Ok first of all, I am not crazy into EV automobile stocks. Eg. Tesla, Nikola, Nio, Xpeng, Li Auto, BYD…
In addition, I would like to clarify that this post is not an in depth analysis of the EV and self driving tech, nor detailed comparison. It is just about the customer centric aspect of the business model of Nio.
I just think these EV stocks are still pretty speculative. Nevertheless I have been toying with the idea of a ‘Story fund’. More on that in the future. In the meantime, it is just reading and getting to know the companies behind the stocks. Frankly, I think they will always be overpriced given the hype. Probably the next market correction or crash will offer some level of margin of safety. Till then… fingers crossed.
As mentioned in one of my previous post titled “The Market Pendulum“, I mentioned that I will be reading the book titled ‘Insane Mode” by Hamish Makenzie.
Well, after finish reading the book, I was introduced to a number of emerging EV car makers throughout the world (eg. predominately in the US, Europe and China). Even traditional carmakers like BMW, Nissan, Toyota, GM and Volkswagen are going into the race.
On a side note: When it comes to autonomous vehicle, there are currently five-ish levels in total. With Level 1 being the most basic and Level 5 being the most advanced. At the ultimate level of autonomy, Level 5 vehicles are completely self-driving and autonomous. The driver does not have to be in control at all during travel, and this vehicle can handle any road condition, type of weather, and no longer bound to geo-fenced locations. A level 5 vehicle will also have emergency features, and safety protocols.
I do think the really understated competitor here is Google. Google’s Waymo is working towards this Level 5 goal.
Tesla and most of the other EV car-makers (in US and China) are not at Level 5 yet FYI. Although Elon Musk did mention this year that Tesla is ‘very close’ to Level 5 autonomous driving technology and will have it this year. Although, we all know how ‘rubber time” it is when Elon Musk talks about timeline and year 2020 is almost nearing its end. Read here and here.
Meet the 6 Frontrunners in the Self-driving Car Race (read here)
One of the major competitor to the US car makers (eg. Tesla), are those from China. And among the prominent EV car makers in China, we have Nio, Xpeng and Li Auto.
Now, to clarify, this post is not about the financial metrics or stock performance of these companies. A lot of these have been written online. Basically Nio and Xpeng are still loss making, but have been getting a lot of attention as their share prices (Nio and Xpeng) surged in 2020, although there are some pull backs recently. Li Auto is the first Chinese EV start-up to report profits, read here.
Nio, a Chinese premium electric vehicle start-up:
Nio stock went public at 6 in September 2018, then hit a low of 1.19 in late 2019 on sales and cash woes. Through most of 2020, Nio shares rocketed as the Chinese EV market rebounded.
I always felt that when we are thinking about growth stocks (and particularly ‘story’ stocks), I am more interested in what differentiates the business model or narrative. What will propel the growth forward. Basically a lot of capital is used to capture market shares in the super competitive start-up world. So it does not really do justice to the stock to compare its financial metrics to an established mega tech stock, with steady revenue and growing net profits.
In addition, in the EV market in China, the other key factor is the government subsidies, which can typically break or make these companies (operating on thin margins). What is given today might not be the same tomorrow…
Nio is the showiest, led by its charismatic founder, William Li Bin, and boasts the deepest pockets and boldest business plan. The company is known for its grand, customer-centric strategies ranging from a network of luxurious showrooms to a free battery swap service. It was the first of the three to deliver cars to its customers, in June 2018.Unlike Tesla, Nio does not manufacture its own vehicles. It partners with China’s Jianghuai Automobile Group on manufacturing the ES8, ES6 and EC6 utility vehicle.
Among the dominant EV Chinese car-makers, eg. between Nio, Xpeng and Li Auto, Nio is probably the highest end of the trio. Yes, it is more expensive to own a Nio compared to Xpeng and Li Auto, but still cheaper than Tesla.
Quality wise, from what I have watched and read, Nio appears to be better (compared to Xpeng and Li Auto), in terms of finishes, design and even the voice activation system. One video of Xpeng test drive shows that the system was unable to recognise what the car salesman was saying after numerous attempts. Nio’s seem more responsive and has less glitches.
Oh yeah, the Nio, Xpeng and Li Auto’s business model and standard is on another level compared to BYD. BYD seems to be more towards taxi, trucks, public transports etc.
In June 2018, Nio began deliveries of the ES8, a premium electric SUV and its first volume vehicle. A year later, it started delivering the smaller ES8. In September 2020, Nio began delivering the EC6, seen as a potential rival to the upcoming made-in-China Tesla Model Y.
When reading and watching videos about Nio, what caught my attention is really the customer centric business model of this company. I view this model more akin to a ‘lifestyle approach’, much like how Apple operates. Nio attempts to integrate its products with the lifestyle needs of its customers. After all a car is a key part to the car-owner’s daily routine, and it should go beyond just beyond a mode of transport. I think given the super-competitive Chinese maker which Tesla is also trying to break into, that is really what sets Nio apart, other than the cheaper price point as compared to Tesla.
I still believe that Tesla cars (Model S, Model 3, etc) are on a whole new level: Technology and Quality wise. With their hands-on iconic leader, Elon Musk, few can match Tesla’s level of innovation and attention to details. However, that is only purely looking at the car itself, as a stand-alone product.
However, unless Tesla really immerse itself into the Chinese culture (and really understand the Chinese customers’ way of life/lifestyle needs) and create a holistic lifestyle approach to marketing, it would face a very tough market there (and given the premium that customers have to pay). That is really shifting focus from the car to the whole experience. In China, business is still focused on providing consumers with a satisfactory experience.
In the first video below, the Nio car owner was saying that Nio has so much more services as compared to Tesla. The only service he used for Tesla is to fix the car.
While NIO focuses on building innovative technology, they also focus on building relationships and a community with their cars. Their business is conducted in NIO Houses which are office areas that are “to create a lifestyle beyond just a car.”
Amenities (All these amenities are free with a purchase of their vehicle):
1) They allow all owners of their vehicles to use their office space and conference rooms for their own personal meeting places or parties.
2) As large cities in China do not have large living spaces, NIO provides spacious living room areas and a library to allow their customers to enjoy their afternoon within their facilities.
Lifestyle services & activities for the family:
1) They focus on consumer satisfaction through hiring top Starbucks baristas to work and serve customers with high quality coffee or tea within their facilities.
2) They also conduct “joy camps” which are activity-based experiences for their customer’s children to enjoy activities such as a planetarium show on the ceiling of their office, crafts, and even birthday parties.
Services related to owning their vehicle:
1) Of course, the difference in charging of the EV vehicle is different for Nio as compared to Tesla. For Nio, owners can swap the battery, rather than charging the battery. So less time is needed to have a fully charged car. Also if the owner needs a better battery for longer distance rides, they can easily swap for one. Likewise, if there are newer models of battery, a simple swap will do.
In Aug 2020, Nio launched the innovative Battery as a Service (the “BaaS”) subscription model.
The BaaS model allows users to purchase electric vehicles and subscribe the usage of battery packs separately. If users opt to purchase an ES8, ES6 or EC6 model and subscribe to use the 70 kWh battery pack under the BaaS model, they can enjoy the vehicle purchase price with an RMB70,000 (USD10,688) deduction off the original price and pay a monthly subscription fee of RMB980 (USD150) for the battery pack. (read here)
Nevertheless, I do think the downside here is safety when compared to Tesla. I would think Tesla cars have better safety factors. Tesla battery is integrated with the vehicle, and the bottom of it, resulting in a low centre of gravity. It is also protected by thick protective plates which supposedly can crush stones or obstructions – meaning less likely damage to the battery and less fire risk.
Indeed, this concept of battery swapping has its own sets of issues as mentioned in the article below.
Motor Mouth: Is battery-swapping the future of EVs? (read here)
2) In Chinese culture it is very rude to be late, so if you are a NIO owner and get in a car accident, a NIO representative will come to the accident and handle the police report while the owner continues to work.
2) If a NIO owner needs to charge their vehicle while they are out then a NIO employee will drive a power station to the current location of the car and charge it. NIO offers this service at the same price of electricity, so it is less than the cost of a tank of gas in the United States. This is especially useful for owners who travel from to different carparks daily which do not have battery swapping stations within.
Tesla being the forerunner has inspired many others to take the step towards electric and autonomous vehicles. A wave that I think is unstoppable. However, who will emerge as the final winner is anyone’s guess.
Nevertheless, I am impressed by Nio’s lifestyle business model. Quite a number of the owners of Nio cars in the videos I watched, mentioned that Nio ‘spoils’ them, and their next car will definitely still be Nio.
This level of details to their services is rare even among the other car makers, not just the EV car makers. Some people call Nio, the ‘Chinese Tesla”, I would probably call it the ‘Apple’ version of the electric and autonomous vehicle world. It would be a mistake to be just another ‘Tesla’, mimic their strategies and to try to beat Elon Musk at his own game.
Still there are many factors to consider for any company to be the market leader, be it the advancement in technology, design of the vehicle (inclusive of the comfort and safety features), the distribution and design of the charging stations, the after sale services provided, the perks given for the customers and their family members (beyond just those services of the vehicle), the affordability…. One post is simply insufficient. A book more likely. Anyway, I am not an expert at EV vehicles, just studying them from a business / investment point of view and looking for an edge among them.
Well, I will be moving on to read my next book, titled “The Google Story (2018 Updated Edition): Inside the Hottest Business, Media, and Technology Success of Our Time” by David A Vise & Mark Malseed.
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