How Does NIO Make Money: Should I Invest In The 'Chinese Tesla'?

There is no denying that electric vehicles (EV) are here to stay. With many governments promising to stop the sale of fossil fuel vehicles in the coming decades, the electric portion of the automotive sector is set to become increasingly vital. 

While Tesla (NASDAQ: TSLA) will be the first name that comes to mind for most people when discussing electric cars, NIO (NYSE: NIO) is an emerging player, being dubbed the 'Chinese Tesla' by many commentators. 

What is NIO?

Headquartered in Shanghai, China with backers such as Tencent and Sequoia, NIO boasts a sports car and three SUV models in its arsenal, with sedans and a minivan in the works.

NIO went public on the NYSE in September 2018, initially being valued at about $1.8 billion. The company's current market cap is around $57 billion. 

NIO's business model

NIO gets help from its partner, Jianghuai Automobile Group, for producing certain vehicle models. Last month, NIO extended its manufacturing contract with the state-owned group until 2024. Some shareholders have expressed concerns that NIO relying on a third party for manufacturing can be risky.

One of the interesting aspects of NIO's business model is its batteries subscription plan that launched last year as a "Battery as a Service". With this product, buyers can purchase the battery and car separately. Therefore, the car will be around 25% cheaper and will allow buyers to pay a monthly fee to rent the battery. 

The vast majority of NIO's revenue comes from its automotive division. NIO's Q1 total revenue was RMB 7.982 billion ($1.24 billion), up 481% year-over-year, with only RMB 576.5 million ($88.0 million) coming from its other sales category. Making up the other revenue streams were its service packages for its electric vehicles, as well as battery swapping, and charging solutions.

Net loss for the quarter was RMB 451 million ($68.8 million), a 73% decrease year-on-year (YoY). 

These impressive growth figures came after the company was struggling in 2019 and was potentially facing bankruptcy. However, it managed to significantly turn things around, with its vehicle sales doubling in 2020 despite the COVID-19 pandemic disrupting production and sales for a time. 

In the first quarter, NIO had a record 20,060 vehicles delivered as production volume is ramping up beyond previous expectations, a welcome boost on top of its record-breaking 43,728 deliveries in 2020.

What's next for NIO?

In April, NIO discussed at length the self-driving tech on its new sedan, due in 2022, at its Nio Day event. The new sedan is an extra string in the company's bow and looks set to drive sales even further going forward. 

As well as establishing itself in China, NIO has plans to expand into the European market. The auto company said it expects to start delivering cars in Norway, a key market to capture in the EV space, from the fall of 2021. Its battery subscription service also holds a lot of promise going forward.

With NIO's expected growth, and its debt and liquidity issues fading away, the stock is worth considering, especially for those investors who are looking for a Tesla alternative. The company's comparatively low delivery numbers suggest that this is a riskier long-term play that could pay off as production capacity and expansion ramps up.

Read more about NIO below: 

Is NIO A Good Investment Right Now?

What Do NIO's International Plans Mean For Its Stock?

Is Ford A Better EV Investment Than Tesla?

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.