The smart features and battery rental service BaaS provide certainty that NIO's sales will continue to improve, China-based Northeast Securities' analyst Li Hengguang said in a report released yesterday in which he gave the Chinese EV company an "Overweight" rating and a six-month price target of $55.
NIO recently announced its third-quarter results, and during the earnings call, the company said that orders using BaaS solutions have reached 35 percent.
Li argues in his initial coverage of NIO that the BaaS business model caters to consumer demand by lowering the barrier to first-time vehicle purchases while also eliminating common concerns about battery durability and retention.
The report also mentions that NIO Pilot, NIO's automated driving assistance system, has been continuously improved and upgraded, and now includes an RMB 39,000 option and a RMB 15,000 option. It is expected that customers who have purchased both options have accounted for more than 50% of orders, the report said.
According to Northeast Securities, the smart label also continues to enhance NIO's product and brand power.
In August 2020, NIO will launch its BaaS program, which allows consumers to buy cars without buying battery packs, and to rent battery packs of different capacities according to their needs.
NIO launched the 100Kwh battery pack in November, giving its models a range of up to 615km.
NIO recently announced its financial results, which show that it posted revenue of RMB 9.617 billion in the first three quarters, up 83.24% from the same period last year, with a loss of RMB 4.119 billion.
The quarterly revenue was RMB 4.526 billion, up 146.4% year-on-year, with a loss of RMB 1.188 billion, down RMB 1.366 billion year-on-year, down RMB 20 million from the previous quarter.
NIO's third-quarter revenue growth was mainly due to the sale of 12,200 new vehicles, up 154.3% year-over-year, including 8,660 ES6s, 3,530 ES8s, and 16 EC6s.
NIO's gross margin has been improving over the past three quarters, with a positive gross margin in the second quarter and a gross margin of 12.94% in the third quarter, up 25.0 percentage points from the same period last year.
Northeast Securities believes that this is due to the economies of scale brought about by the growth in vehicle sales volume on the one hand, and the improvement in purchasing and manufacturing costs on the other, as well as the launch of the new ES8, which has improved the average price level.
Northeast Securities believes that with the overall scale of sales growth and subsequent new car launches, NIO still has a lot of room for improvement in gross margin, and its operation focus from high-cost NIO House to lower-cost NIO Space, expense ratio will continue to improve.