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Breakingviews

Breakingviews - Nio mania reaches Tesla’s extra gear

A NIO ES8 electric SUV is displayed at its store in Beijing, China August 20, 2020. REUTERS/Tingshu Wang

HONG KONG (Reuters Breakingviews) - Nio’s rapid rise confirms the electric-car craze is bigger than just Tesla. The Chinese upstart lacks the production of its larger U.S. rival, and founder William Li dazzles less than his counterpart Elon Musk. Its latest quarterly results also suggest that it will need to grow into a racy $63 billion valuation.

Musk’s marque has fuelled a certified mania. The news on Monday that it will be included in the S&P 500 benchmark index made both Tesla and Chinese peers including Nio and Li Auto among the most-traded stocks on U.S. bourses this week.

Nio provides momentum of its own. For a while, its shares have roughly tracked Tesla’s, but over the past month they have broken loose and have now surged by 1,000% this year, more than double the rate of increase for the $420 billion producer of the Model S and X. And despite being a recognisable figure in his homeland, Li also doesn’t court the limelight the same way as the bombastic Musk. In other words, the exuberance is less about the company’s own hype.

In the third quarter, Nio’s sales grew by nearly 150% from a year earlier, to $628 million. The company also has successfully slashed costs, helping narrow its net loss by two-thirds since the same period in 2019. It is hitting other targets, too. Earlier this month, Nio unveiled a more powerful battery to address so-called range anxiety, or the fear of losing a charge mid-journey. More broadly, the Chinese auto market is recovering, and policymakers have set more ambitious goals for clean car sales.

The performance has revved up investors. Over the last 30 days, Nio shares have changed hands more than six times as often as those of Tesla, Li Auto or Xpeng. That leaves it valued at 56 times historical sales, about triple Tesla’s multiple. It is also accelerating more quickly than its American peer did at a comparable time. In September 2014, as Tesla approached 60,000 sales of the Model S – roughly equivalent to Nio’s total cumulative deliveries so far – it was trading at around 30 times revenue. That means Nio has kicked into an extra gear.

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