The Onvo marks another bold step for Nio toward an expanding lineup of electric models. However, the production ramp-up so far has fallen short of expectations. While the brand has promise in driving future growth, potential delays in scaling raise concerns over execution.
NIO Inc. is a Chinese multinational automobile manufacturer headquartered in Shanghai, China. NIO focuses on designing, developing, and manufacturing smart electric vehicles. Founded in 2014, NIO offers something no other company within its industry does: battery swapping. With this technology, users can swap out a depleted battery for a full one ready to use at one of NIO’s dedicated swap stations. This essentially evades most concerns about charging time and infrastructure associated with EVs while ensuring high convenience for users.
NIO’s key offerings range from electric vehicles such as the ES8, a seven-seater SUV, ES6, a five-seater SUV, EC6, a coupe SUV, ET7, a flagship sedan, and ET5, a smart electric sedan. The company further facilitates services in the form of Battery as a Service (BaaS), allowing customers to purchase their vehicles without the battery, hence greatly reducing the upfront cost. The revenue sources mainly comprise vehicles sold, battery subscriptions through BaaS, and other related services like maintenance and software updates.
NIO has a diverse set of customers ranging from personal consumers, and high-performance electric vehicles to fleet operators transitioning to electric mobility. The primary end-market of NIO is the environmentally conscious customer base in China and emerging markets in Europe, which NIO has started delivering to. Considering the company’s latest launch, one is inclined to ask: will the company capture a considerable share of the globally growing EV market?
Nio’s Onvo launch injects an exciting new model to shake up its entire lineup and broaden its appeal, but scaling production has not come without issues. The company is on track for 10,000 units by December and 20,000 by March 2025, way short of analyst hopes. While Onvo has been ramping deliveries for months now, the speed of the ramp has been found lacking. This gradual progress may slow Nio’s ambitions of dominating the global EV market.
It is not easy to scale up production without damaging both the quality and profit. These obstacles have impacted the Q4 guidance, where the number is weaker than projected, disappointing the market. Diversifying the Nio lineup is a great move but Onvo needs to be running at full rate if Nio is going to keep pace with the rest of the market and meet the target.
I am bearish on Nio and here’s why: Onvo is compelling but so far, Nio’s slow production ramp suggests execution will be a challenge. The delays might also hinder opportunities to capture market share, and since it comes in at a cheaper price point, narrow margins could prove the bigger problem.
If Nio can’t accelerate its momentum and meet goals, however, then it risks losing the long game in the hyper-competitive EV space – leaving investors wondering whether a multiyear story of growth will be enough.
NIO does not rank on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held NIO at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the potential of NIO as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.