Chinese electric vehicle manufacturer NIO Auto showed a strong rebound in deliveries in the third quarter. This indicates that China's demand situation is improving, suppressed demand is being released, and companies such as NIO Auto, Xiaopeng Motor, and Ideal Auto will benefit from it. Previously in8Tsukiwa9In January, Ideal Auto still had considerable growth momentum in terms of deliveries, but NIO and Xiaopeng's growth rate was relatively small... But now, NIO's momentum has returned. The growing delivery momentum may also indicate NIO Auto's automobile profit margin growth in the third and fourth quarters.

NIO Auto also recently completed10The issuance of US$100 million convertible senior bonds has allayed concerns about the company burning money. With the increase in delivery volume and the fall in stock prices, I think the risk situation of NIO Auto shares has greatly improved recently, and I have re-added NIO Auto to the “Strong Buyers” list.

Rating increase

Since I last looked at NIO, a lot of things have changed with the company. First, NIO's delivery growth showed signs of recovery. Second, the company's demand situation seems to have improved. Third, NIO is9The issuance of convertible bonds was successfully completed at the end of the month, which addressed concerns about its cash consumption. Strong growth in deliveries, particularly over the past two months, may also indicate a gradual improvement in NIO's profit margin in the second half of this year. Plus since last year8With a sharp drop in market value over the past month, NIO Auto now seems very attractive, and investors cannot ignore it.

NIO Auto's delivery momentum returns

NIO and Xiaopeng had previously lagged behind Ideal Auto in terms of delivery growth, but in the past few months, the delivery growth of the first two has recovered strongly. Weilai Auto9Delivery of electric vehicles in a month15641Rolling stock, year on year growth43.8%. Xiaopeng has also delivered more than1.510,000 electric vehicles, year-on-year increase81%. Ideal Auto is still outperforming its electric car rivals: the electric vehicle startup has delivered more than twice as many EVs as NIO and Xiaopeng. In particular, the strong increase in deliveries over the past two months is the result of the release of suppressed demand and the launch of new models by electric vehicle companies.

SUVsThe advantages

Interestingly, NIO Auto's recent delivery growth is due to NIO's product portfolioSUVsPartially promoted. Although NIO has done a particularly good job in the sedan sector in the past year and a half, the company recentlySUVsDelivery volumes in the field have surged.SUVsThe increase in deliveries is encouraging, but the company has recently prioritized the production of sedans to diversify its products.

There are more and more electric vehicle companiesShifting to issue convertible bonds to raise capital to fund growth in electric vehicle production.9At the end of the month, NIO Auto completed a capital issuance, which included5100 million dollars2029convertible senior bonds maturing yearly and5100 million dollars2030Convertible senior bonds maturing annually.Rivian AutomotiveIt has also just been announced that it will be raised from private shareholders15billion dollars to raise enough cash to secure itR1TwithR1SThe production.

NIO Auto will use the proceeds to repurchase other unissued convertible senior bonds. residual5The billion dollars will be used to improve NIO's balance sheet and fund the production of various electric vehicles, including new onesEC6 SUVs. This convertible bond financing helps the company curb cash consumption, as NIO's electric vehicle business is still losing a lot of money.

Valuation of NIO Auto and China's Electric Vehicle Competitors

NIO Auto is currently the cheapest of the three Chinese electric vehicle startups.8After the integration that began in January, NIO's stock price is currently compared to1The average annual market sales rate is low24%. NIO Auto's valuation is long-termPrice-earnings ratio1.15double. On the other hand, given that the company continues to perform well, NIO will truly deserve a premium valuation.

risks

The biggest risk NIO Auto faces is still profit margin. Earlier this year, NIO Auto's profit margin faced tremendous pressure. This was due to a combination of weakening pricing power and adverse demand factors. If NIO's profit margin remains in single digits and continues to deteriorate, I think this will be a serious negative factor for NIO's finances, operating performance, and valuation. However, as far as automobile profit margins are concerned, I think NIO Auto's upcoming third-quarter earnings report has surprising potential.

conclusions

Given the overall recovery in delivery momentum, I believe NIO's performance was much stronger than in the second quarter. The increase in NIO car deliveries also suggests that the electric vehicle startup is likely to report improvements in its automotive profit margins in the third and fourth quarters. Since NIO Auto has also successfully raised additional capital to fund the production of its new electric vehicle models, this alleviates concerns about NIO's cash consumption and high operating losses. I believe this electric vehicle company is improving.8After the monthly valuation fell, NIO's valuation was even more remarkable. I added NIO's stock to my strong buyers' list.