NIO: Leading The Way, But Watching Valuation Multiples

seekingalpha2021-07-02

Summary After two months of relatively weaker deliveries from some chip shortage impacts, NIO regained its stride and posted another monthly delivery record for June. Deliveries were 8,083 vehicles, ...

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精彩评论

Sephy
2021-07-02
Sephy
Back to about at least $38 -$40
TaufiqA
2021-07-02
TaufiqA
Love the potential of this stock but till US-China relation improves, staying away for now.
phily
2021-07-02
phily
Moon
8446Cy
2021-07-02
8446Cy
👍
LHJarsenal
2021-07-02
LHJarsenal
Like n comment.
- Sim1:
  Done
SaveHK
2021-07-02
SaveHK
Beware of trap. 😰

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NIO (NIO) is one of those, with shares up over 60% in that period as the manufacturer continues with its growth and international expansion plans, while navigating the chip shortage quite well. June deliveries came in strong, and set the manufacturer up for another success story in 2H, although the strong rally could see a breather soon.\nAnother Monthly Record\nGraphic from NIO\nAfter two months of relatively weaker deliveries from some chip shortage impacts, NIO regained its stride and posted another monthly delivery record for June, over 10% from the previous record. The company delivered 8,083 vehicles, pushing Q2 deliveries to 21,896 vehicles, representing +20.4% growth from Q1 even with more of the impacts being felt during the first part of this quarter. Strong demand and higher seasonality of demand likely boosted deliveries amid these impacts.\nFor the YTD period, NIO has delivered just under 42,000 vehicles, just 4% below its full-year tally of 43,728 vehicles during 2020. NIO remains on track to double its deliveries y/y, with 87,500 vehicles a conservative, achievable year-end target as demand seasonality and orders pick up in the winter months. NIO continues to show impressive sequential growth, with Q2 the fifth-consecutive quarter of q/q growth, and a continuation of that does support the year-end delivery target.\nNot Alone in Growth\nWhile NIO's deliveries were impressive, showing its ability to perform in the face of an industry-wide headwind, it's not the only Chinese manufacturer to show impressive growth.\nFast-growing peer XPeng (XPEV) posted a new monthly record for June, delivering 6,565 vehicles, with the P7 recording its best month since launch at 4,730 units. While growth rates were impressive, at +459% y/y for 1H, +617% y/y for the month, and +439% y/y for Q2, XPeng had only just begun its production of the P7 in mid-May 2020 and did not complete its 10,000 unit goal until October 2020, so it isn't necessarily comparable.\nGraphic from XPeng\nWhat's impressive for XPeng is that even with the later start to production compared to NIO, it's quickly catching up in terms of overall delivery numbers for the monthly and quarterly tallies. June and Q2's figures are just 19% and 21% lower than NIO's, meaning XPeng needs about 25% growth from current levels to match NIO's numbers. As XPeng continues to push its technological edge and broaden its vehicle lineup, with the limited edition P7 Wing and the upcoming G3i next week, it has the necessary catalysts to catch up to NIO relatively soon, as long as its production capacity enables it.\nWhat's Next?\nNIO is one of the top pure-play EV manufacturers, and leading the Chinese cohort, although XPeng is quickly catching up. As a quick recap, NIO is launching in Norway during Q3, and has received the EWVTA for the ES8 while it preps its Oslo NIO House. The company also has a longer-term capacity expansion plan through Neo Park after it doubled its capacity arrangement with JAC. There's a lot to look forward to alongside revenue and delivery growth.\nEuropean expansion, and inevitably potential North American expansion, are both bright spots for NIO, serving to boost both deliveries and revenues by expanding sales outlets and increasing the number of potential customers. However, the costs to establish sales and service centers, NIO Houses, and possibly production facilities could be large; if NIO decides to keep production solely in China, it brings export costs and tariffs into play.\nNIO's growth is visible, but the question that remains right now is the valuation - the company continues to perform well regardless of the circumstances, cruising through the chip shortage with slight impacts, but does the overall growth and change in the industry support extensive valuation growth?\nNIO's 2021 is poised for a second year of triple digit revenue growth, with RMB32.5-33.5 billion (US$5-5.2 billion) projected for 87,500-90,000 units delivered. While the rate of growth will cool from these levels moving forward (simply due to amounts), revenue growth will remain strong on a dollar basis, up ~US$3.5 billion/~68% for 2022 and ~US$4 billion/~45% for 2023 to reach ~$12.5 billion in revenues.\nRevenue growth at this degree comes at a time when EV adoption is reaching an inflection point, especially in main market China. As the nation pushes for more and more EVs on the road and more infrastructure supporting it, NIO stands to benefit through BaaS - expansion of battery swap station network to the thousands and eligibility for subsidies regardless of vehicle price.\nYet even with EV adoption growing, the timelines for when EV cars will be the \"norm\" are still a bit divergent - some nations aim to be there by 2030, some aim for 2040; the overall picture is that it will take the better part of a decade of more for EVs to take over.\nThat's a substantial amount of time for growth to unfold, which is where many people get caught only focusing on. NIO and its peers like XPeng and Tesla (TSLA) trade at higher multiples relative to ICE manufacturers that are quickly shifting into EVs. The three trade at 13-14.5x 2021 EV/sales, while Ford (F) and GM (GM) trade at ~1.4x 2021 EV/sales; this provides evidence that the leading pure-play EV manufacturers are valued higher for both their hyper-growth prospects and disruptive factors as EV adoption is poised to accelerate.\nWith high multiples for growth and disruption, multiple expansion simply provides free money as growth continues; multiple contraction, on the other hand, could make it harder to see significant profits. If EVs are expected to take over and be the primary system on the road, can they continue to command double-digit EV/sales multiples, or will these manufacturers become the new \"ICE\" and trade at low multiples due to the amount of competition in the market and the shift to becoming the dominant technology?\nOf course an argument can be made that EVs are only getting smarter and more technologically advanced with autonomous driving and virtual cockpits and more, but this is the case with cars in general - the technology is only improving, and it could be harder to gain a technological edge in five or ten years' time to garner premium multiples relative to peers on a tech basis. Competition and leveling of the playing field as EVs become the dominant tech on the road could serve to bring multiples lower as every manufacturer will be fighting for the same pie - the disruptive factor will have eroded.\nThis isn't just a potential headwind for NIO, but for XPeng and other EV players that have earned huge valuations relative to revenues for the growth and disruption story. Assuming that by 2023, NIO's revenues are projected reach $12.5 billion, but forward EV/sales has fallen from the current ~14x to ~10x, that represents about 50% upside to $75 to a $125 billion valuation. However, if NIO can sustain its EV/sales multiple profile as deliveries grow and tap into new geographies, the upside potential grows substantially.\nOverall\nNIO has found its groove again with June deliveries reaching a new monthly record, pushing Q2 deliveries to the high end of guidance given during the chip shortage. The manufacturer is showing the ability to perform regardless of the obstacles in the industry, and is setting itself up to reach 87,500 deliveries for the year with strong seasonality in 2H. Revenues are expected to grow for a second straight year at triple-digit rates to RMB32.5-RMB33.5 billion, with NIO continuing its growth story internationally and domestically.\nWhile its growth is visible, one of NIO's bigger threats moving forward doesn't stem from the business, but rather the valuation. EV companies are trading at higher multiples than ICE manufacturers due to faster growth, disruption, and tech, but if EVs are expected to become the standard, more competition is likely to erode the premiums attached to growth and disruption.\nTherefore, multiple contraction could be the long-term headwind for shares, as ICE manufacturers, the old standard, trade at much lower EV/sales multiples. Given the strong rally over the past six weeks, NIO's valuation brings shares back to a more neutral outlook, down from the bullish stances from March 3 to June 1 when the valuation was more attractive.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":156478179,"gmtCreate":1625235451191,"gmtModify":1633942216633,"author":{"id":"3579782126622830","authorId":"3579782126622830","name":"Sephy","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Back to about at least&nbsp;$38 -$40","listText":"Back to about at least&nbsp;$38 -$40","text":"Back to about at least $38 -$40","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/156478179","repostId":1106243819,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":156278915,"gmtCreate":1625227893637,"gmtModify":1633942349113,"author":{"id":"3582803947266039","authorId":"3582803947266039","name":"TaufiqA","avatar":"https://static.tigerbbs.com/369afff367d5535de01b7f052a7e2bb9","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Love the potential of this stock but till&nbsp;US-China relation improves, staying away for now.","listText":"Love the potential of this stock but till&nbsp;US-China relation improves, staying away for now.","text":"Love the potential of this stock but till US-China relation improves, staying away for now.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/156278915","repostId":1106243819,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":156296352,"gmtCreate":1625223234276,"gmtModify":1625223234276,"author":{"id":"3580784569082011","authorId":"3580784569082011","name":"phily","avatar":"https://static.tigerbbs.com/aca5719ffbb6da30fa7f147236e6bec7","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"Moon","listText":"Moon","text":"Moon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/156296352","repostId":1106243819,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":156291004,"gmtCreate":1625223134608,"gmtModify":1633942397395,"author":{"id":"3579497666530969","authorId":"3579497666530969","name":"8446Cy","avatar":"https://static.tigerbbs.com/f2820593bde8346e957122167e792c7b","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"👍","listText":"👍","text":"👍","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/156291004","repostId":1106243819,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":156293666,"gmtCreate":1625223116255,"gmtModify":1633942397837,"author":{"id":"3578967818815253","authorId":"3578967818815253","name":"LHJarsenal","avatar":"https://static.tigerbbs.com/a0d7e1e2167d189c3611e1bcef48e104","vip":1,"crmLevel":8,"crmLevelSwitch":0},"htmlText":"Like n comment.&nbsp;","listText":"Like n comment.&nbsp;","text":"Like n comment.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/156293666","repostId":1106243819,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5102065,"gmtCreate":1625224119819,"gmtModify":1635238897942,"authorId":3573709257975993,"author":{"id":3573709257975993,"authorId":3573709257975993,"name":"Sim1","avatar":"https://static.tigerbbs.com/45f90a5e23b6dc713a314a1c2365d6b6","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":156293666,"type":1,"supId":0,"prevId":0,"content":"Done","text":"Done","html":"Done"}],"langContent":"EN"},{"id":156204534,"gmtCreate":1625222849628,"gmtModify":1633942400566,"author":{"id":"3570678493691973","authorId":"3570678493691973","name":"SaveHK","avatar":"https://static.tigerbbs.com/89b74f5799a23844400ed6de94296d38","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"Beware of trap. 😰","listText":"Beware of trap. 😰","text":"Beware of trap. 😰","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/156204534","repostId":1106243819,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":51,"commentSize":15,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; 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