NIO squeeze, Tesla valuation, and Renault EV IPO NIO squeeze, Tesla valuation, and Renault EV IPO NIO squeeze, Tesla valuation, and Renault EV IPO

NIO squeeze, Tesla valuation, and Renault EV IPO

4 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity note, we zoom in on the battery electric vehicles industry as the news flow is heating up. NIO is increasingly under pressure and the Q3 earnings report will be a key event for Chinese EV-maker. Tesla continues to lose market share among the 15 carmakers we track. Finally, we comment on Renault's upcoming capital markets day on Wednesday where the market expects an update on its potential IPO of its electric division called Ampere.

Is NIO being squeezed in the EV market?

Problems are growing at the Chinese EV-maker NIO down 55% from its intraday peak back in early August as EV-maker has indicated that it is considering raising equity capital and also laying off 10% of its staff. Even a spin-off of several units is on the table. NIO has never been profitable and the lower entry barriers into the car industry because of electric vehicles technology has increased competition to insane levels making it increasingly difficult to grow fast in a profitable way.

NIO is expected to deliver FY23 revenue of $8.6bn and FY24 revenue of $13.1bn, but still losing money on its operations. In Q1 2021, NIO delivered 20,060 battery electric vehicles (BEVs) compared to BMW’s 14,161 deliveries of BEVs. Fast forward to Q3 2023, BMW delivered 93,931 and NIO delivered only 55,432 highlighting that NIO is falling behind relatively.

Investors that want to get exposure to the EV adoption should seriously think about whether betting on an EV-maker is the most sensible decision or whether investing in other parts of the value chain makes better sense. Our equity note The growing ecosystem around electric vehicles goes a bit deeper into this argument.

NIO share price | Source: Saxo

Why Tesla investors must understand terminal market share

Based on the 15 carmakers we track in our BEV model the Q3 delivery figure of BEVs hit 1.7mn up 55% y/y and 2023 is going to be known as the year when BEVs finally hit an inflection point for the overall market including the talk about BEVs impact on oil demand. For Tesla, the Q3 delivery figures also extended the reality that competition is heating up and that its global market share among these 15 carmakers fell to 25.6% down from 31.4% a year ago. This market share is still impressive and Tesla is still more than twice as big as Volkswagen in terms of production, but Tesla is highly likely to lose its top spot in Q4 to Chinese BYD.

Why is this market share trajectory so important? Because the terminal market share in the global BEV market in 2035 is a key input parameter in any Tesla valuation. Tesla’s market value is currently $682bn compared to Toyota’s $303bn. Toyota’s current global market share in ICE (internal combustion engine) is around 10%, so Tesla’s market value reflects potentially different scenarios:

  1. At least twice Toyota’s current market share in the long run and no positive change to profitability in the overall car industry

  2. Same market share as Toyota in the future, so 10%, but cars produced with much higher margin that the car industry has produced in the past

  3. A top 3 carmaker in the 2035 or 2040, but with significant market value derived from other businesses such as supercharging network, energy storage, and residential solar module installation.

Renault update on Ampere IPO

Renault’s CEO said today that on Wednesday, at its capital markets day, the carmaker will announce its plans to IPO its electric division (including hybrid and battery) called Ampere. The group is aiming to get a valuation of around €8-10bn and trying to spin the IPO as an European alternative to Tesla. Renault is one of the most successful carmakers in Europe in terms of the EV adoption but the French carmaker is notoriously bad in breaking out separate BEV figures which are the ones the market cares about, so we are still not including Renault in our model over the BEV market. That will hopefully change with the IPO of Ampere which is expected to launch around April or May next year.

Some analysts already think that an IPO is the wrong choice and that it should be a spin-off because an IPO is dilutive for existing shareholders. But in any case, a rapidly growing Ampere needing a lot of capital to grow fast will be dilutive, but the market will be much wiser on Wednesday about what an IPO means for Renault shareholders. If Renault succeeds with the Ampere IPO and it becomes a success it could force other legacy carmakers such as Volkswagen and Stellantis to IPO their BEV divisions.

Renault investor presentation | Source: Renault

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