The Chinese EV market is set to hit 1.8B USD in 2021, up 40% from 2020 – even though it’s a popular pick for EV investors, Nio only controls 3% of the Chinese market right now, which shows just how much room the company has to grow. As a growth stock, NIO is already characteristically overvalued, which made us want to dig in and find the biggest catalysts on the horizon, to determine if this run is set to continue.
NIO issued two tranches of convertible notes, totaling 1.5B USD. These notes were primarily reserved for institutional investment, which often means more stability in the company’s share price over the short-term.
Convertible Notes are a form of debt financing in which a company borrows money without a strict valuation and, in turn, allows investors to convert the debt into equity instead of receiving payment back. The conversion can have conditions regarding dates, share price, valuation and more. The first tranche of convertible notes, expiring 2026, pay out no interest whatsoever. This essentially shows that investors in this tranche are confident there will be a fruitful return in converting the debt into NIO stock. The second tranche, expiring in 2027, does pay out 0.50% per year.
The investors between the two tranches are entitled to purchase an additional 100M USD in convertible notes with the same terms as their original investment. Proceeds are being used to strengthen NIO’s balance sheet and for general corporate purposes.
There was a previous issue of convertible notes set to expire in 2024; on January 15, shortly after the new notes were issued, there was 582M USD worth of stock issued to convertible note holders in exchange for the debt (eliminating the debt and turning these investors into shareholders). The company was eager to remove the debt in exchange for equity to make way for the new $1.5B injection. Holders of the new convertible notes can exchange the debt for shares of NIO at a price of $93.06/share. We can reasonably anticipate that these new convertible note holders are betting on NIO trading north of $100 upon the redemption of shares, to make the stock issuance make financial sense for them. This price target alone makes us feel more comfortable with future growth for the company.
Never Mind the Market, What’s Happening with the Company?
On September 9th, 2020, ImmunoPrecise finished trading at $8.90 CAD (post-consolidated adjustment). The next day, IPA announced its intention to cross-list on the NASDAQ and ended the day 5% up… not a huge change.
In what may be the most compelling release yet (and destined to be another hot topic of the year), NIO is preparing to release their new flagship luxury sedan: The ET7. Achieving an impressive 0-60 mph in just 3.9 seconds, the new product is Nio’s first foray into luxury vehicles and, when it comes to the features, the EV giant is not treading lightly.
The ET7 comes with a 150kWh battery pack, boasting solid-state battery technology. It can carry the vehicle a whopping 620 miles between charges, thanks to the technology’s capability to pack more electrons into the car’s 3.06-meter wheelbase, which is wider than previous models.
A popular topic amongst EV companies is self-driving cars, and NIO isn’t messing around when it comes to their Autonomy Platform; it boasts 11 8MP cameras, 4 NVidia Orin chips, and a 1500 nm LiDAR from Innovusion. Aiming to deliver L4 functionality in 2022, the high-tech cameras allow vision of up to 500 meters out, in a 120-degree arc. Deutsche Bank analyst Edison Yu says this computing power is 600% more powerful than global EV leader Tesla’s self-driving system.
Nio is planning to release 300,000 units of the luxury sedan to start, with a price tag of $68,000US each. This would represent $20.4 billion in revenue, which is almost 15x more than sales from Q1-Q3 in 2020. The most fascinating feature about the ET7’s business plan is the subscription-based autonomy software. Owners of the vehicle have the option to upgrade to L3 or L4 software for a cost basis of $105/month. Based on a 10–year service contract per user, this equates to an additional $12,600 in revenue per car sold.
With the staggering growth NIO’s stock has shown since its public appearance, one would anticipate a steady flow of positive fundamental updates. Yu forecasts a share price to be reached that is equal to 11x its 2023 revenue projections.
With all of this in mind, we’re excited to see the next year play out for the automaker – though doubtful it’s going to have another 1,000% year, we’re expecting it to be a good one.