"My only disappointment is the poor quality of the false bear narrative. Surely shorts could have done a better job in frightening weak NIO holders."
Editor's note: This is a guest post from Rafi Khan, an NIO investor, and does not represent the views of CnEVPost.
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From June 13th to June 28th:
- Nasdaq Stock Index is up 3.4%
- TSLA share price is up 7.8%
- NIO share price is up 39.8%
NIO is also up 92% from the 2022 year low of $11.67 in May 2022.
So short attack on NIO was probably overdue.
My only disappointment is the poor quality of the false bear narrative.
Surely shorts could have done a better job in frightening weak NIO holders.
Attack was made on NIO's relationship with Battery Swap partner Wuhan Weineng (Mirattery) & how NIO treats revenues from Mirattery.
Most importantly big Thank You to NIO shorts because after all their delving if all the dirt they could dig on NIO was related to the battery swap company, then I am now even more relaxed & confident in my NIO positions.
- NIO owns 19.9% of Mirattery
- CATL & industry powerhouses own other 80%
- BaaS is a lifetime contract
- BaaS customer pays RMB 980 per month for the full lifetime of NIO EV
- In lieu of those RMB 980 payments per month, NIO gets an upfront Battery Selling Price of RMB 70,000 from Mirattery
- NIO books these revenues which it receives from Mirattery which is the source of contention for NIO Shorts in Grizzly Research short attack.
Firstly it is clearly ludicrous that CATL & other financially savvy investors, owning 80%, would take either revenue or profit hit just to help NIO, owning 20%, artificially boost profits.
This would subject CATL & others to multibillion lawsuits in U.S. & China.
Secondly here are some facts that totally refute & rubbish arguments presented by the Grizzly Research report:
- 30-year U.S. Treasury Bond yields approx. 3.3%
- 30-year high-quality Corporate Bond yields approx. 4.65%
- 30-year Chinese Govt. Bond yields approx. 3.3%
- 30-year high-quality Chinese Corporate Bond yields approx. 5.2%
So now let us take the Present Value of the monthly payment of RMB 980 for 30 years:
- At 4% RMB 205,000
- At 5% RMB 182,00
- At 6% RMB 163,000
The reason for using a 30-year period is because minus battery, that could be the expected life of NIO EV similar to an airplane which uses an aluminum body.
In addition to the present value of future payments, Mirattery will also own batteries which they will recycle for raw materials.
Also with BaaS, Battery Swap NIO is guaranteed to maintain a relationship with the owner throughout the life of the EV – can any other Auto company claim that!
Now let us say that 30 years is too long a period for NIO's battery swap partners' business model relative to the useful life of EV.
So now let us take the Present Value of the monthly payment of RMB 980 for 20 years:
- At 4% RMB 161,000
- At 5% RMB 148,000
- At 6% RMB 137,000
Now consider even a ludicrous/unrealistic period of just 10 years which equals the NIO warranty term, then the present value of RMB 980 monthly is:
- At 4% RMB 97,000
- At 5% RMB 92,000
- At 6% RMB 88,000
Perhaps because Mirattery's business model is so profitable & strong, they can afford to keep monthly payments stable even when raw materials & EV battery prices are rising.
So in all circumstances for periods 10, 20 or 30 years & for all interest rates 4%, 5% or 6%, NIO & its battery partners make healthy profits from getting RMB 980 monthly & only paying NIO RMB 70,000.
For all the wanna be Mirattery CEOs that are out there including me. Here is a possible scenario:
- Miraterry may finance the battery purchase from NIO by partly equity plus recurring series of short 1 to 2 year bank borrowings at 2-3%
- That probably gets battery fully paid for in 6-7 years
- Mirattery then plans to make 10-15% return on positive cash flow from that battery plus recycle raw materials of battery when its useful life is over
- Positive cash flow is used to buy more batteries & build more Battery Swap stations.
- Now Battery value may be even higher than shown in PV calculations above.
The arrangement benefits NIO as well:
- NIO is able to improve its cash flow
- NIO is able to better maintain its cash mountain currently $8.3 Billion
- NIO also shares 19.9% of Mirattery profits
- NIO can grow faster giving more people the benefit of lower BaaS entry price
- Owning 19.9% of Mirattery means that NIO only pays that percentage for new Battery Swap Stations but benefits 100% from the infrastructure created.
In addition to the above significant benefits to Mirattery Battery Swap company, potentially tens of thousands & in the future millions of Chinese can achieve their dreams of higher social standing, movement to upper-middle class, EV ownership & Premium Luxury Status that NIO EVs / NIO Community / NIO Houses / NIO Life offers to them.
Plus no doubt there will be a joy for many, especially in China, that after decades of dominance, German Auto behemoths finally face legitimate challengers potentially threatening their supremacy at least in China & Europe in the Premium Luxury segment.
BaaS Battery Swap plus Subsidies offers Millions in China & Europe the opportunity to buy ET5 Luxury, NIO House Status for VW ID entry prices.
Is that the misleading fraud that Grizzly is referring to?
The chance for millions to improve their status & lives!
The real fraud is trying to mislead/frighten millions of retail investors to panic and sell for benefit of a limited number of big financial sharks.
There are other benefits emanating to & from the battery swap company.
- When raw material prices explode as in the past year or due to high inflation, Battery Swap company benefits from much higher battery asset prices – after all Miraterry is an asset-based company. This benefit mitigates the need for immediate battery price increases.
- Efficient Eco System for recycling batteries
- Efficient system for upgrading batteries
- Efficient system for changing batteries for long-distance travel needs
- Battery Swap stations have the ability to sell power to the Grid at peak prices & charge up batteries at low price periods helping smooth the daily power demand curve & increase profits.
Is this the “fraud” Grizzly Research report is seemingly talking about?
What Grizzly Report shows me is how frightened NIO Shorts are of:
- NIO ET7, ES7 & ET5 have RMB 30,000 price advantage over TSLA & BBA in Jiading / Beijing for the rest of 2022 plus an RMB20,000 advantage in Shanghai
- ET5 has the potential to be a best-selling car, ICE or EV, in China & Europe
- ES7 has the potential to be the King of SUVs in China & Europe
- JAC & NeoPark Phase 1 alone to jointly be able to match TSLA Giga Shanghai 120 jobs per hour
Now let me give you some truly mind-boggling exciting news:
- ADaaS Monthly Premium is set to be RMB 680
- Let us say the uptake of ADaaS is 60%
- Unlike BaaS, these monthly payments go ALL 100% to NIO for the life of EV
- PV of BaaS RMB 980 per month for 20 years at 5% is RMB 148,000
- PV of ADaaS RMB 680 per month for 20 years at 5% is RMB 126,000
- ET5, ET7 & ES7 sell for RMB 328,000 to RMB 458,000
- So PV of ADaaS payment is massive 30% to 50% of NIO Next-Gen EVs selling prices.
- On that basis, NIO will have Gross Profit Margins of over 50% with the lowest entry prices courtesy of BaaS
- Has any auto company considered the possibility of making such gross margins?
- Whilst enjoying the best relationship with its William Li adoring NIO community
- When you have the potential to make such margins – why the hell would you want Auto World to know about it
- Much better to never show capitalized numbers but just let them flow out month by month
- Remember William Li & NIO are playing the ultimate long game.
- Let the Grizzly chew over that!
Now if only NIO can sort out its friggin low price chip & other supply problems – then the hyper-growth can start.
Not an Auto Analyst Nor Financial Advisor JMHO DYODD