Are NIO Shares Listed on SGX Worth Buying?

NIO stock China

Tim Phillips

June 24, 2022

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It’s been a roller-coaster ride for Singapore investors so far in 2022, many of whom have exposure to both US and Chinese stocks.

While Chinese stocks were hammered by a regulatory crackdown on the tech sector last year, year-to-date they have actually held up relatively well versus their US counterparts. That’s been down to a number of reasons.

But closer to home here in Singapore, one of the big landmark events for Singapore Exchange Limited (SGX: S68) was welcoming the secondary listing of large-cap electric vehicle (EV) maker NIO Inc (NYSE: NIO) (SGX: NIO) (SEHK: 9866).

NIO currently has a market cap of around US$35 billion (S$48.5 billion), meaning it’s in the top five largest listed companies with a presence on the Singapore stock exchange.

Having floated shares in Singapore – at a price that was equal to its US-listed ADRs – the EV maker ended its first trading day on the SGX (on 20 May) at US$17.30.

So, for Singapore investors who want to tap into a China growth story, are NIO shares worth buying?

Focusing on growth

Clearly, the EV market in China has enormous potential. We’ve probably all read the stats.

For example, for the whole of 2021 China saw sales of so-called “new energy vehicles” reach 2.99 million units, up 169% year-on-year.

That made up just shy of 15% of new sales in the world’s largest vehicle market.

It also means the country is on track to reach a 20% nationwide penetration rate by EVs by the end of this year, well ahead of a government forecast for that figure to only be attained in 2025.

But what about NIO itself? Well, the company in 2021 saw total revenue hit RMB 36.1 billion (US$5.67 billion), up 122.3% year-on-year.

Its full-year gross margin also improved last year, rising to 18.9% from 11.5% in 2020. However, like many growth stocks, the company is still loss-making.

NIO posted a net loss of RMB 4 billion for the whole of 2021, although this loss was down by around a quarter from its 2020 loss.

Not as big as investors think…

While NIO gets a lot of the headlines as the way to play the growth of the Chinese EV market, the fact of the matter is that it’s not actually one of the biggest players in China when it comes to total EV deliveries (see below).

NIO sales China EV

However, NIO does market itself as a higher-end EV maker and has also launched models in the European car market, entering Norway in 2021. Plans to enter other big markets, such as Germany and the Netherlands are also on the cards.

…but unique

Meanwhile, the company has specific offerings that other EV makers in China don’t carry.

One such example is “Battery as a Service” (or BaaS), whereby NIO gives drivers the option of paying less for a vehicle if they pay a monthly lease on the battery.

They can then swap out a part-drained battery for a fresh one at one of NIO’s Power Swap Stations, which number nearly 900 across China.

Various iterations of this have been tried before (and failed) but NIO has made it work in China given its relatively higher-density urban centres versus the more sprawling cities found in the likes of the US.

It also gives buyers the flexibility of purchasing a car without the battery, which if a hefty portion of the overall cost of an EV.

Regulations likely to remain favourable

While nothing is ever guaranteed in China (as investors have found out to their dismay over the past year), it’s highly likely that the Chinese government wants to promote the adoption of EVs in the country.

As a result, NIO will surely be one of the key winners in the transition. Its latest first-quarter 2022 earnings did see broadly stagnant quarter-on-quarter growth in revenue while its overall gross margin also shrunk quarter-on-quarter.

Despite that, the company did manage to notch up a record-high in terms of quarterly deliveries – hitting 25,768 vehicles during the period.

Shorter term, the strict “zero Covid” policy in China will pose an issue to production and general consumer willingness to spend, although that’s a problem facing all EV makers in China.

Buy the Singapore or Hong Kong shares

Overall, NIO looks like a promising stock to tap into a very structurally sound story over the next decade. I would remind investors, though, that buying the SGX-listed shares (or even the Hong Kong-listed ones) will let them sleep easier at night.

That’s because you’ll be without the geopolitical headache of holding Chinese ADRs that may eventually be delisted.

Finally, it’s important to remember that EVs in China present a nascent, albeit huge, growth opportunity. Similarly, companies operating in the space tend to trade like your typical growth stocks – with big moves up and down.

As an illustration of that point, since listing in Singapore NIO shares have surged nearly 40% in less than six weeks and its SGX-listed shares now stand at around US$23.80.

 

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.