Chinese electric vehicle (EV) manufacturer Nio (NIO +1.61%) held its 2021 Nio Day event on Saturday, Dec. 18. Rumors had suggested that it might unveil two new EVs for its lineup. It only showcased one new electric car, but the single model has some features potentially making it quite competitive for American electric automaker Tesla (TSLA 5.46%).
The company also detailed some of its expansion plans, which, if achieved, could be strongly bullish for the stock. All of this upbeat news, however, remains overshadowed by the bigger problems of the Chinese market and the uncertainty of its future.
1. The new ET5 sedan could be a significant Tesla challenger
Range and features both potentially give the new mid-size ET5 sedan an edge over the competition if Nio's press release on the subject is to be believed. Besides acceleration and braking comparable to fairly agile gasoline vehicles, Nio claims that the ET5 has a range of 700 kilometers, or approximately 435 miles, with the optional long-range battery. The ET5's range rises to a full 1,000 kilometers, or roughly 620 miles, with an optional "ultralong range" battery. Its standard battery gives a 342-mile range.
For comparison, the flagship Tesla Model S sedan's Plaid variant, which CEO Elon Musk says will "probably" be sold in China starting in March 2022, has a 520-mile range, as reported by Reuters.
Image source: Tesla, Inc.
While the ultralong battery appears to give the ET5 sedan a 100-mile edge in range over the Tesla equivalent according to Nio, this range uses the Chinese CTLC testing protocol, not the stricter EPA protocol used to determine Tesla's range.
This test somewhat resembles the New European Driving Cycle or NEDC testing cycle used in Europe and Australia. The NEDC test is regarded with skepticism by experts, as it produces ranges up to 30% higher than the tested EVs can actually reach under real-life conditions. While China's test doesn't exaggerate range as extremely as NEDC does, the gap between the ET5 and the Model S Plaid is probably much narrower than Nio is suggesting.
Notably, however, even if practical range of the ET5 and Model S Plaid eventually prove to be similar, the ET5 still has the edge in price. The ET5 costs somewhat more than $51,000 before subsidies, while the base price of the Plaid is over $134,000. A more comparably priced Tesla, the $50,990 Model 3 Long Range, only has a range of 334 miles.
Nio's new sedan is also equipped with Nio Autonomous Driving, or NAD. This autonomous driving can be improved with updates as development continues, with Nio claiming "full features will be gradually rolled out after development validation, and be available to users via a [...] monthly subscription." Once again, the advertising language sounds attractive, but the autonomous driving feature's capabilities remain purely speculative, since the ET5 isn't available to the public yet.
Even here, though, the Nio has a pricing edge over its Tesla equivalents, with NAD apparently included as standard, while Tesla customers must pay $10,000 extra for the self-driving option.
2. Nio has some aggressive international expansion plans
Besides showcasing the ET5, Nio is also indicating aggressive expansion plans internationally, building on its 2021 launch in Norway. It says it means to expand to "Germany, the Netherlands, Sweden and Denmark in 2022" and a total of 25 countries globally by 2025, though it provides little detail.
A unique feature of Nio's EVs, the ability to swap out a depleted battery at a battery swap station in a few minutes, could be a double-edged sword for its international expansion plans. On the positive side, this feature enables lightning-fast "recharging" by EV standards, provided a swap station is available. According to Nio, 92% of Norwegian customers are opting for this "battery as a service" arrangement, indicating the swapping feature may be a major point of product differentiation from other EVs and thus a selling point for international customers buying Nio vehicles.
The method isn't without its downsides, however. It requires Nio to spend significant money building the battery swap stations and maintaining them, rather than simply relying on existing charging networks. In July, Bloomberg reported the company announced plans at its Power Day event to build 1,000 swap stations overseas by 2025, in addition to bringing its total in China to 4,000 by that date.
This could be a significant expense, and while the plans may work in the relatively limited geographic space of Europe, a battery swap station network in the vast territory of the U.S., a potentially important international market, could be much more challenging to develop to the point of viability for Nio EV drivers there.
3. It's still burdened with China's business problems
The new ET5 and Nio's plans to roll out near-future sales in dozens of countries would make it a strong contender among the newer EV stocks if it were based anywhere but China. However, none of its initiatives solve the overarching problems facing all companies headquartered in the huge Asian country.
Delisting from the New York Stock Exchange is a very real possibility for Nio, after Beijing strong-armed China's ride-hailing giant DiDi Global (DIDI 1.72%) to abandon the American stock exchange in favor of a fresh Hong Kong listing. Given the rising hostility of the Chinese government toward the U.S. and the West in general, a similar scenario isn't impossible with Nio.
The Chinese economy is also suffering from a wider crisis, with the country's real estate titan China Evergrande Group recently declared in default by Fitch Ratings and S&P Global Ratings, Bloomberg reports. The event is just one in a series of misfortunes and regulatory stumbling blocks hamstringing major Chinese companies during 2021.
Will Nio rise above its difficulties?
While there's a whole slew of factors explaining why Nio's share value continues to sink, I believe the company's story will eventually prove to be a bullish one for investors in the longer term. The ET5 sedan's range may not really match optimistic Chinese testing results, and in any case it will only outperform its Tesla rival with the highest available level of battery pack installed, so it seems unlikely to be a "Tesla killer."
It does, however, seem to have the capabilities necessary to compete on an equal footing with the Tesla Model S Plaid, while being much cheaper. Its rapid "back on the road" battery swap feature, and its autonomous driving, might be enough to give it at least some competitive edge, too.
Perhaps most importantly, Nio is producing real EVs, driven by real users on roads in China, Norway, and probably several dozen more countries in Europe and Asia in the near future. This puts it far ahead of many EV start-ups with no working vehicles in showrooms, but much loftier valuations. Its production is now exceeding 10,000 EVs monthly, establishing a foothold in the potentially massive EV growth market. This looks like an electric car stock with a relatively solid footing and a lot of room for growth, so its current low and dropping price could be a golden, if quite risky, buying opportunity.
