Can NIO Finally Become the “Tesla of China” with Lower Priced Models

Since it was founded in 2014, many analysts have labeled NIO as the “Tesla of China.” Can the company justify bulls’ faith with its lower-priced models?

To be sure, Wall Street is obsessed with “Tesla killers.” Over the last few years, analysts have labeled models like Porsche Taycan, General Motors Bolt, and Volkswagen ID.3 as Tesla killers.

Startup EV companies are struggling with production

Also, many see startup EV (electric vehicle) companies like Lucid Motors as potential Tesla-killers. Lucid Motors CEO Peter Rawlinson famously said last year that the EV industry would be a two-horse race between it and Tesla. However, it has failed to live up to the hype which is also visible in its sagging stock price. It has lowered 2022 delivery guidance twice this year and the current guidance of 6,000-8,000 cars is a third of its original guidance.

Nikola touted as the “Tesla of trucking” is facing troubles too as it tries to meet the toned-down delivery expectations. Coming back to NIO, like Tesla, it started with premium models and is now launching more mass-market models.

NIO to start delivering ET5 later this year

NIO has already started delivering the ET7 which has a high range as compared to other EV models. It expects to start delivering the ET5 later this year. NIO ET5 is the cheapest model from NIO and would compete with Tesla’s Model 3. Notably, with the option to rent the battery, NIO ET5 would become quite competitive.

During the Q2 2022 earnings call, NIO said, “With pure and progressive design ultimate performance and outstanding intelligent experience, the comprehensive competitiveness of the ET5 far surpasses the peers in the same segment. We’re confident that ET5 will become one of the most popular midsized premium sedans.”

Tesla achieved scale with mass market models

Notably, Tesla also achieved scale with its mass-market Model 3 and Model Y. Together, both these models account for the bulk of its sales. The company plans to start delivering the Semi truck this year and the Cybertruck in 2022.

NIO is also reportedly looking to launch more mass-market models next year. Last year, it expanded its partnership with JAC Motors to double the production capacity. However, the ramp-up has been hampered due to supply chain issues.

NIO expects its deliveries to surge in the fourth quarter

NIO expects to deliver between 31,000-33,000 cars in the third quarter of 2022. It had previously guided for deliveries of 100,000 vehicles in the back half of the year. This would mean deliveries of 68,000 vehicles in the fourth quarter at the midpoint.

During the Q2 2022 earnings call, NIO said that it would try its best to reach the guidance. It said, “Of course, this means that the fourth quarter is going to witness a lot of pressure and the challenges on our delivery and supply. We have already started to make the preparation for the delivery starting from the third quarter.”

It added, “we are confident to achieve the record-breaking target for the fourth quarter, and we have been making active preparations to meet this target as well.”

Deutsche Bank is bullish on NIO stock

Deutsche Bank is quite bullish on NIO stock. Earlier this month, analyst Edison Yu said, “While this year has certainly been filled with unexpected speed bumps, we think the product supercycle is almost here and Nio will finally reap the benefits in full next year.”

Yu is also optimistic about NIO’s international expansion. He said, “We certainly don’t expect meaningful volume contribution anytime soon as management is very focused on organic brand building but note in Norway YTD, NIO has sold nearly 600 ES8 SUVs, putting it slightly behind Mercedes Benz EQB and BMW IX3.”

NIO is looking to enter the US market

NIO’s CEO recently visited the US which led to speculations that the company is looking to enter the US market. During the Q2 2022 earnings call, NIO said, “For the U.S. market entry, we have been making preparations for a long time. We have been thinking about the U.S. market entry strategy back in 2017, and this has been in planning for almost five years already.”

The company said that the US market is quite different from China and Europe where it currently sells its cars. It also said that the US market is competitive and has a different regulatory environment.

Inflation Reduction Act of 2022

Notably, President Joe Biden has signed the Inflation Reduction Act of 2022 which enhances the federal EV tax credit. However, to be eligible for the tax credit, the car has to be assembled in North America. Beginning 2025 there are battery sourcing requirements also.

NIO added, “We have been making long-term thinking and preparation about the U.S. market entry. And we believe that the right strategy for us is to make comprehensive preparations and patience.”

Yu meanwhile remains bullish on NIO and said, “We think perhaps NIO’s desire to enter the US may be far greater than it appears especially given how competitive the domestic Chinese market is becoming.”

Overall, the launch of new models and entry into new markets might drive NIO stock in the medium to long term.