Nio (NIO -0.48%) is an electric vehicle (EV) company based in China, and certainly has a lot of competition. However, in this Fool Live video clip, recorded on Nov. 22, Fool.com contributor John Rosevear discusses what Nio does and what separates it from the rest of its peers.
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John Rosevear: We often think of Nio as a set with two other upstart Chinese EV makers, Xpeng (XPEV) and Li Auto (LI -1.68%). Nio in some ways has been the leader here. They sell right now 8,000-9,000 vehicles a month. Market cap $61.5 billion. They're trading around 11.5 times sales. They're getting near to profitability, but profits are likely to be thin for several quarters once they have them. They are, in terms of market positioning, they're probably the most direct challenger to Tesla (TSLA 4.96%).
A battle-tested company in the sense that they nearly went broke at the beginning of the pandemic, got bailed out by economic development authorities and Anhui Province, which is China's industrial heartland. They've moved their headquarters to Hefei, the capital city of Anhui Province, as part of that deal. They gave up basically some equity in exchange for the bailout. They've been buying back that equity over time. What they have going for them, good technology, very strong consumer loyalty, good relations with the local governments.
Also intriguing, an extensive network of battery-swap stations. This is a technology that Tesla has talked about but never done anything with, famously. As of Saturday, they had 634 of them up and running in China. This enables a few different interesting things. First of all, you can buy a Nio without a battery pack, and for those who may not know, the battery pack is the most expensive component in an electric vehicle. This is saving $10,000 or more up front on buying your vehicle, if you sign up for a subscription to this battery swap service, where you pull into these automated battery swap stations, and it takes just a couple of minutes to swap out your used-up battery pack for freshly charged one.
It also enables some pre-sale upgrades. Nio offers battery packs in three or four different sizes. You can buy your Nio with a relatively short-range pack for around-town driving, and then swap in a longer-range pack at one of the battery pack stations, essentially renting it if you have a big trip coming up or something like that. Or you can, Nio comes out with a new battery pack that's got more range, more efficiency, whatever you can upgrade via the battery swap stations.
Some really interesting wrinkles. The stock and the company have suffered a little bit relative to rivals this year, in part because they've been hit by the chip shortage. They can build 10,000 vehicles a month, they haven't yet. Also product cadence, China's auto market rose really quickly. Every automaker that you as a Westerner have ever heard of does business in China along with a whole bunch of Chinese automakers that a lot of us in the West have never heard of.
You want to have new products, refreshed products constantly. Nio hasn't had a new product in over a year, but they have three coming next year. If you're going to wade into this stock, this might not be a bad time to do it. The stock did get beat up this year. Market cap was much closer to $100 billion at one point. In this era of high valuations relative to some of its peers, Nio looks more like a buy to me.
