NIO
Stock Market Analysis

How Does NIO Make Money: Should I Invest In The ‘Chinese Tesla’?

With Tesla’s stock price soaring, investors are looking at alternative EV companies like NIO for cheaper opportunities.

There is no denying that electric vehicles (EV) are here to stay. With many governments promising to stop the sale of fossil fuel vehicles in the coming decades, the electric portion of the automotive sector is set to become increasingly vital. 

While Tesla (NASDAQ: TSLA) will be the first name that comes to mind for most people when discussing electric cars, NIO (NYSE: NIO) is an emerging player, being dubbed the ‘Chinese Tesla’ by many commentators. 

What is NIO?

Headquartered in Shanghai, China with backers such as Tencent and Sequoia, NIO boasts a sports car and three SUV models in its arsenal, with sedans in the works.

NIO went public on the NYSE in September 2018, initially being valued at about $1.8 billion. The current market cap is around $90 billion. 

NIO’s business model

NIO gets help from its partner, Jianghuai Automobile Group, for producing certain vehicle models. There are concerns within NIO that relying on a third-party for manufacturing can be risky.

One of the interesting aspects of NIO’s business model is the new batteries subscription plan that launched last year as a “Battery as a Service”. In this case, buyers can purchase the battery and car separately. Therefore, the car will be about 25% cheaper and the buyer can then pay a monthly fee to rent the battery. 

The vast majority of NIO’s revenue comes from its automotive division. While Q4 2020 figures are set to be released in the near future, NIO’s Q3 total revenue was $666.6 million, with $628.4 million coming from vehicle sales. Net loss for the quarter was $154.2 million, a 58.5% decrease year-on-year. Making up the other revenue streams were the likes of its service packages for its electric vehicles, as well as battery swapping and charging solutions.

The company was struggling for a time in 2019 and was potentially facing bankruptcy. However, it managed to significantly turn things around, with its vehicle sales doubling last year. This was despite the COVID-19 pandemic disrupting production and sales for a time. In January 2021, NIO had a record 7,225 vehicles delivered as production volume is ramping up beyond previous expectations.

What’s next for NIO?

NIO recently showcased its first electric sedan, which is on course for production in about a year’s time, a welcome boost on top of its record-breaking 43,728 deliveries in 2020.  The new sedan is an extra string in the company’s bow and looks set to drive sales up even further going forward. 

As well as establishing itself in China, NIO has plans to expand into the European market, beginning in the second half of 2021. Its battery subscription service also holds a lot of promise going forward.

With the expected growth and the debt and liquidity issues fading away, NIO is a company worth considering, especially for those investors who are looking for a Tesla alternative. Its comparatively low delivery numbers suggest that this is a riskier long-term play that could pay off as production capacity and expansion ramps up.

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Andrew O'Malley
Andrew O'Malley
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.