Given the increasing push toward clean e-mobility, the bullish narrative for Niu Technologies (NASDAQ:NIU) stock was arguably an obvious one.
Moreover, NIU is levered to the micro-mobility market, one that fundamentally should be incredibly relevant. With younger generations limited on cash but high on environmental and sustainability concerns, it’s no wonder why shares have skyrocketed.
However, the company’s latest earnings report may have offered NIU stock its first dose of reality. One Wall Street analyst projected earnings per share to hit 18 cents, representing growth of 39%. Further, revenue was forecasted to ring up $139.37 million, a whopping 52% jump. Unfortunately, the actual results were comparatively disappointing, with EPS of 17 cents on top-line sales of $131.74 million.
Following the report, NIU stock fell sharply. Nevertheless, the overall trajectory of Niu Technologies is incredibly encouraging. For one thing, shares are up nearly 240% on a year-to-date basis. Further, the mobility specialist has expanded to 38 countries across Asia, Europe and Latin America. As the new, environmentally aware global economy recovers from the novel coronavirus pandemic, NIU should theoretically gain substantial momentum.
Specifically, the Asia market could be a gold mine for NIU stock. According to MobilityForesights.com, “Asia is home to 4.5 billion people or 60% of global population.” More importantly, the region accounted for 40% (37 million units) of new passenger car sales and a whopping 90% (45 million units) of two-wheeler vehicle sales in 2018.
Basically, if Niu dominates market share in Asia, that alone could turn out to be a grand slam. And that’s not an entirely unthinkable proposition. According to one survey, 62% of consumers from the Asia-Pacific region stated they were concerned about the environment, with most in this category worried about irreversible damage.
With Niu, though, the company offers sustainability and practicality. After all, if you’ve ever tried to get around in a personal vehicle in a major Asian metropolis, you know how incredibly difficult it is.
Another Angle to Consider for NIU Stock
When NIU stock was priced in the teens, the bullish narrative was much easier to swallow. However, with a price point now at $29, I believe investors need to apply some caution.
Yes, Asian consumers – and I’m referring to the developing nations in the region – have been gradually shedding their stereotypical image of not giving a hoot about the environment. Further, it’s true that multiple consumer surveys reveal that consumers there will pay more for sustainable goods.
But as Regan Leggett, executive director of thought leadership and foresight at Nielsen noted, “Consumers voice positive opinion for sustainable products but do not always back it up at the check-out counter…But if the price is competitive for two brands, sustainability could be the deciding factor.”
Sounds reasonable but this assessment could pose challenges for NIU stock. First, Niu e-scooters are reasonably priced for what they are, a technologically advanced mobility platform. However, they’re going to face competition from cheap Chinese knock-off scooters of the combustion variety. Saving the environment is great but not at 3 times the cost or more.
Second, the range of these scooters is a drag. For instance, Niu’s UQi GT Extended Range costs roughly $3,100 and has a range of only 70 to 95 kilometers. That’s roughly 43 to 59 miles for us Yanks.
I’m not a scooter expert so I can’t give you an extensive list of comparisons. However, an average motorcycle can run between 120 to 200 miles on a tank of gasoline. I’m going to assume that a combustion-engine scooter like a Vespa can get at least 100 miles.
There’s no doubt that the Niu is trendier than their combustion counterparts. Over time, as electric powertrains improve, we could see the platform rival combustion scooters at both price and range. But for now, and especially because of the pandemic’s economic disruption, the value/capacity proposition is a headwind to consider.
Can It Break Through the U.S. Market?
Because of the competitive challenges that Niu faces in Asia, management refuses to have tunnel vision. That opens the door for continued expansion in the U.S. market. But just how viable will this American journey be in the post-pandemic era?
Again, I understand the appeal for NIU stock based on young American consumers’ concern for the environment. But in this case, it may not just be about the price point and convenience factor. Rather, e-scooters can be incredibly dangerous because they don’t natively emit noise.
After all, a raucous engine note is what has prevented many a motorcyclist from meeting his/her maker prematurely. But that’s gone in an electric platform. Further, some research indicates that electric vehicles are 40% more likely to hit pedestrians. Likely, we could garner some lessons from this and apply it to the risks associated with combustion cars versus e-scooters.
Of course, these are forward-looking concerns. But they are worth considering now that NIU stock is incredibly elevated. While I’m no bear by any means, I believe prospective buyers are better served waiting for a lower entry point.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
