After much anticipation, Chinese electric vehicle maker Nio (NYSE:NIO) delivered its third-quarter report last night. The company shared estimate-beating revenue and record quarterly vehicle deliveries. All in all, it appeared to be the best quarterly report yet for NIO stock. But what does this mean for investors? Dive in below with some of the top Q3 takeaways.
Investors should start their review of the quarter with the basics. Going into the quarterly event, expectations were through the roof. Why? Peers Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV) had delivered impressive results. And in general, sentiment on electric car stocks has been soaring. With that in mind, Nio faced a big challenge going into the report.
So how did the company do? Nio reported revenue of $666.6 million, which beat estimates for $655.28 million. Importantly, it also was a 146.4% improvement from revenue of $257 million in 2019.
Quarterly losses per share continue to narrow. This quarter, Nio reported losses per share of 14 cents. That beat estimates for a 17-cent loss, and came in much better than a 35-cent loss in 2019.
Beyond the revenue and EPS figures, here are the top four investing takeaways on NIO stock.
Takeaway No. 1: NIO Stock Should Benefit From New Cars
Investors should note that one of the biggest Q3 takeaways came from the earnings call. There, CEO William Li shed some insight on what the company is planning for 2021.
Nio has made some big advancements with its product lineup. It launched the ES8, and then the ES6. Then, just in September of this year, the company began production and delivery of its EC6 crossover. Deliveries of its third vehicle are just starting to pick up, as the company only delivered 16 EC6 models during the quarter.
However, investors already want more, and Nio is planning to deliver on those expectations. The company said that it is planning to round out its lineup through two sedans, starting in 2021. Although it shared very few details about these cars, Li maintained that Nio is being very strategic about its products. Importantly, he said that with each new vehicle, the company intentionally picked a new market to enter to expand its reach and boost consumer adoption.
Why does this matter? Well, it is exciting to see Nio ramp up the amount of vehicles it offers to appeal to different types of consumers. There is also one specific element of this announcement that should have investors particularly excited.
Nio said during the earnings call that one of these sedans would incorporate its next-generation autonomous driving platform, which it refers to as NP 2.0. Earlier in the year, rumors began to leak about this flagship sedan. Currently, speculation is that this model will be called the EE7 and will go on sale sometime in 2022.
Investors may not need to wait that long. There are also rumors that Nio will unveil this car during its next shareholder event in January 2021. This would actually make sense, as Li promised updates on the NP 2.0 platform during that event. As of right now, many enthusiasts believe that the EE7 sedan will use the NP 2.0 platform to have Level 4 autonomous driving technology.
Takeaway No. 2: Batteries, Batteries, Batteries
Leading up to the Q3 earnings call, batteries also provided a nice boost to NIO stock. Earlier in November, the company hosted a battery-focused event to share its newest advancement. This quarter, it will begin delivering a 100 kilowatt hour battery that will improve driving range and overall vehicle performance.
During the earnings call, there was a great deal of investor and analyst interest around the batteries. How will they impact NIO stock? And what will they mean for the overall business model? A few key takeaways from Nio stood out.
First, the company sees the 100 kWh battery as a big leap forward in its appeal to consumers. The battery launches along with a ramp of its battery-as-a-service business model, wherein it gives buyers a chance to subscribe to its batteries. This model lowers the initial purchase price of the cars, as buyers are essentially purchasing the vehicle without a battery. Then, they pick what power and how many batteries they think they will need. Unlike many companies in the United States, this puts the focus on battery-swapping as opposed to the rollout of charging stations.
Second, Li did hint that a 150 kWh battery is coming. Some enthusiasts think Nio will make an announcement about this battery during the January 2021 event.
How should investors view these takeaways? Is this going to change the game? Maybe yes, maybe no. InvestorPlace Markets Analyst Tom Yeung said that while it is exciting, investors should know that Tesla (NASDAQ:TSLA) is supposedly working on a 100 kWh battery for its Model 3. Additionally, it already has this type of battery available for its Model S.
What matters now is that Nio is trying to maintain an edge in the Chinese market. In early 2021 we should get a more meaningful look into adoption of the 100 kWh battery and interest in the battery pack subscriptions.
Takeaway No. 3: Be Wary of Competition
Investors should know that there are currently two levels of competition for Nio, and both came into play during the Q3 earnings call.
The first is the ongoing battle between Nio and Tesla. During the earnings call, some analysts were curious about what effects Tesla is continuing to have on Nio. Importantly, Tesla is about to launch its Model Y in the Chinese market.
Nio seems to be shrugging off those concerns. The company said that it sees the Model Y as an overall positive for the Chinese EV market, as it will give consumers more adoptions and raise interest in electric cars. However, as Yeung pointed out, Tesla is a tough rival that is leading the way in many areas.
The second level of competition compares Nio to Li Auto and Xpeng. Yeung did the math and highlighted that with a market cap near $63 billion, Nio is worth $5.1 million per car delivered. Li Auto, a newcomer to the public markets, is worth just $3.3 million per car delivered. That difference could lead value-focused investors to focus on one of the smaller plays.
So what should you make of it? The game is far from over for Nio. It has plans to ramp up production capacity starting in 2021, and also is projecting 100% year-over-year growth in vehicle sales for the fourth quarter. As it continues to boost its vehicle sales and production capacity, it could grow into that valuation and then some.
Another catalyst here to watch is the international expansion angle. InvestorPlace Markets Analyst Luke Lango just set a $150 price target on NIO stock because of the potential for growth when Nio expands. The CEO did not share any updates on this front, but perhaps we will hear more about plans for the European market during the January event.
The Bottom Line on NIO Stock
Reflecting on the third quarter, there are many unknowns for NIO stock. How will it handle the challenges as it ramps production and scales up its business? How will the battery-as-a-service model play out for the red-hot company? And how will Nio continue to perform against its competitors in the Chinese market and abroad?
However, one thing is clear at least at this point. The narrative around NIO stock is wildly different than it was just a few months ago. After struggling for cash, barely producing any vehicles and living in penny-stock world, Nio has turned around. In fact, during the earnings call, it shared that it currently has no need for financing in the short term.
Keep an eye on NIO stock heading into 2021. Whether you agree with Lango and are betting on $150 per share or are simply interested in the EV space, this is a company worth watching.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.