Fisker Vs NIO: Which EV Stock Is The Better Buy?

Seeking Alpha2021-09-09

Summary Improving battery technology, greater charging infrastructure availability, and increasing price parity with ICE vehicles have supercharged electric vehicle (“EV”) adoption in recent years. ...

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精彩评论

Eskay_Tew
2021-09-10
Eskay_Tew
I bought this at 16
FatKid
2021-09-09
FatKid
Neither
dw321
2021-09-09
dw321
TLdR
RS142
2021-09-09
RS142
NIO is best
Jameslky1
2021-09-09
Jameslky1
Buy both
- ACCY:
  Yeah!
Abu888
2021-09-09
Abu888
Like my comnent
- Abu888:
  Tganks!
- AtwoZ:
  Done

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The EV industry has emerged as one of the fastest-growing segments of the 21stcentury – while global car sales suffered from an unprecedented slump during 2020 due to COVID-related lockdowns and economic uncertainty,EV sales surged by over 40% from 2019. And EV sales are poised to reach newer heights this year, making it an exciting investment opportunity that many have set their eyes on.\nBut the growing number of options, ranging from established EV makers to pre-revenue early-stage EV start-ups, have made it increasingly difficult to determine which makes a higher growth investment. A similar investment dilemma applies to NIO (NIO) and Fisker (FSR), where the former has already emerged as one of the leading EV brands in China with ongoing plans for overseas expansion, while the latter is still in testing phase for its first vehicle. In our most recent coverage of NIO and Fisker, we have assigned both companies a buy signal. Although the 12-month price targets we have set for both stocks would indicate that Fisker exhibits similar upside potential in the near-term, we believe NIO would generate a better risk-return tradeoff over the long-run due to the increasing value of its innovative technology developments. NIO also makes a safer investment considering its EVs and proprietary battery swapping technology have already been tried and tested with proven demand in both China and Europe.\nNIO’s Advantage with Innovation, Overseas Expansion, and a Differentiated Business Model\nIn the span of just a little over three years, NIO has grown into one of the largest EV brands in China with more than 130,000 vehicles sold to date. Although delivery volumes have slowed in recent months due to ongoing volatility of global chip supply, NIO has continued to achieve strong double-digit year-over-year sales growth. New orders have also been consistently reaching all-time highs on a monthly basis, underpinning significant sales growth ahead as demand continues to ramp up rapidly.\nSales Boost by Innovation\nIn addition to its diversified line-up of fully battery-powered EVs, NIO is best known for their development of battery swapping technology, in-vehicle artificial intelligence and autonomous driving.Its innovative accomplishments achieved to date are a testament to its vision of expanding beyond the horizons of just building electric cars, but also a comprehensive ecosystem that is driven by technology.\nMost recently, NIO announced the addition of a 150 kWh solid-state battery pack to its current line-up of swappable batteries. NIO currently offers swappable 70 kWh and 100 kWh battery packs, which already enable a range capability of 300 miles and 435 miles, respectively. The newest 150 kWh solid-state battery pack, which is expected to enter commercial use in Q4 2022, will deliver range capability of more than 450 miles for the first-generation ES8 SUVs, and up to 620 miles for the newer and more efficient models. This would top current record-holder Lucid Motors’(LCID) range capability of 517 miles on a single charge. Paired with its proprietary battery swapping technology, which can switch a dead battery out for a fully charged one in under three minutes, NIO answers to two of the biggest roadblocks to global EV adoption – range anxiety and long charge times.\nAlthough the average commute is typically less than 40 miles per day, most drivers have indicated a preference for EVs with higher range capability to preserve the “peace of mind” they have gotten used to with ICE vehicles. Charge time and charging infrastructure availability have also proven to be other critical considerations in the EV purchasing decision. Most Tesla owners have credited the accessible network of Supercharger fast-charging stations for their respective purchasing decisions, underpinning Tesla’s(TSLA) success in becoming the industry leader over the years. And NIO’s proprietary battery swapping technology enables the same growth prospects. In addition to its network of over 200 fast-charging Power Charger stations across China, NIO has also installed more than 300 Power Swap stations across the country, with a commitment to build 4,000 more globally by 2025. NIO also one-ups Tesla by offering “Battery as a Service” (“BaaS”), which is a monthly subscription service that provides NIO owners with flexible options for battery upgrades based on personal budgets and travel needs. The increasing availability of its charging infrastructure, combined with the additional price-friendly and flexible battery options make NIO well-positioned to capture a larger share of the EV market in the long-run.\nIncreasing Global Market Share\nThe Chinese EV maker is also on track to making its Norway debut in a few weeks. Its first shipment of the ES8 to the new market has already arrived, and NIO has started offering test drives since August 30th in preparation for the grand opening of its first NIO House and delivery center overseas on September 23rd. The build-out of NIO’s sales and service network in Norway will continue into 2022, with four more locations to open across Bergen, Stavanger, Trondheim and Kristansand. In addition to the NIO House, the EV maker will also be deploying its proprietary swap stations across Norway, staying true to its commitment to offering NIO owners with a range-anxiety-free driving experience.\nNIO’s newest technological developments will also underpin its expansion plans across Europe, as the region continues to be one of the largest EV markets in the world, following closely behind China’s. The European Commission’s recent tightening of theiremissions standardsandemissions reduction targetsis expected to further accelerate mass-market EV adoption across the broader European markets in coming years, making NIO’s recent entry to the region a well-timed move. EV demand in Europe is expected to surge at a compounded annual growth rate (“CAGR”) of 25.4% towards amarket value of more than $143 billionthrough to 2027. And passenger EV makers like NIO are poised to be the largest beneficiaries. The passenger cars segment currently accounts for more than 80% of the European EV market, and is expected remain the leading driver of growth within the industry through to the end of the decade. In order to further its capitalization of the growing opportunities in Europe, NIO has recently hired a new CEO to lead NIO’s European operations, and is currently planning additional expansion into other regions includingGermanyandAmsterdam.\nFollowing its expansion into Europe, NIO also plans to step foot into the U.S. EV market. A recent interview by NIO’s founder and CEO, William Li, hints at the possibility of materializing its U.S. expansion plans within the ten-year horizon. Although U.S. EV sales currently lag behind China’s and Europe’s by a wide margin, the Biden administration’s recent push for electrification of the transportation sector makes the U.S. an opportunity-filled market with EV adoption rates to surge in the latter half of the decade. Preliminary estimates show that U.S. EV sales could grow at a CAGR of up to 30% towards a total of18 million EVs on American roadsby the end of the decade, representing approximately14% of projected global EV sales. These growth trends make strong tailwinds for NIO, with its potential entry into the U.S. market to coincide with the American EV market’s prime time.\nGrowing via Horizontal Expansion\nThe coming year is expected to be pivotal for NIO as it taps into the broader global market with new cars, a separate brand, and strategic investments into rival brands. During the second quarter earnings call, NIO announced the launch of two new EV models in addition to the previously announced ET7 sedan in 2022; one of which will become NIO’s lowest-priced offering. The EV maker also unveiled plans for a separate brand that will offer more affordably priced vehicles to drive higher mass-market appeal. The two newly announced strategies will be complementary to NIO’s near-term plans of expanding its presence in China’s smaller “Tier 3” cities, and competing head-on with Tesla’s best-selling Model Y/3.\nNIO has also recently made aninvestment contribution to Lotus Technology, the EV unit of iconic British sportscar-maker, Lotus. As part of the strategic partnership, both NIO and Lotus will collaborate in developing “high-end intelligent EVs” and facilitate Lotus’ planned roll-out of new EV models over the next five years. It will also enable profit sharing for NIO as competition continues to rise within the sector.\nFisker’s Entry to the Capital-Intensive Sector with an Asset Lite Model\nIn contrast to NIO’s established operations, Fisker’s production timeline continues to trail behind its peers with the flagship Ocean SUV still in testing phase. The company has recently reiterated its commitment to begin production of the Fisker Ocean in late 2022, with a full marketing campaign to roll-out in November. Aside from repeatedly confirming that the Ocean program is “on time and on budget”, the EV start-up has remained tight-lipped as usual on the vehicle’s technology and specs, with plans to reveal the production version of the vehicle at the LA Auto Show in November.\nPre-Launch Momentum\nTo date, Fisker has secured over 17,500 reservations for the Ocean SUV. Considering each reservation is priced at $250, and only 90% refundable if cancelled, the volume of reservations acquired to date is a testament of strong public interest in the vehicle, given there has not been any information released on its technological capabilities yet. The pre-revenue EV start-up is aiming to acquire at least 25,000 reservations for the Fisker Ocean by the end of the year, with another 50,000 in 2022 to ensure a sell-out in 2023. The company has also turned to opportunities within the commercial landscape by acquiring fleet orders fromCredit Agricole Consumer Finance,Ontocar subscription services, andViggoride-hailing services. The achievements underscore its ability to ramp effectively once the Ocean SUV enters production phase in about 15 months.\nLike NIO and other rising EV start-ups, Fisker intends to adopt a direct sales strategy to maximize customer experience. Currently, Fisker plans to sell the Ocean in the U.S. and certain countries across Europe, including the U.K., Germany, Denmark, Norway and Sweden, first. And once additional models roll-out, the EV maker will likely make an entry into additional markets across Asia, including thefastest-growing Chinese market and India. Although specific details on its global expansion timeline are limited, Fisker’s international aspirations will be a critical factor to its long-term success.\nAsset Lite Business Model\nSimilar to NIO, Fisker does not produce its vehicles in-house. Instead, the EV start-up implements an “asset lite” business model, which has bolstered its incredible strength in cost management – with the Ocean Program to be fully funded by the $1 billion proceeds from its SPAC merger last year, and only 15 months away from start of production, Fisker’s balance sheet still boasts a cash balance of more than $962 million. The asset lite business model helps Fisker bypass the capital-intensive nature of car-making by requiring it to co-develop its vehicles and platforms with renowned manufacturing partners and suppliers. And to avoid the typical cost inefficiencies that accompany outsourced manufacturing arrangements, Fisker ensures its production partners have “equal skin in the game” by either offering equity stake in the company or ensuring the project is a joint-venture investment. The carmaker has also been highly selective in the process of choosing its strategic partners, and only works with the most reputable and experienced in the industry to ensure quality control.\nThe Ocean SUV will be manufactured by Magna, one of the largest auto manufacturers in the world. Together, the two companies have co-developed the FM 29 platform that will drive the Ocean SUV and additional EV models in the future. In exchange, Magna is offered a 6% stake in Fisker, exercisable through achievement of “interrelated performance conditions” (pg. 97 of the2020 10K). Magna has also opened several Fisker-dedicated operational areas at the carbon-neutral facility in Graz, Austria to facilitate theirlong-term manufacturing agreementthrough to 2029. The facilities will allocate annual production capacity of well over 100,000 vehicles at full ramp up to Fisker.\nIn addition to the Ocean SUV, Fisker is also working with Foxconn on the production of their second model,PEAR, and its underlying FP 28 platform. The unique deal structure requires Foxconn to provide investments in areas related to the manufacturing process and the technology supply chain, while Fisker will lead on the design process, product development and go-to-market strategies. The PEAR is expected to be a new-segment vehicle that will “revolutionize” the electric vehicle driving experience. The new vehicle is scheduled to enter production in late 2023, with a price tag of $30,000 before tax incentives. Fisker and Foxconn are currently finalizing plans on amanufacturing site in the U.S.that could handle a production capacity of up to 150,000 units annually. And in the long-run, the partners plan to manufacture and sell at least 250,000 units of the PEAR per year globally upon full production ramp up.\nAside from its production partners, Fisker has also forged strategic partnerships with critical component suppliers and after-sales service providers.Bridgestone Tireshas recently been selected as the exclusive tire partner for the Fisker Ocean, while another undisclosed battery cell manufacturer, who is one of the five largest in the world, will supply the battery packs.Sharphas also been engaged as the designated developer and supplier of interior display systems for up to four Fisker EV models. As for after-sales service partners, Fisker has recently made a $10 million private investment in public equity (“PIPE”) supporting the upcoming reverse merger ofAllego, a European EV charging network, with Spartan Acquisition Corp, III. The strategic investment will pave the way for efficient access to charging infrastructure for Fisker customers in Europe, a critical element in attracting sales and growing its market share. Fisker has also madeElectrify Americaits official charging partner for the U.S. market. The partnership will offer Fisker vehicle owners with exclusive package rates across more than 3,500 Electrify America chargers in the U.S. Other after-sales service partners include theMekonomen GroupandCox Automotive and Rivus Fleet Solutions, which will facilitate Fisker’s logistics and maintenance services in Europe.\nFinancial ProspectsNIO\nDespite NIO’s recent decision to adjust its third-quarter delivery guidance from 23,000 to 25,000 vehicles down to 22,500 to 23,500 vehicles due to ongoing volatility of chip supply, we are expecting the company to keep progressing in line with ourearlier coverage. With close to 56,000 vehicles already delivered this year and new orders reaching an all-time high, NIO is expected to complete approximately 88,000 deliveries by the end of the year. This is expected to yield vehicle sales of RMB 32.6 billion ($5.0 billion) by the end of the year based on average vehicle revenue of RMB 367,000 ($56,635), which is consistent with NIO’s sales mix and pricing strategy observed in recent quarters. The projection also takes into consideration NIO’s upcoming debut in Norway, which will top-up on domestic sales growth expectations in the fourth quarter. Our base-case forecast projects NIO’s vehicle sales to further expand at a CAGR of 30.4% towards RMB 461.4 billion ($71.2 billion) by 2030. The growth assumption is consistent with global EV demand growth trends, as well as NIO’s historical performance and ongoing market share expansion initiatives.\nNIO’s achievements in battery and autonomous driving technology enhancement will also underpin growth in its other sales revenues. Other sales revenues, which are primarily generated from BaaS and “Autonomous Driving as a Service” (“ADaaS”), are expected to grow in line with vehicle sales at a CAGR of 30.0% from RMB 2.3 billion ($352.1 million) by the end of the year to RMB 31.5 billion ($4.9 billion) by 2030.\nSource: Author, with data from our internal financial forecast (NIO_-_Forecasted_Financial_Information.pdf).\nNIO’s net losses are expected to further narrow towards 2024 as margins continue to expand with sales ramp up and scale. Nominal profits of RMB 8.2 billion ($1.3 billion) are forecasted for 2025, with growth at a CAGR of 36.8% towards RMB 39.3 billion ($6.1 billion) by the end of the decade.\nSource: Author, with data from our internal financial forecasts. Please refer to our previous analysis for a detailed breakdown of NIO’s projected cost structure.\ni. Base Case Financial Forecast:\nSource: Author, with data from our internal financial forecast.\nFisker\nOn the other hand, our base-case forecast projects delivery of at least 40,000 Fisker Ocean SUVs across the U.S. and Europe in 2023 following the start of production, which is consistent with management’s original sales guidance and production volume estimates. With the Fisker Ocean’s middle-trim priced between $50,000 to $55,000 expected to be the best-seller, the flagship SUV is forecasted to generate $2.1 billion of revenues for the carmaker in 2023. And based on ramped-up production capacity of at least 5,000 units per month starting in 2023, we are projecting sales of at least 60,000 units of the Fisker Ocean by 2024, totaling $3.3 billion in projected revenues. Ocean sales are forecasted to grow further at a CAGR of 22.5% towards $11.1 billion by 2030. The growth assumption is consistent with Fisker’s intentions to expand into Asia-Pacific regions in the long-run, as well as market expectations on the rise of global EV demand.\nThe PEAR model, which is expected to commence production and deliveries in late 2023, is forecasted to add an additional $1.8 billion to revenues in 2024. With aspirations to produce and sellat least 250,000 unitsof the PEAR annually in the long-run, Fisker is expected to generate PEAR revenues of $6.1 billion by the end of the decade. This accordingly translates to PEAR revenue growth at a CAGR of 22.5% from 2024 to 2030, which is consistent with Fisker’s sales guidance per itsInvestor Presentationand global EV market growth trends.\nFisker also plans to launch two more vehicles in addition to the Ocean and PEAR before 2025. With a planned average sales price of $59,000 and a goal of selling 200,000 to 250,000 vehicles by the end of 2025, our base case forecast projects total revenues of $8.5 billion by then. Total revenues are expected to further expand at a CAGR of 25.6% towards $21.2 billion by 2030. Note that projected total revenues also include nominal merchandise sales of approximately $100,000 per year.\nSource: Author, with data from our internal financial forecast.\nWith Fisker’s margins to continuously improve after start of productions with cost-efficiencies enabled by its asset lite business model, our base-case forecast projects narrowing net losses from $380.0 million by the end of the year to $290.8 million by 2022. The EV start-up is expected to start realizing profits of $197.9 million starting in 2023, with further growth towards $774.3 million by 2025 when all four anticipated EV models enter production, and towards $1.95 billion by 2030.\nSource: Author, with data from our internal financial forecasts. Please refer to our previous analysis for a detailed breakdown of Fisker’s projected cost structure.\ni. Base Case Financial Forecast:\nSource: Author, with data from our internal valuation analysis.\nConsistent with our recent analyses performed on both stocks, our 12-month price targets for NIO and Fisker remain at $59.74 and $20.61, respectively. These projections represent upside potential of close to 48% for both stocks based on their last traded share price on September 3rd.\nWe have performed a discounted cash flow (“DCF”) analysis to determine the respective 12-month price targets for NIO and Fisker. Specifically, we have used projected free cash flows up to 2025 in the DCF analysis to reflect the valuation expectations on both companies’ near-term growth initiatives.\nFor NIO’s valuation analysis, we have applied a WACC of 11.9% to discount the projected free cash flows. The valuation assumption is consistent with the company’s current risk profile, taking into consideration its highly leveraged balance sheet and recent volatility in its price performance given uncertainties over the Chinese regulatory landscape. The valuation analysis also assumes a 90.6x EV/EBITDA multiple, which reflects NIO’s achievements in proprietary technology development in addition to EV sales, as well as ongoing growth initiatives and business outlook. This compares to the EV/EBITDA range of 70.9x to 111.2x observed across its industry peers.\ni. Near-Term Valuation Analysis – NIO:\nSource: Author, with data from our internal valuation analysis.\nOn the other hand, we have applied a WACC of 13.4% to discount the projected free cash flows of Fisker to compute the stock’s 12-month price target. Although the company has largely remained debt-free with sufficient liquidity to complete the Ocean program, the company is a relatively riskier investment compared to NIO considering itisa pre-revenue and pre-production start-up. The WACC also considers Fisker’s recent announcement to fund the PEAR program with a new private debt offering of $625 million at 2.50% due in 2026. The valuation analysis assumes a 13.6x EV/EBITDA multiple, which is consistent with those of EV start-ups that are still in pre-revenue and testing phase, and have recently completed a reverse SPAC merger. The valuation multiple applied also reflects Fisker’s smaller scale of operations in terms of sales capacity, as well as technological developments in comparison to NIO and other established EV makers in the industry.\nii. Near-Term Valuation Analysis – Fisker:\nSource: Author, with data from our internal valuation analysis.\nOver the next five years, we foresee NIO and Fisker’s share price to reach as high as$160and$39, respectively. The long-term valuations prescribed reflect both companies’ estimated intrinsic values upon realization of their respective growth aspirations set out for the next five to ten years. For Fisker, these initiatives include full materialization of launching four EV models before 2025 with expansion into Asia-Pacific regions, as well as achieving positive operating cash flow and profits. And for NIO, the projected long-term valuation also captures the additional value generated from its technological advancements, including the global build-out of battery swap stations, development of long-range solid-state batteries, and materialization oflevel four autonomous driving technology.\nConclusion\nWhile accelerated global EV adoption trends underscore high-growth opportunities for both stocks, NIO makes a better long-term investment given its established operations and proprietary technological developments. But near-term catalysts for both stocks should not be overlooked. NIO’s official opening of its Norway operations in two weeks and Fisker’s reveal of the Ocean SUV’s production version in November are expected to underpin additional upsides for their respective price performances in the next twelve months. 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