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Investment bankers aren't always correct about the stocks they recommend buying (or selling). But there's one thing you can depend on them being useful for: Getting direct access to company management, and digging out facts that may interest other investors.
Last week, Deutsche Bank analyst Edison Yu performed this service for outside investors when he was able to host Steven Feng, and get the NIO (NIO) CFO to provide some insight into the Chinese electric car company's future plans during "virtual investor meetings." In a wide-ranging discussion, Feng revealed NIO's plans for the future as regards:
Continuing to grow its "premium/luxury" China business.
Building an EV to compete with the upcoming Tesla Model 2.
Expanding its business into Europe.
Building the brand in China
NIO believes that it offers customers in China a superior "ownership experience" to what Tesla can offer. Although investors might worry that price cuts instituted in the country on Tesla's Model Y crossover EV might eat into NIO's business, Feng says that, to the contrary, in China Tesla tends to serve a useful purpose by attracting owners of traditional internal combustion engine cars to the idea of owning an electric vehicle. But once they're interested, customers often prefer to buy a NIO.
Why? Name recognition is one factor. Feng says that within China, NIO has 80% brand awareness, and is admired for its interior design, handling/suspension, and "post-purchase service" -- in particular its technology that permits batteries in NIO cars to be "chargeable, swappable, and upgradeable" (to batteries with longer range). 55% of NIO owners today subscribe to the company's "Battery-as-a-Service" plan, buying their cars, but subscribing to the batteries that run them. And NIO plans to roll out autonomous driving software as a $100-a-month subscription offering beginning in Q1 2022.
Tesla, in contrast, sells its batteries integrated into its cars -- and sells it autonomous driving software package as an upgrade.
Taking on the Tesla 2
Similarly, Feng sees Tesla's upcoming economy model Tesla 2 as more of an opportunity than a threat. NIO plans to keep its focus on the luxury market in China, but also develop a new brand of cheaper EVs to compete with the Tesla 2, increasing its production volume of cars sold at lower price points "in the next few years."
This way, confides Feng, NIO can "maintain its premium reputation while the company goes after higher growth."
NIO's ambitions aren't restricted to China, either. To the contrary, the company is already making plans to expand into the European market later this year. Whereas in China, the company targets 25% to 30% market share in the premium EV segment, in Europe, NIO says it will be satisfied with just 10% to 15%. The company plans to offer "custom tailored" European offerings to the local market.
And to support all this expansion, NIO -- which sold fewer than 44,000 cars last year -- plans to expand its production capacity to 150,000 cars per year by the end of 2021. Even then, NIO won't be done. According to Feng, the company sees its total addressable market worldwide as closer to 700,000 cars annually.
Based on all of the above, Yu rates NIO shares a Buy along with a $70 price target. The implication for investors? Upside of 56%. (To watch Yu’s track record, click here)
Wall Street is broadly in agreement with this analysis. Over the last couple of months, NIO has received 7 Buy ratings from Street analysts, compared to 3 Holds. With an average price target of $65.24 per share, the potential upside stands at 45%. (See NIO stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.