Nio (NIO): Higher investment in autonomous technology to be key priority

Shares of Nio Inc. (NYSE: NIO) were up 3% in afternoon hours on Wednesday, a day after the company reported strong results for the second quarter of 2020. The stock has jumped 232% since the beginning of the year and 289% over the past three months.

Nio saw an increase of 146.5% year-over-year in both vehicle sales and total revenues for the second quarter. Vehicle sales accounted for 94% of total revenues and the increase was mainly attributable to the sales of the ES6 which began deliveries in late June 2019. Other sales jumped nearly 148% mainly due to higher revenues from the installation of home chargers, service and energy package subscriptions and sales of accessories.

Deliveries

Nio delivered a total of 10,331 vehicles in the second quarter, marking a new record, and reflecting a growth of nearly 191% year-over-year and over 169% sequentially. In April, deliveries rose around 181% year-over-over to 3,155 vehicles. This number increased to 3,436 vehicles in May, gaining 215.5% year-over-year. In June, deliveries totaled 3,740 vehicles, rising 179% year-over-year.

In July, deliveries totaled 3,533 vehicles, reflecting an increase of 322.1% year-over-year. Cumulative deliveries in the first seven months of 2020 rose 111.3% over the same period in 2019.

Autonomous driving

On its quarterly conference call, Nio mentioned that one of its key priorities is increasing its investment in the autonomous driving technology. The company is working on new products and technologies that will help it maintain competitiveness in the market.

Currently the company is looking to maintain its overall R&D investment within RMB3 billion every year but it plans to increase its investment in autonomous driving at a normal pace. Nio has a team of around 200 people focusing on autonomous driving technology development which accounts for a fixed part of R&D costs.

Nio is rigorously testing its Navigate on Pilot (NOP) feature which it plans to release within this year. In terms of take rates, the Founder’s Edition, which has NOP as a standard feature, accounted for around 10,000 units. At present, the take rate of the NIO Pilot is around 25%. The company has also accelerated the development of the NIO Technology Platform 2.0, which is its next-generation autonomous driving technology.

Battery-as-a-Service

Nio has made progress on its Battery-as-a-Service business model, which involves the separation of the battery from the vehicle. The company has completed the necessary product communication and certification to sell vehicles and batteries separately.

The first vehicle under the BAAS model has completed the validation process in insurance purchase, loan application and license plate registration. The company is in the final stages of work for the official offering of the BAAS solution which will be released in the third quarter.

Nio is preparing for the setup of the Battery Asset Management Company, which will own the battery assets and lease it out to users, but the company will not be the main stakeholder in the venture.  

Outlook

Nio expects total deliveries to range between 11,000 and 11,500 vehicles for the third quarter, reflecting an increase of around 129.2% to 139.6% year-over-year. Total revenues are expected to increase 120.4-129.3% year-over-year to $572.9-596.2 million.

Click here to read the full transcript of Nio Q2 2020 earnings conference call