Nio's Differentiation Strategy – From Zero To Hero

Chinese electric vehicle maker NIO NIO reported solid second-quarter results. On Wednesday, shares rose more than 1% in after hours trade after it reported a narrower than expected loss and a surge in revenue.

Second Quarter Figures

The start-up lost approximately $0.07 per share which translates to 0.42 yuan. This is less than both the expected loss of 0.68 yuan as well as the 1.15 yuan for the same period last year. Revenue surged 127.2% YoY as it amounted to $1.31 billion or 8.45 billion yuan, which topped the 8.32 billion yuan that Refinitiv analysts expected.

As is with all EV racers, the key for Nio's success lies in battery technology. Many new developments are on the horizon with even Canadian-based Worksport Ltd WKSP revealing this week that it is working on another revolutionary EV-related product termed "NPEV" which will provide a vital, necessary, and very much needed change. This established tonneau-cover designer and manufacturer already shook things up when it brought solar power to the EV table with its solar fusion TerraVis, the prototype of which will be fine-tuned by the end of the year.

A Crowded Space

During the crowded, Nio delivered 21,896 vehicles which fall within its own previously-stated range. But, the Chinese startup is facing intense competition, both from other eV start-ups in China including Li Auto LI and XPeng Inc XPEV as well as established automakers, including the leader itself Tesla Inc TSLA. Considering it is working on a mass-market new brand that will be positioned similar to Volkswagen VWAGY and Toyota Motor TM, it will also be going against BMW BMWYY and Audi.

But Nio's battery swapping service makes it different from everyone else. It differentiates itself from competitors by offering special service stations to its users where they can swap their depleted battery for a fully charged one.

Outlook

As for the third quarter, revenues are expected in the range between 8.91 billion yuan and 9.63 billion yuan, which would translate to a rise between 96.9% to 112.8% compared to last year's quarter as it hopes to deliver between 23,000 and 25,000 vehicles. Nio currently makes the EC6, ES6, and ES8 SUVs, but is gearing up to begin deliveries of its first sedan, the ET7, in 2022.

Along with its peers, it is facing headwinds from the global chip shortage which could hamper production, as well as the resurgence of COVID-19 cases that cast a shadow over sales too. The company's expansion into the EV haven Norway, which is planned for September, could be delayed or at the very least supply constrained.

The Bottom Line

NIO may be a relatively small company, it has been lagging behind its peers in recent months delivery-wise, July included, casting a doubt on its near-term growth momentum but its execution is worthy of praise. One must not forget that NIO operates in the luxury EV space which is still in its inception whereas its strongest peers are targeting the mid- and low-end of the EV pricing spectrum. It's no secret that the luxury EV niche took a while to catch up, the world simply didn't take much notice as it is eagerly awaiting for standard EVs to become more affordable. Once EV adoption truly picks up, NIO has positioned itself well for the premium segment of the EV era with its innovative battery subscription business, its cutting-edge vehicles, and strong execution.

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