My Bullish Thesis on NIO
Prediction
Here's why I believe that NIO will be worth $350 by 2022.
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Who is NIO?
NIO is a Chinese luxury electric car manufacturer. It's known as the Tesla of China.
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CEO (William Li)
William Li is the founder and CEO of NIO. He's not as famous as Elon Musk, but apparently he has either founded or invested in over 40 companies and he probably knows how to milk a cow because he grew up on a dairy farm.
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The Bull Thesis
Battery as a Service (BaaS) - NIO has decided to sell the car separately from the battery. At first you say huh? Why? Apparently this solves some of the problems existing with the transition from internal combustion vehicles ("ICE") to electric vehicles. Bear with me for a second.
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When NIO says selling the battery separate from the vehicle they mean reducing the cost of the vehicle so the original car that you buy comes out to the same price as the car with the battery. All this means is that if you ever want to swap out your battery for the latest battery technology you would be able to purchase just the battery rather than a new vehicle. So you can get the latest battery technology for cheaper.
The math is a little confusing but it probably ends up being about the same price maybe cheaper unless you want the latest model of the car or are the type of person who likes to keep your car forever.
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Backed by the Chinese Government - In April 2020 the Chinese government invested $1 B in NIO.
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Operates in the Largest EV Market in the World - This advantage has been reduced since Tesla built Giga Shanghai but this is still an advantage against American car companies. Having your headquarters within the largest EV market in the world has its advantages.
Smaller Company than Tesla - This one could also go in the bear thesis but since it is a younger company it has more room for growth. This is good because it is easier to go from a $50 B market cap like NIO to a $300 billion dollar company than it is to go from a $600 billion dollar company to a $1-1.5 trillion dollar company like Tesla.
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The Bear Thesis
Fake numbers? - Distrust of Chinese companies has grown ever since it was discovered that the Chinese coffee company "Luckin Coffee" inflated its sales numbers by $300 MM. I don't see this as being a big deal because after the Luckin Coffee incident China now has a strong incentive to ensure that its publicly traded companies report honest numbers. Another fraudulent incident would be highly detrimental to investor confidence in Chinese companies.
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Competing Against Tesla - Tesla and NIO are competitors and Tesla is way ahead of the race right now. Tesla is the first company to be allowed to build a fully foreign-owned car company in China. NIO is not yet competing in American markets and its self driving technology is not as advanced.
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Global Depositary Receipt - Long story short, you don't get to vote and you are charged a nominal fee for ownership.
Since NIO is a Chinese company and China is a communist country sometimes China gets a little weird about ownership in their companies. A Global Depositary Receipt is a "certificate" issued by a bank. The bank purchases shares of a foreign company and creates a security on a local exchange backed by those shares. You don't actually own a piece of the company and they charge a small fee.