May 28, 2021
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Marko Rojnica

NIO is a Chinese Electric Vehicle company founded in 2014. 

With close ties to the government and new battery technology, NIO is considered the front-runner in the Chinese premium EV market. 

After delivering their first car in 2018, 

NIO went public on the NY Stock Exchange, opening up at $6.

Unfortunately, the next couple of years proved to be quite challenging for the company ... the stock would even trade as low as $1.

But in July, 2020… they got their first big break. Year over year sales were up 180% and quarterly sales up 190%... NIO, already on a little run, immediately doubled from $8 to $16.

By August, Morgan Stanley upgraded the stock.Then came JP Morgan in October.NIO was pushing through $26.

As the EV sector was gaining momentum. The stock doubled again into the high $50s.

After a pullback in December, NIO made several positive announcements at their annual “NIO Day.” and the stock soared to its all-time highs ... 


But that’s where the party ended. 

8 weeks later the stock was cut in half. 

Since then it’s been range bound between the low-30s and mid-$40s… trying to find a direction.

So, where is NIO going next, and how can we use Options to profit from it?

In this video, I’ll guide you through the bull case and the bear case …

Then, we’ll get Felix Frey on, to give us his view on the stock, and show us different Options plays that you can use, whether you’re bullish or bearish, so stay tuned, you don’t want to miss it.

So, we have a very exciting Chinese EV stock that made a monster move from $3 to $67 in a year, only to trade off to the current level of $34.

My name is Marko Rojnica, and I’m going to show you what the bulls and bears are saying about NIO, and then, we’re going to have Felix Frey show us a few different options plays.

But first...

What is NIO?

NIO is an EV company in China that has been growing rapidly over the last year.

As of right now, they only sell 3 SUV models, and they have a Sedan coming out in 2022 which they announced in January of this year.

Their main competitor is Tesla, which came to the Chinese market in 2013, opening its first Chinese factory in 2018.

We even have Jim Cramer saying that NIO is going to be a real challenge to Tesla…

NIO has very close ties to the Chinese government, and their main Chinese competitors in the EV Space are XPeng and Li.

The Chinese EV market is huge, with 1.3 million EVs sold in 2020, representing 41% of global EV sales, just behind Europe with 42%.

The US however, only represented 2.4% of EV sales in 2020.

With a strong backing from the government and a big market share to conquer, NIO has been very innovative in their battery technology advancements and AI technology - the core of the NIO story.

Now that we know a little more about NIO, let’s see what the bulls are saying.

1) Strong Growth Potential

Over time, NIO has been showing a solid and steady increase in demand for it’s electric vehicles.

In Q1 of 2021, NIO delivered 20,060 of their ES8, ES6 and EC6 units, which is an astonishing 422.7% YoY growth rate!

Throughout the last year, NIO’s revenues more than doubled from $1.2 billion in 2019 to $2.5 billion in 2020. Even their gross margin successfully emerged from the negatives to a strong 12% in 2020, all the way to 19.5% in Q1 of 2021.

To date, the company has sold and delivered more than 95,700 vehicles.

Adding to that the fact that 2020 was a landmark year for EVs with global sales representing more than 4.2% of the entire market, we can see that the growth opportunity for NIO is immense.

Right now, they’re holding approximately 23% of China’s EV SUV market share, exceeding Tesla’s 17%. And remember, China is one of the largest markets in the world.

On top of that, the Chinese EV market is expected to grow by more than 50% in 2021, and since NIO is very well positioned in China, we can see why the bulls are excited about this stock.

Their launch of the ET7 luxury sedan (which is expecting deliveries in early 2022) is also a strategic move to be in direct competition with Tesla’s Model S, with plans of taking over the sedan market share in China, and then internationally.

Now, before going over their international expansion plan, let’s quickly take a look at the estimates for revenues and numbers of vehicles sold:

By 2025, they’re looking to sell as many as 300,000 vehicles, up from around 50,000 in 2020, bringing in over $21 billion in revenues and expecting to break profits.

Those are very good estimates, but in order to do that, NIO is also planning to expand internationally.

Their first step in doing so is entering the European EV market, which represents as much as 42% of global EV sales. 

They’re opening their first store in Oslo, Norway, in Q3 2021, which is expected to boost their sales and earnings performance.

With everything going as planned, the bulls are predicting deliveries of more than 84,000 vehicles in both China and Norway, generating total revenues of more than $5 billion, representing double the growth of 2020.

But in order to capture this market share and meet their estimates, they need to innovate. This leads us to the 2nd bullish point.

2) Industry Leading Innovations

As one of the leading industry innovators in the EV space, NIO invests heavily into autonomous driving and AI technology.

In 2018, they announced their launch of NOMI AI, the world’s first in-vehicle artificial intelligence that goes beyond standard infotainment and navigation.

NOMI AI is also expected to streamline the future autonomous driving experience for NIO owners.

They have also debuted EVE, their concept car for autonomous driving that provides a comfortable and spacious interior cabin that can accommodate up to 6 passengers.

To make things even better, NIO has also partnered with Mobileye, an Intel-owned company based in Israel that focuses on developing self-driving technology and advanced driver assistance systems.

Their goal is to make level 4 automated driving possible and available to the public through NIO’s cars.

That partnership is also expected to fast-track NIO’s efforts in making “Autonomous driving as a service” which would be a subscription package for their autonomous driving technology NAD “Nio Autonomous Driving”.

It’s expected to be available to the public by early 2022 for a monthly subscription fee of around $100.

NIO does a very good job of following and leading the robotaxi, self-driving and advanced driver assistance trend… but they are also making massive innovations in the EV battery sector, with the Battery as a service model.

BAAS, or “Battery as a service” is a monthly battery subscription service.

Instead of paying an additional, let’s say, $10,000 when purchasing your NIO car, you can buy one without a battery, save $10,000, and swap batteries as you please, only paying a monthly subscription.

Right now, there are two battery options, 70kWh and 100kWh. You can pick which one you want based on your driving range needs and swap them at any time.

They’ve added over 800 power charging stations covering 53 major cities in China, and their vehicles are also compatible with XPeng’s network of 1,140 charging stations across 164 cities in China.

Another great innovation they’ve done to calm concerns over long battery charging times, is they’ve launched their “Power Swap'' system that swaps your dead battery for a fully-charged one in less than 3 minutes.

To make sure NIO succeeds to fulfill their goals and keep innovating, they could use some help, and that leads us to the bull point #3.

3) Chinese Government Support

There have been a lot of talks regarding Tesla downsizing their production in China lately.

Would it be hard to believe that the Chinese government would prefer having a domestic company dominate the EV market? Not really…

One of the most important advantages NIO holds is the support it receives from the Chinese government. Their government even bailed them out of a near bankruptcy with $1 billion last year.

However, we do know that the Chinese government allowed Tesla to build a giant EV manufacturing ecosystem in China, which gave them access to state-of-the-art EV manufacturing techniques and technologies.

Could this “newfound knowledge” have helped propel companies like NIO and Xpeng? Perhaps…

Their government is also heavily supportive of the creation of more battery swapping stations, which, as we noted, was one of the major areas of focus and differentiation for NIO.

Another important thing to mention is the fact that the Chinese government decided to extend the “New Energy Vehicles Subsidy” for another 2 years, to 2022.

Also, EVs over $46,000 are eligible for subsidies only if they support battery swapping. We can see that this greatly favors NIO as it considerably reduces the prices of their models.

Adding to this the fact that the Chinese government has vowed to become carbon neutral by 2060, we can see how that would greatly favor their leading EV carmaker.

It’s also important to note that NIO currently outsources their production to Jianghuai Automobile Group, which is a state owned auto manufacturer in China.

They have recently formed a joint venture with NIO, and currently, JAC has an annual production capacity of 240,000 vehicles for NIO… This production capacity increase was in the news just a few days ago when NIO announced that they’re doubling their production capacity.

So, let’s now take a look at the 3 bullish points we’ve made before going into the bearish arguments.

  1. NIO has a very strong growth potential
  2. NIO is a leading industry innovator
  3. Chinese Government support greatly favors NIO in their mission of becoming the leading EV manufacturer in China & globally

Those were the main bullish points in NIO, but let’s now take a look at the 3 main points that the bears are pointing out.

1) Problems With NIO’s Expansion Plan

Right now, a lot of value in NIO is accounted for by future predictions and estimates that are just that… estimates.

The stock trades at almost 12 times analysts’ average 2021 revenue estimate and the market capitalization of NIO is around $60 billion dollars with the stock price at $35.

Compare that to a conglomerate like Ford that has $52 billion, or BMW that has a $55 billion market cap, we can see that something’s off.

These companies have a rich history in the automotive industry, and they will also be expanding into the EV market in the near future.

In the spirit of estimates and predictions, the bears are quick to point out that a lot of NIO’s success is dependent on their performance in Norway.

NIO sees Norway as their stepping stone into penetrating the European market, where the competition is going to be very fierce, with established companies like Tesla, Volkswagen and Audi.

Investors keep valuating NIO based on the perception that it will give legacy automakers a run for their money in Europe, and possibly one day in the US.

But this might be spreading NIO too thin because it is still trying to establish itself at home, where they are still competing for market share against other Chinese names like LI and XPeng, not to mention Tesla and other foreign carmakers.

This leads us to the 2nd bearish point…

2) Concerns Over Production & Innovation Capabilities

During the recent earnings call, NIO revealed some new information, stating that:

NIO Autonomous Driving, or “NAD” will provide a safer and more relaxing autonomous driving experience from point A to point B, gradually covering highway, urban, parking, charging, swapping and other use cases to free-up time and to reduce accidents…

The keyword that bears tend to focus on is “gradually…”

If their new model, ET7, was really a fully autonomous vehicle as NIO claimed, then you wouldn’t expect them to say that it’s capabilities would “gradually” expand over time.

In other words, the ET7 may not be much more than an Level 2+ vehicle at launch, with more features added over time.

That’s nothing better than Tesla whose “autopilot” certainly isn’t Level 4 or Level 5 by any means yet.

The difference between Level 2 and Level 4 or 5 is that it still requires the driver to pay attention, which gives no possibility for a fully autonomous car or a robotaxi.

Looking past these “average” innovations, one must also ask the question about NIO’s production capabilities.

As we know, they aren’t in full control of their means of production since they outsource it to a state-owned company called JAC.

But is NIO going to be able to secure supplies and organize their logistics so they’re actually able to produce 300,000 new vehicles in 2025 and hit their estimated goals?

They’re going to be competing against other giants like Tesla, Li and XPeng in the EV space… not to mention “traditional” carmakers that are going to be switching to EV, such as Ford, GM, VW, Toyota and others…

Will they be able to secure all the materials needed, like lithium, nickel and cobalt… then what about Chips?

We are all well aware of the chip shortage that’s been going on in the world lately, and bears are very quick to point it out.

With that being said, let’s dive into the last bear argument, and that is…

3) Government Interference & Risky Investment Sentiment

This is the argument that gets the bears very passionate, and if you think about it, they might be onto something.

For one, the bears find it surprising that most of the investment bank analysts are very bullish on a company that was bailed out by the Chinese government not even a year ago...

A company that sold only 43,000 vehicles in 2020, burned $7.5 billion since inception and continues to do so…

While having a market capitalization of about $60 billion, which adds up to $1,372,118 per car sold in 2020!

Now, why do they keep pumping the stock? On Wall Street, a lot of people know that…

“In order to keep making money, you need to keep the bubble going.”

On top of that, NIO had to be bailed out by the Chinese government, after which all the assets of NIO in China were transferred to a new company called NIO China, of which NIO (the stock investors own), got 75.88% while the other “strategic investors”, the Chinese government, got 24.12%.

Right now, NIO’s stake is around 90% as they continued buying, but the Chinese government still has time to decide whether they wish to increase their share of ownership.

Apart from that, NIO Inc., the company in which investors own shares, is actually a Cayman Islands-based Variable Interest Entity. 

They had to set it up this way because PRC’s law prevents/limits foreign ownership of domestic businesses, especially those with technological assets.

To circumvent these rules, the founders of NIO established 2 PRC-based companies to hold certain IP, permits and licenses.

These two companies then entered into a contractual agreement with NIO Co. Ltd, pledging their equity interests to the company.

In a nutshell, the point is the fact that it might put shareholders’ rights at significant risk.

With such a “legal setup,” if something were to go wrong, investors may have to pursue their claim under People’s Republic of China law, rather than the Cayman Islands or the US.

This, as the bears say, leads investors to purely speculate and not have any legal protection when investing in NIO.

Now, here’s a quick rundown of the bullish and bearish points in NIO:

Bullish Points

  • Strong Growth Potential
  • Industry Leading Innovations
  • Chinese Government Support

Bearish Points

  • Problems With The Expansion Plan
  • Innovation and Production Capability Concerns
  • Negative Effects of Government Interference and Potential Risky Investment Sentinment

So, that was the rundown of NIO, where we looked at the bullish and bearish points, but now it’s time to get Felix Frey on…

Where he’ll give us his view on the stock, lead us through the technical analysis and give us a few different options trade ideas that we can play no matter if we’re bullish or bearish…

Stay tuned, the best is about to come!

Felix Frey

Coming soon

Marko Rojnica

Thank you Felix for giving us a few different Options Trades to consider in NIO…

Now, if you enjoyed the video, please leave a like 

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Also, I would love to hear your thoughts on NIO... And I’d like YOU to add to the story. Comment your thoughts & opinions on the bullish & bearish cases we’ve made… and tell us where you think NIO is going next.

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Thank you, I’ll see you in the next one.