7 Things Every Nio Investor Must Know

By Neha Chamaria

KEY POINTS

Nio made some of its biggest revelations yet at its recent conference call.

Plans include affordable cars, a smartphone, and making headway into the world's two largest EV markets.

Nio could also turn profitable sooner than you think.

Nio reveals when it could turn profitable and how it plans to beat Tesla.

Nio($NIO Inc.(NIO)$ )reported its fourth-quarter and full-year earnings, and it said it expects to deliver only about 25,000-26,000 vehicles in the first quarter. That shouldn't come as a surprise given the supply challenges facing Nio, but here's the thing: If you didn't get a chance to look beyond that headline delivery number, you're missing something big.

Nio's Q4 earnings conference call, in fact, revealed so much about the company's moves and plans that they should form a key part of your investing thesis in the Chineseelectric vehicle (EV) stock. Here are seven such things about Nio you must know.

Steady gross margin despite cost constraints

Raw material costs for electric vehicles (EVs) have risen so much in recent weeks that industry leader Tesla was forced to increase prices of its vehicles twice within a span of few days.

Nio is confident of navigating supply challenges. It is already working with partner CATL to boost battery supply and expects enough supply of high-end semiconductor chips under contracts withNvidiaandQualcommto meet its production target, including new models this year.

Image source: Nio.

Three EVs lined up for 2022

Nio confirmed plans to deliver three new EVs this year.

• Flagship sedan, ET7: Nio started ET7 deliveries on March 28. It said it received more orders after test drives than it expected and that initial orders are "much more" than media reports of 15,000 units.
• Midsize sedan, ET5: Nio launched the ET5 in December last year and expects to start deliveries in September. ET5 is Nio's second sedan, after the ET7.
• First SUV, ES7: Nio will unveil the ES7 soon and expects to start deliveries in the third quarter. Nio foresees a large market for the SUV that's expected to compete withBMW's upcoming X5 SUV.

Nio also plans to go global with these EVs.

Targeting a massive market

After entering Norway last year, Nio will expand into Germany, Denmark, Sweden, and the Netherlands in 2022. Importantly, this chart reveals why Nio's choice of Europe as its first international market to expand into makes so much sense.

Nio entered Norway with the ES8 SUV but will roll out the ET7 sedan first in Germany. The company also plans to sell the ET5 in Europe beginning later this year. By 2025, Nio expects to launch into 25 countries and regions worldwide.

Of course, Nio will require a lot money to execute these growth plans, but it already has its plans in place.

2022: A big spending year for Nio

Nio's research and development (R&D) expenditure jumped 84.6% to $720.6 million in 2021, partly because of higher spending on the design and development of new products.

Nio expects its R&D expenditure tomore than doubleand R&D headcount to increase significantly to around 9,000 in 2022 as it invests in "long-term core technologies and some fundamental technologies, as well as the new products for 2023, as well as some product adaptation for the global market."

That's huge, and if executed well, more R&D should not only help Nio launch and deliver quality products this year but also put it on track toward its goal of being a mass-market EV maker.

Affordable Nio EV for all

Nio's CEO William Li has often dropped hints at various interviews in recent months about Nio's dream to build a mass-market brand and sell better cars than Tesla at lower costs. During its Q4 earnings call, Nio confirmed it wants to increase volume and expand its user base, but follow a different strategy from Tesla's.

Unlike Tesla, which launched Model 3 and Model Y for the masses at much lower prices than its premium Model X and Model S cars, Nio doesn't want to have big price gaps between its models when it launches a car for the masses. It believes a price band of $30,000-$50,000 a car is the right target for a mass-market brand.

Also, Nio said it will build a new brand to enter the mass market, taking a leaf out of Volkswagen's and Toyota's playbooks that own Audi and Lexus brands, respectively.

Other than a cheap Nio car, you could also see a Nio smartphone in the future.

Smartphone rumor may not be a rumor after all

Chinese media recently speculated Nio to be planning a cellphone business.

At its Q4 conference call, Li revealed Nio is indeed actively exploring possible connections between EVs and smartphones, as he believes there are a lot of synergies between these two products in terms of technology, supply, and software. Nio already launchedaugmented- and virtual-reality technologieswith the ET5 and is now exploring more innovative applications for vehicles.

In short, a Nio smartphone that can interact with Nio EVs could soon be a reality. For now though, Nio is prioritizing what investors want to see: profitability.

2023 could be a pivotal year

This, perhaps, is the biggest takeaway for investors from Nio's Q4 earnings call: If the company's growth plans pan out as planned, it expects to break even in the fourth quarter of 2023 and generate its first full year of profit in 2024.

If Nio even inches close to profitability in the coming quarters, itsstock price could catapult to highs not seenbefore.

Resource: Finance Yahoo