Purchasing a Chinese electric vehicle, such as that of car manufacturer Nio, Inc. ($NIO) – also known as the “Tesla of China” – may take some time for car enthusiasts to get used to. Yet many consumers own more Chinese products than they initially think. Besides the fact that jokes about ‘Made in China’ are no longer of this time, it is in fact also an outdated remark. The republic has been undergoing considerable economic growth for years, which has ensured that many products originating from here have visibly improved in quality.
As a result, several new Chinese car manufacturers have joined the ranks to make a serious effort in the global electric vehicle industry. A very potential market, according to figures from the “Bloomberg New Energy Finance” report. By 2020, only 3% of global passenger car sales are electric vehicles (EVs), with the report expecting that by 2040 as much as 58% of these global sales will be EVs. This means that in less than 20 years, approximately 500 million EVs will be on the public roads. Recent research from HPI found that 91% of young consumers will consider purchasing an EV in the future. And when other figures show that 33% of the cars sold this year have a Chinese owner, the circle is complete. A development that led many potential investors and shareholders end up with Nio.
Battery as a Service: is this the next big thing?
BaaS offering is a new addition to the income segments of Nio, and will attract the attention of more long-term investors. With the BaaS option, Nio not only wants to lower the purchase price, but also improves the flexibility and battery upgrade. This gives consumers the opportunity to buy a vehicle without a battery. Instead, users will be given the option of renting battery packs of various capacities according to their needs, at a monthly service charge.
BaaS customers get a discount of RMB70,000 ($10,300) off the purchase price, with a battery subscription starting from RMB980 ($140) per month, which equates to lower purchase and operating costs than ICE vehicles in the same premium segment.
Users are also entitled to NIO’s Power Swap and flexible battery upgrade services, as well as the national NEV subsidies and purchase tax exemption for users who have purchased batteries. With this a solution has been sought for a better balance between purchase costs and operating costs. In addition, BaaS also represents a systematic solution for EV penetration. There are several challenges in the form of battery degradation, rechargeable battery and lower trade-in value, which can be tackled for the most part with BaaS.
This year, the first national standard for battery replacement for electric vehicles was approved in China, with NIO being one of the initiators. This development can be of great value to the services and technologies associated with changing batteries. A national consequence is that the policy of the national NEV subsidies for 2020 explicitly recognizes the separation between vehicle and battery based on battery exchange technology. A recent work report from the Chinese government included a Power Swap Station for the first time as part of the construction of a new infrastructure project.
Can Nio keep climbing up easily?
The NIO stock price movement closely followed the broader EV industry’s line last month. The company then enjoyed a significant boost at the end of September following favorable coverage from Deutsche Bank.
NIO could achieve tremendous revenue and profit growth if it maintains the leading position in the EV industry. NIO currently has a market capitalization of $26.6 billion and is estimated at 12 times this year’s expected revenue. And great achievement for a relatively young company that delivered 3,965 vehicles to customers last month, which is an increase of 109.9% compared to the same period in 2019.
Anyone who looks to the past quarter, will see that the share of Nio is now almost 400% higher. The main reasons mentioned on the internet and in various analyzes are not complicated and can be understood by mostly everyone, which is another reason why the share is doing so well at the moment. Many shareholders are looking at the developments surrounding EV leader Tesla. This company has shown that the impossible can sometimes be made possible. Once a Chinese car manufacturer is compared to such company, there are plenty of interested parties who want to get in early, so that they do not miss the boat. In addition, this year’s figures show that for the long-term investor there is probably even more in the pipeline. SUVs are extremely popular, almost every car manufacturer currently has an SUV model in their collection. Finally, the demand side is shifting, as young consumers are increasingly aware of the environment and the harmful effects of non-electric vehicles. It is important to mention that these young consumers will only acquire more purchasing power and will be the biggest driving force on the car market.
The strength and potential of Nio
Nio has built significant brand value and customer loyalty thanks to a marketing that is very similar to its big brother, Tesla. The company has cut out a much sought-after and potential niche in the premium market, and then started to dominate that same niche with unique vehicles and superior performance offered at prices lower than most of its competitors.
EV penetration in the Chinese car market is expected to increase to 35% by 2030. This is partly due to: robust government support, rising consumer demand, falling EV prices, improved EV technology and a more diverse offering. The premium industry makes up about 10% of the Chinese EV market. With an exceptional market strategy and thoughtful business practices, NIO is projected to control half of China’s premium EV market in the future, representing over 450,000 deliveries. If it actually takes this position in the national EV market, it will only be a matter of time before it is recognized and acquired in other parts of the world.
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