their end to end business operating model consists of designing, jointly manufacturing, and selling smart and connected electric vehicles.

  • Their core technology competency lies in their proprietary e-propulsion system. Furthermore, their core technologies include a battery management system, electric driving system, vehicle control system, and autonomous driving. Their core technology provision includes:

  • E-Propulsion system: Their in-house developed propulsion system consists of an electric drive system, energy storage system, and a vehicle intelligence control system.

  • Digital cockpits and in-cabin technology: Each of NIO’s core automobile models use the NVIDIA DRIVETM which is an AI-driven in-car digital solution. Furthermore, their in-cabin technology is driven by an AI connected assistant NOMI.

  • Autonomous Driving: All three of NIOs automobile offerings have the ADAS system which is built for advanced processing and learning capabilities. Furthermore, they are incorporated with the NIO Pilot which consists of 23 sensors and a built-in algorithm to source driving data across the entire vehicle fleet.

  • NIO’s R&D teams are spread across China, Europe, and the US. Their main engineering R&D team is based out of Shanghai followed by Beijing. Their American headquarters are based in San Jose which also serves the capacity of their global advanced technology centre. Finally, their Munich and UK office is responsible for product, brand design and computer-aided engineering respectively.

  • As of December 1, 2020 - NIO had sold 36,721 EVs which marks an 111.1% Y-o-Y increase. Of this, the November sales counted for almost a sixth of their annual sales with 5,291 vehicles were sold in the month.

Product Offerings

NIO’s core product offerings consist of three volumes of manufactured electric vehicles and a range of power solutions which are meant to address charging needs of their users.

Manufactured Electric Vehicles: These consist of three main models which are the ES8, ES6 and EC 6. Following is a brief deep dive into their specifications:

ES8: ES8 which is a six-seven seater electric SUV, was NIO’s first volume manufactured vehicle. Key features of the model include 21 active safety features, an e-propulsion system which enables the model to accelerate from 0 - 100 kph in 4.4 seconds, a 70-Kwh liquid-cooled battery pack comprising cutting edge square cell batteries, etc. An all new E8 model with 180 product improvements was launched in December 2019.

ES6: ES6 is a five seater electric SUV which was launched in December 2018. The model offers Sporty, Performance and Premium versions at pre-subsidy starting prices. Key features a combination of permanent magnet motor and induction motor, an e-propulsion system which enables the model to accelerate from 0 - 100 kph in 4.7 seconds, ‘Lion’ i.e. a intelligent gate-way which enables data exchange and remote upgrading, etc.

EC6: EC6 is NIO’s smart premium electric coupe SUV that was launched in December 2019. The model is equipped with a 160-kW permanent magnet motor and a 240-kW induction motor. It’s e-propulsion system, like that of the ES6, allowed the vehicle to accelerate from 0 - 100 kph in 4.7 seconds.

Power Solutions: NIO’s power solutions are distributed across two segments - NIO Power Home and NIO Power Express:

NIO Power Home: Through this offering, NIO is able to install the electric charging point outside a customer's house, where feasible. The home charger is equipped with aan auto-identification function which enables a vehicle to automatically pair with the charger.

NIO Power Express: NIO’s Power Express includes a scheme of power solutions which are catered specifically for the Chinese users. These include fast charging trucks, access to public charging, battery swapping, fast charging piles, etc.

Sector and Industry Overview

Industry Analysis

We first the direction of the sector and industry NIO belongs to. The aim is to check if the stock’s movements are determined by a common sentiment for the sector and industry, or if the stock’s movements are specific to the stock itself, in which case, the stock will be susceptible to rapid trend changes. We believe the stock has more trending strength if it is moving in the same direction of the competitors.

Let's start our Top-Down industry analysis by having a very brief look at the performances of the stock market sectors in three different time ranges. We aim to identify winning sectors and losing sectors in the medium-short term by examining the returns in the last 6 months, 3 months and 1 month.

Graph 1: S&P 500 Sectoral Performances for the last 6 months ( as on 27/12/2020)

Graph 2: S&P 500 Sectoral Performances for the last 3 months ( as on 27/12/2020)

Graph 3:S&P 500 Sectoral Performances for the last 1 month ( as on 27/12/2020)

As we can see in the upper pictures, the last 6 months have been particularly bullish for every sector. In particular, we want to zoom in the performance of the consumer discretionary sector, which is the one where NIO lies. Its performances in the three-time ranges in consideration have been +24.6%, +8.09%, and +2.67%. We can conclude that this sector was mostly aligned with the general market conditions without positioning itself neither in the top performing, nor in the worst performing. Let’s have a look at this chart:

Graph 4: S&P 500 Consumer Discretionary Technical chart ( as on 30/12/2020)

In the upper chart we plotted the S&P 500 consumer discretionary index, which we believe to be a significant indicator of how the sector is doing worldwide. The stock trended upwards for the entire summer, but had a correction with the beginning of September that lasted until almost the end of the month. After that, the stock rose again, but found some resistance at 1300.00. After hitting that level, the price bounced downwards at 1162.38 on 2nd November. From that point, the price began a shy uptrend, which we can see from the price being over the 50 days Moving Average. Right now, the price seems to be headed upwards, but the signals are not strong enough.

Now, let’s have a look at which industries are pushing the price higher, and which are pushing it lower, in order to separate once again the winners from the losers and see where NIO’s industry, which is vehicles manufacturers, lies. We think that every time an index doesn’t show strong signals in either direction, looking at the industries inside the sector is even more valuable. Particularly, we want to see if there are opposing trending industries that try to move the sector in two different directions simultaneously, or if all of them are achieving neutral or soft returns.

Graph 5: Sector and Industry performance compared to the S&P 500 Index (eresearch.fideliy as of 30/12/2020)

For our Industry Overview, we decided to track the performance of several industries and sectors over the past year and compare it to the S&P 500 Index, which is used as a benchmark for the overall market.

We have used the Independent Power and Renewable Electricity Producers and Automobile industries as proxies for Electric Vehicles and have compared this to the broader Energy sector to determine how are these industries performing relative to it.

As Figure 5 shows, the Energy sector has performed the worst out of all the indicators that we have chosen. It has fallen by 38% over the year and has not recovered from the COVID-19 crash in March that saw markets worldwide plummet. However, the Renewable Energy industry is driving growth in the Energy sector, having grown by 17% in the past year. Renewable Energy and Automobiles, as shown by the yellow and dark blue lines, have been following the S&P 500 Index through its boom and bust phases over the past year. This is expected, as COVID-19 forced factories to shut and global demand to drop. As demand is now growing, we expect these industries to track the market. Furthermore, due to the growth seen in renewables (as shown in previous reports), we believe Renewable Energy to possibly beat the market over the coming years.

However, it is important to consider what particular companies are driving the growth in Automobiles and Renewable Energy to recognise how the performance of these industries will be reflected in NIO’s stock performance.

Graph 6: Tesla and NIO market capitalisation ( as of 30/12/2020)

Tesla is currently NIO’s biggest competitor in terms of valuation, market capitalisation, and hype. As shown in Figure 6, Tesla’s growth over the past year has been the most dominant out of all Electric Vehicle companies. We attribute this to Tesla being the pioneer of innovating and remarketing the Electric Vehicle space. NIO cannot lay claim to either, making the comparison between NIO and Tesla unfair for forecasting NIO’s growth. However, despite Tesla dominating the Electric Vehicle scene in China, several domestic competitors are rising up.

China is currently the world’s biggest EV market and has set the target that by 2025, over 20% of auto sales must be Electric Vehicles. As a result, fellow Chinese Electric Vehicle companies such as Geely Automobile, XPeng, and Li Auto are primed for rapid growth. Currently, NIO has a debt to capital ratio of 5.96 against the industry average of 0.29 and is not vertically integrated unlike competitors such as XPeng. If NIO does not reformulate its supply chains in the near future, it could potentially miss out on growth in China’s Electric Vehicle space.

However, we will conclude this section by stating that NIO is currently following industry and sector trends from a macro perspective. Once NIO begins to improve on its fundamentals, we will be more confident of its position as a market leader.

Forecast Analysis

Graph 7: NIO ARIMA Forecast (RStudio as of 30/12/2020)

For this report, we have decided to compare our usual ARIMA forecasting model with TOGGLE.AI’s forecasting methods.

As shown in Figure 7, our customised model indicates a strong bullish run over the next 15 days, as depicted by the blue line. The dark grey area shows