In his report, "NIO deserves a better future," released on Sunday evening, Zhongtai Securities analyst Su Chen said NIO's new model, the EC6, which was delivered from September 2020, is expected to maintain good delivery volumes through a richer product portfolio and a competitive edge in the product race.
According to the analyst, NIO has gained a strong foothold and is gaining ground in the market with continuous technology iterations, improved battery range, and superior service, as deliveries continue to increase.
With a strong brand presence, NIO's new stores are expected to attract more potential customers, and the expansion of its sales network in China's third- and fourth-tier cities will be an opportunity to break the delivery bottleneck, the analyst said.
Below is a translation of the full report:
NIO deserves a better future.
1.1 NIO is the leader of the new powerhouse of car building
NIO deliveries grow consistently, market cap outpaces traditional car companies.
After Tesla's price cut announcement in October, NIO announced September sales of 4,708 vehicles, a new record and the seventh consecutive month of year-over-year gains.
The NIO delivered 12,206 vehicles in Q3, setting a new single quarter delivery record and exceeding market expectations.
The rising deliveries come at a time when NIO's market capitalization has been rising since 2020. As of October 18, 2020, NIO's market capitalization of $35.9 billion surpassed Ford ($30.5 billion) and matched SAIC ($240.6 billion).
NIO started from a high-end model, and its product lineup has been diversifying, and its advantages are becoming clear.
From the electric supercar EP9's various track records, to the ES8 redefines the high-performance intelligent electric SUV, to the ES6, EC6 diverse product lineup, NIO to some extent referenced Tesla's strategy.
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NIO's product line starts from the high-end, focusing on luxury and comfort in design, which makes the brand known and reduces the risk of price/performance fluctuation due to subsidies withdrawal with a high price.
NIO manufacturing process, technical level and service system has been gradually recognized by the market, the model planning began to promote to the low-end.
Despite the market's persistent doubts, it is undeniable that NIO is continuing to iterate on technology and improve battery life.
Thanks to improved production break-in cycles, faster software updates, flexible charging solutions, and quality service like Haidilao, NIO deliveries continue to increase, and the NIO is gaining a strong foothold in the market and gaining traction.
NIO demand is trending well and deliveries continue to set records, consistently maintaining a top 10 ranking in the country.
Since the first ES8 delivery in June 2018, NIO has delivered a total of 58,300 EVs up to September 2020, including 26,500 ES8s and 31,800 ES6s.
In September 2020, NIO delivered a total of 4,708 vehicles, again doubling the delivery record year-on-year.
NIO's cumulative deliveries from January to August 2020 ranked fifth in the country and surpassed full-year deliveries in '19. The ES6 ranks fourth in cumulative deliveries by model.
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The new NIO model EC6 will be delivered from September 2020 and we expect NIO deliveries to remain positive through a broader product portfolio and a competitive edge on the product.
NIO House slows down, NIO Space increases, cost reduction efficiency improves and order contribution is evident.
NIO's flagship offline store, NIO House, was originally intended to enhance brand image strength and offer a variety of services to its owners.
However, the annual rent for some of the NIO stores was in the tens of millions, which was not cost effective to spread over the deliveries.
In August '19, the company began building smaller, more sales-oriented NIOSpace stores (typically under 200 sq. ft. in size and with an average cost of under $1 million), and chose to build some of the stores with a partner, with NIO operating them, to ease the financial pressure.
As of September 20, NIO Space has opened more than 140 stores in nearly 60 cities across the country, and is accelerating its deployment to third and fourth tier cities, with NIO planning to have more than 200 stores by the end of 2020.
The launch of NIO Space has directly led to a rise in deliveries.
With a strong brand presence, we expect the new stores to attract more potential customers, and the expansion of the sales network in Tier 3 and Tier 4 cities will be an opportunity to break the delivery bottleneck.
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The ultimate user experience has become one of its "moats", with a customer referral rate of nearly 50%. Traditional car companies have left sales and after-sales to 4S stores, which are not accessible to car owners.
Tesla has reconfigured this relationship to enhance the user experience through its direct sales model, owner forums, OTA upgrades, and supercharger network.
NIO has taken this relationship and experience to the next level," said William Li Bin, founder of NIO, "NIO's business model is built on the ultimate user experience.
Through NIO House, NIO Space, NIOPower, and NIO Service, NIO provides a full range of services including test drive experience, sales and delivery, charging, battery swap, repair service, community events, and online and offline interactive platforms, which provides a powerful empowerment for car sales.
NIO management says the referral rate of NIO customers is close to 50% (the percentage of total all closed customers through referrals).
NIO's full range of charging and battery swap services to allay range anxiety.
NIO's NIO Power charging system has established three unique modes of supercharging (home charging station, supercharging station), battery swap station, and charging (one-touch charging, charging car). As of September 20, there are 155 NIO battery swap stations with more than 1 million battery swaps, and we plan to have more than 160 battery swap stations by the end of the year.
At the same time, the battery swap service is a "lifetime free battery swap for first-time owners" policy.
Non-first owners and operating vehicles will use the battery swap fee model: fee = battery swap units * (electricity charge 1.35 Yuan/kWh + service charge 0.39 Yuan/kWh).
NIO announced the "Power Up Plan" in September 2020, with the goal of deploying more than 30,000 20kW destination DC piles nationwide to form a nationwide destination charging network, with a total subsidy of 100 million RMB, averaging 1000 RMB/year for each charging pile and a subsidy for 3 years.
1.2 Broad prospects for electrification
The market demand for luxury cars is strong, especially for large SUVs.
According to the China Passenger Car Association (CPCA), the domestic passenger car market will sell a total of 12.928 million units in January-September 2020, -12.5% year-on-year.
However, luxury SUVs and luxury sedans sold 747,000 units and 1,019,000 units in January-September, +16.3% and +7.4% year-on-year, the only major brand categories to achieve positive growth.
In terms of price stage, January-September sales of models priced ≥ 300,000 RMB totaled 1,296,000 units, +12.4% year-on-year. Among them, SUVs priced ≥ 300,000 yuan sold 640,000 units, +24.5% year-on-year, the highest year-on-year growth rate.
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By model, the B-class SUVs sold 1.057 million units in total, +13.1% year-on-year.
The above figures reflect the rapid recovery of car-buying demand among China's financially strong and spending-powered customer base, which was suppressed after the epidemic, against the backdrop of a generally sluggish auto market, with large luxury SUVs being the preferred choice.
SUV electrification penetration rate of 2.8%, with more room for improvement.
According to CPCA, from January to September 2020, domestic electric SUV (BEV + PHEV) sales totaled 169,448 units, accounting for 28% of the total sales of new energy vehicles, accounting for 2.8% of the total sales of SUVs, there is greater room for improvement in the penetration of electrification.
Breakdown, January-September B-class SUV BEV sales of 33,882 units, +81.4% year-on-year. The NIO sales accounted for 77.8% of the segment.
1.3 Investment recommendations
The trend of large-scale localization of EVs has ushered in new opportunities for the domestic supply chain.
The new car-making forces, represented by NIO, have plowed into the domestic market and strengthened the cooperation among local suppliers.
Meanwhile, Tesla, Volkswagen MEB, BMW iX3, Mercedes-Benz EQC, Audi e-Tron and other EVs have all chosen localization, bringing new cooperation opportunities to the domestic supply chain.
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By virtue of their cost and production capacity advantages, Chinese manufacturers have successfully become the main supply base in the world, which has led to the emergence of world-class manufacturers in some segments such as batteries and diaphragms, as well as global core supply chain companies for spare parts such as thermal management systems.
Global electrification is entering a period of accelerating supply-side quality vehicles, and both traditional auto companies and new carmakers continue to launch attractive electric vehicles, which will provide a trendy opportunity for the global mainstream supply chain to accelerate in the next three years.
Always focus on the main line of global frontline supply chain investment, continue to be optimistic about.
(i) Battery and material supply system: the global supply system pattern has been formed, CATL, LGC will become the world's leading power battery growth of the strongest enterprises, the supply chain core varieties superimposed on the competition pattern presents a super many (no) strong state of stocks will continue to bring excess revenue.
(ii) Parts opportunity: modular development trend is becoming more and more clear, thermal management, chassis and actuators three major high-quality track have company breakthrough.
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We have clearly pointed out that, due to the convergence of arithmetic power, the trend of auto parts is modular, the profitability of each link mainly depends on the competition pattern and technical barriers.
1) Thermal management field: thermal circuit integration and high voltage trend is obvious.
In the future, multiple heat sources of electric vehicles, including brakes, power devices, motors, air conditioners and other circuits will be integrated, and with the change of refrigerant, the circuit pressure will be increased from 10bar to 100bar, and the amount of valves, pumps and pipelines will be greatly increased.
(2) Chassis: In order to meet the requirements of long mileage, lightweight chassis is an inevitable trend of electric vehicles. At present, the mainstream lightweight material is aluminum alloy; comprehensive fuel saving rate and cost considerations, priority lightweight parts for the suspension system steering knuckle, stabilizer bar and control arm.
(3) Actuator: intelligent actuator is the future direction, the chassis has three major actuators: brakes, steering and air suspension.
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