The launch of NIO's new products based on the NT 2.0 platform, especially the ET5, is a turning point that is expected to allow it to start gradually seeing scale effects.
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As NIO's new sedan ET5 gets closer to being available, more and more analyst teams are becoming increasingly optimistic about the electric vehicle (EV) maker, with the team at CITIC Securities being one of them.
In a lengthy report released on Monday, CITIC Securities analyst Yin Xinchi's team said that NIO is standing at the inflection point of the scale effect and is poised for a revaluation.
The team believes that the luxury EV market, in which NIO is in, will see continued expansion of market space as it benefits from China's consumption upgrade.
From 2017 to 2021, sales of passenger cars priced over RMB 300,000 ($43,290) in China grew from 1.22 million to 1.77 million units, and their share of all passenger car sales grew from 5.05 percent to 9.02 percent, the team said, citing wholesale data from the China Association of Automobile Manufacturers (CAAM).
"Under the long-term trend of consumption upgrade, we are bullish on the continued expansion of the market segment with selling prices above RMB 300,000," the team said.
The team believes that car brands at higher selling prices face less competition and typically enjoy better margins. For example, in the internal combustion engine (ICE) vehicle segment, Mercedes-Benz, BMW and Audi account for 70 percent of total sales of China's mainstream luxury car brands and have better profitability than mid- and low-end brands.
The analysts are bullish on NIO's NT 2.0 platform, saying that it uses NIO's latest chassis, cockpit, and assisted driving technologies, which not only improve energy efficiency but also make the driving experience richer.
NIO has already released three models based on the NT 2.0 platform -- the ET7, ES7, and ET5 -- with deliveries of the first two already underway and the ET5 set to begin on September 30.
The NIO ET5 has received extremely strong market feedback, and the model is expected to be one of the new hot sellers in the entry-level luxury segment, the team said.
After considering NIO's battery rental service BaaS, the ET5's price range is about RMB 250,000 to 350,000 yuan, with sedan sales in that range at 809,000 units in 2021, 45.9 percent of which were electric, the team noted.
The team raised their steady-state monthly sales forecast for the NIO ET5 to 12,000 to 13,000 units from the previous 8,000 units, corresponding to annual sales of about 150,000 units.
They expect NIO's three models based on the NT 2.0 platform to sell a combined 18,500 units in December, including 11,000 units of the ET5.
Overall, the team expects NIO's sales of all models to come in at 27,500 units in December, implying a 162 percent year-on-year increase.
CITIC Securities believes that previous market concerns that NIO was facing low sales and high operating costs are expected to be put to rest as sales of models based on the NT 2.0 platform, especially the ET5, begin to grow.
The team believes that the factors driving NIO's sales growth are changing:
During the brand creation phase from 0 to 1, NIO gained ripple word of mouth by significantly outperforming the service of ICE car brands, including Mercedes-Benz, BMW and Audi. This helped expand its sales, but with limited effect.
In 2022, the launch of new products based on the NT 2.0 platform, especially the ET5, is a pivot point. NIO's brand strength has gained initial recognition, and it will benefit more from sales growth due to increased product competitiveness in the 0 to 10 phase, where its scale effect will be visible.
With the growth of ET5 deliveries this year, NIO's expenses on the production side will be diluted and the scale effect will gradually manifest, leading to gross margin improvement on a sequential basis, the team said.
CITIC Securities believes NIO is expected to break even when quarterly sales reach 120,000 to 140,000 units, which is expected to happen as early as the second half of 2023 to 2024.