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Thursday, February 9, 2023

Don’t Look Now, But Nio Looks Like a Real Business

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Nio (NYSE:NIO) has been one of the comeback stories of the year. When 2020 started, it wasn’t clear if the company could stay solvent. However, an influx of $1.4 billion from the city of Hefei gave Nio stability. And now Nio stock is rising for a reason other than it’s the Tesla of China.

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With liquidity no longer a primary concern, Nio has time to make moves that are adding real value. One of the keys to mass acceptance of electric vehicles (EVs) is figuring out the battery issue. Nio is preparing to take a new approach that will set it apart.

Has the Time Come for Battery as a Service?

As I mentioned in my prior article on Nio, the company has gone all in on battery swap technology. This is a simple enough concept. Drivers can pull into a battery swap station. They drive in, have their old battery replaced with a freshly charged one and drivers are back on the road. And better still; the service is free for Nio owners.

Nio has invested in the infrastructure to ensure that drivers have a sufficient network of battery swap stations available.

Now, Nio is pushing to move this to another level. Late last week, Nio announced its intention to create a Battery as a Service (BaaS) program headed by Nio Energy. This was first floated out by Nio chief executive officer (CEO) William Li in January.

The idea is to separate the battery from the car. Nio envisions a world in which consumers will have the option to purchase a car without owning the battery. They can rent the battery as an individual asset. This will reduce an owner’s initial investment in owning a car and stay up to date with improvements in battery technology.

Nio is still seeking financing for Nio Energy, but there appears to be some interest from some large energy funds.

It’s Good to Have Friends in High Places

One of the benefits of having the Chinese government putting money into your business is that it gives them skin in the game. In the case of Nio, the Chinese government was moving to remove subsidies on electric vehicles above a certain price tag. That would have left Nio on the outside looking in.

However, the Chinese government backs battery swap technology. And they exempted EV manufacturers from the price threshold if they adopted battery swap technology. How fortunate that Nio was already using the technology.

Can Nio Stock Emerge from Tesla’s Long Shadow?

Nio has conspicuously taken an approach to battery technology that is distinctly different from Tesla (NASDAQ:TSLA). However, Nio stock tends to move in relation to what is going on with Tesla. For example, on July 24, NIO fell nearly 3% not on any bad news from the company but because an analyst downgraded Tesla.

This will be the next hurdle for Nio. Will investor s be able to see Nio as a major player in the EV market in its own right? Thomas Niel described the “Tesla factor” that Nio has to overcome.

And this isn’t the only obstacle for Nio stock. The electric vehicle market is getting crowded, and that includes the premium market segment in which Nio operates.

Another obstacle is the recent run-up in Nio stock. At one point in July, shares were up over 300% for the year and hit a record high at $14.98. The stock has dropped a little since, but it could make another run at a record high when it releases earnings in September. Investors have a while to wait, but for the first time that I can remember, they may have reasons beyond hope to invest in NIO.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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