SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up





NIO (market cap of US$26 billion) is a pioneer and leading company in the premium smart EV market, driving innovations in autonomous driving, digital technologies, electric powertrains and batteries. The company differentiates itself through continuous technological breakthroughs and innovations. 
	 
	
NIO’s smart EVs have been well-received by consumers, with its ES6, EC6 and ES8 models amongst the top best-selling premium battery SUVs by sales volume in China. Their EVs delivery grew 109.1% YoY in 2021.  
	 
	
Total revenue in 2021 (year-end 31 Dec) grew 122.3% YoY to CNY36.1 billion driven by increase in vehicle deliveries, average selling price of EVs and other sales. NIO’s ES6, EC6, and ES8 were top, second, and fourth best selling premium battery SUVs respectively in China measured by sales volume (source: Frost &amp; Sullivan).


 

Driving innovations and building an environmentally friendly EV community  
NIO debuts on SGX as a secondary listing by way of introduction today. According to NIO, their listing on SGX will further strengthen the company’s footing with Singapore’s strategic significance in the global capital markets. NIO believes the listing will help expand their investor base, especially in Asia Pacific. NIO also believes listing on SGX will help promote round-the-clock trading and also add incremental liquidity to their shares.  
NIO is a pioneer and market leader in the premium smart electric vehicle (EV) market. The company designs, develops, jointly manufactures and sells premium smart EVs, driving innovations in autonomous driving, digital technologies, electric powertrains and batteries. NIO introduced the EP9 supercar in 2016, which was then the fastest electric vehicle, setting the Nurburgring Nordschleife all-electric vehicle lap record. In June 2018, NIO began generating revenues when it started making deliveries and sales of the ES8, a 6 or 7 seater flagship premium smart electric SUV.  
According to the company, NIO differentiates itself through its continuous technological breakthroughs and innovations. Examples include its industry-leading battery swapping technologies, Battery as a Service (BaaS), as well as its proprietary autonomous driving technologies and Autonomous Driving as a Service (ADaaS).  Well-received innovative products  
NIO’s vehicles have been well-received by consumers. According to Frost &amp; Sullivan, the company’s ES6, EC6 and ES8 were the top, second and fourth best-selling premium battery SUVs respectively in 2021 as measured by sales volume in China.  
Delivery of EVs for first four months of 2022 was at 30,842 units, a 13.5% YoY growth. Cumulative deliveries of NIO’s vehicles reached 197,912 units (all numbers as of 30 April 2022).  
According to market research firm J.D. Power in July 2021, the ES6 ranked highest in the luxury battery EV segment in the China New Energy Initial Quality Study (NEV-IQS) while the ES8 ranked highest in the luxury battery EV segment in the China New Energy Vehicle — Automotive Performance, Execution and Layout (NEV-APEAL) Study. 
 

Delivery of NIO’s EVs (2018-2021)




			Model 
			
			
			Type
			
			
			2018
			
			
			2019
			
			
			2020
			
			
			2021
			
		


			ES8
			
			
			Mid-large SUV
			
			
			11,348
			
			
			9,132
			
			
			10,861
			
			
			20,050
			
		


			ES6
			
			
			Mid-large SUV
			
			
			 
			
			
			11,433
			
			
			27,945
			
			
			41,474
			
		


			EC6
			
			
			Mid-size coupe SUV
			
			
			 
			
			
			 
			
			
			4,922
			
			
			29,905
			
		


			 Total
			
			
			 
			
			
			11,348
			
			
			20,565
			
			
			43,728
			
			
			91,429
			
		


			y-o-y
			
			
			 
			
			
			 
			
			
			81.2%
			
			
			112.6%
			
			
			109.1%
			
		

 Source: Company



      
    
    Nio cars website


Highlights of the listing based on Introductory Document (click here) 
 

1. NIO’s Business and Key Technological Breakthroughs and Innovations



Design, develop, jointly manufacture and sell premium EVs

	
Manufacture vehicles through a strategic alliance with Jianghuai Automobile Group (JAC) Motors at its Hefei facility (current annual vehicle and component production capacity of 120k units). Capacity will be expanded to 240k units per annum around the middle of 2022.
		Kicked off construction of a 2nd manufacturing plant in Hefei in Apr 2021 with a designed annual production capacity of up to 300k units, with vehicle production in the facility to start in 3Q22.
	

	
Battery swapping and BaaS
	
Since launch of ES8 in 2017, all of NIO’s smart EVs are equipped with proprietary battery swapping technologies (&gt;1,200 patented technologies), providing users with a “chargeable, swappable, upgradable” experience.
		Launched the industry’s first BaaS in 2020, an innovative model for users to purchase EVs and subscribe for usage of batteries separately.
		BaaS enables users to benefit from lower vehicle purchase prices, flexible battery upgrade options and assurance of battery performance. Over half of users (who received NIO’s EVs) chose BaaS subscription.
		In China under BaaS, NIO sells batteries to the Battery Asset Company, an equity investee of NIO, on a back-to-back basis upon the sale of vehicle to the BaaS users and the BaaS users subscribe for the usage of the batteries from the Battery Asset Company by paying a monthly subscription fee to the Battery Asset Company.
	

	
Autonomous driving and ADaaS
	
Views autonomous driving as the core of smart EVs and a focus for NIO from day one.
		One of the first companies in China to offer enhanced Advanced Driver Assistance Systems (ADAS) capabilities – NIO Pilot (proprietary enhanced ADAS).
		Announced NIO Autonomous Driving (NAD) in Jan 2021, next-gen, proprietary full stack technology. NAD is planned to be rolled out through a monthly subscription under ADaaS in the future.
	

	
Building an integrated online and offline user community
	
Strives to build an integrated online and offline user community by providing holistic services.
		Direct sales model allows NIO to build direct user relationships and online engagement via NIO app and NIO Houses and NIO Spaces offline.
		In-house developed NIO app designed for vehicle control, service access and NIO Life product purchases in addition to being a portal for selling vehicles (users can place orders and configure all NIO vehicles).
		Operates 37 NIO Houses (showroom function and clubhouse for users) and 321 NIO Spaces (mainly showrooms for vehicles and services) across 143 cities in China; high user referral rate of &gt;60% as of 31 Dec 2021.
	

	
Established and Extensive Supply chain 
	
Pioneer position in market helps create extensive industry alliance network (mutually beneficial for NIO and partners) with many global industry leaders and innovative companies.
		Continuous innovation in supply chain to create a more effective and diverse supply chain system.
		Key supplier for batteries is Contemporary Amperex Technology (CATL), while key semiconductor chip suppliers are Mobileye and Nvidia, in addition to Qualcomm. 
		 
	


2. NIO’s Business and Key Technological Breakthroughs and Innovations


Leading brand in the premium smart EV market
	Well-positioned products in the premium smart EV market
	Proven capabilities in proprietary software and hardware technological innovations
	Autonomous driving
	Innovative BaaS and comprehensive power solutions
	User enterprise advocating a worry-free and holistic user experience
	World-class management and global talent pool 
	 

3. Business Strategies 


Successfully launch future models and accelerate product iteration
	Continue to focus on technological innovations
	Continue to develop power infrastructure and expand sales and service coverage
	Create more recurring revenues during the lifetime ownership
	Expand internationally to benefit from rising global demand 
	 

4. Industry Prospects 



Global EV market continues to experience high growth – In 2020, global electric vehicle sales were 2.9 million units and according to Frost &amp; Sullivan, global electric vehicle sales are expected to reach 14.3 million units by 2025 at a CAGR of 37.1%.
	
China is the clear leader in the global battery electric vehicle (BEV) market – China was the largest BEV market in 2020, accounting for 50.2% of the global BEV sales, according to Frost &amp; Sullivan. China’s BEV market is expected to continue its fast growth at a CAGR of 43.9% from 2020 to 2025, reaching sales of 6.2 million units in 2025.
	
Growth of European and US markets - The European market represents a key market for EV sales, with an aggregate sales volume of 1.3 million units in 2020 while the US EV market is also expected to grow at a fast pace, from 0.3 million units in 2020 to 2.6 million units in 2025, representing a CAGR of 51.0%.
	
Increasing environmental awareness and policy support  – The Chinese government has promulgated a number of policies to support the growth of New Energy Vehicles (NEVs), which include BEVs, and targets to achieve a 20% NEV penetration rate by 2025.



Improving battery technologies – Continued technology developments have led to greater energy density, higher safety level and longer battery life.
	
Expanding EV infrastructure – Governments around the world have been promoting the deployment of electric vehicle infrastructure. E.g. The Chinese government has identified charging and battery swapping infrastructure as key areas of “new infrastructure”, which enjoy prioritized policy support in infrastructure build-out and deployment.
	
Autonomous driving and digital technologies – The penetration rate of ADAS as a percentage of new passenger vehicle sales in China grew from 11.4% in 2016 to 38.4% in 2020. It is expected to further increase to 55.7% by 2025, according to Frost &amp; Sullivan. 
	 

5. Key Risks Factors (refer to Page 61 of the Introductory Document for a complete list of risk factors)


Ability to develop and manufacture vehicles of sufficient quality and appeal to customers on schedule and on large scale still evolving
	Not profitable to date, and only recently generated positive cashflows from operations in certain periods
	Business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic
	Limited operating history and face significant challenges as new entrant into its industry
	Manufacturing in collaboration with partners subject to risks
	Unavailability, reduction or elimination of government and economic incentives or government policies may have material adverse effect on its business, financial condition, operating results and prospects
	Vehicles may not perform in line with customer expectations
	Had incurred net current liabilities and net liabilities as of 31 December 2019 and may not be able to achieve or maintain net assets in the future

 

Financials 


According to the company’s Introductory Document, total revenue in 2021 (year-end 31 Dec) was at CNY36.1 billion, a 122.3% YoY growth. 2021 revenue consists of vehicle sales of CNY33.2 billion and other sales* of CNY3.0 billion. 2021 revenue growth was mainly driven by: (i) YoY increase of vehicle delivery volume (ii) increase in the average selling price of its EVs; (iii) increase in revenue from the sales of automotive regulatory credits; (iv) increase in other revenue, which was in line with the incremental vehicle sales, and (v) increase in revenue from the battery upgrade service.
	2021 gross profit stood at CNY6.8 billion (or 18.9% gross margin), increasing 264.1% YoY on the back of increased vehicle delivery volume and vehicle margin. 2021 vehicle margin was 20.1% (vs. 12.7% in 2020) mainly driven by economies of scale and higher average selling price. Other sales margin of 5.7% was higher than the -5% in 2020 and mainly driven by increase of sales of packages and automotive regulatory credits.
	NIO’s operating loss of CNY4.5 billion in 2021 narrowed from 2020’s CNY4.6 billion despite operating expenses increasing 74.6% YoY.  

*Other sales mainly consist of revenues from sales of service and energy package, battery upgrade service, automotive regulatory credits, accessories, and a number of embedded products and services offered together with vehicle sales. Embedded products and services include home chargers, vehicle connectivity service, extended warranty and battery swapping service



      
    
    Nio financial performance


Additional Information from Introductory Document (click here)

Cooperation with Hefei strategic investors  
In April 2020, NIO entered into an investment agreement with a group of Hefei strategic investors (Hefei City Construction and Investment, CMG-SDIC Capital, and Anhui Provincial Emerging Industry Investment), with a series of supplemental agreements with the designated investment entities of these investors later in 2020.  
Under the agreement, the Hefei Strategic investors agreed to invest an aggregate of CNY7 billion in cash into NIO China (legal entity wholly owned by NIO prior to investment), with NIO injecting its core businesses and assets in China (incl. vehicle R&amp;D, supply chain, sales and services and NIO Power) which was valued at CNY17.77 billion into NIO China.  Managing global constraint of semiconductor chips  
NIO’s production activity and volume has been impacted by the ongoing global supply constraint of semiconductor chips. In some periods in 1H21, production had been impacted due to the volatility and logistical adjustments arising from chips shortage. While vehicle production has been recovering gradually, NIO will closely monitor the situation and continue to work with supply chain partners to accelerate the recovery of production to its full capacity.  
NIO has been strategically building up inventories for critical semiconductor chips that might be in short supply as it aims to support its delivery target. The company is also actively seeking possible alternative supplies to diversify its sources and reduce exposure to the supply shortage. NIO is also working closely with suppliers to minimize the impact on its vehicle production.  
Looking ahead, market research firm Frost &amp; Sullivan believes the current industry constraint is expected to be lifted in 2H22, based on the production capacity expansion plans of the key automotive chip suppliers and favorable governmental policies promoting additional supply in China.  Multiple voting share structure (page 320 of the Introductory Document) 


Under the company’s multiple voting share structure, its share capital comprises Class A and Class C ordinary shares.
	
Class A: Entitles holder to exercise one vote
		Class C: Entitles holder to exercise 8 votes
	

	Votes refers to all matters that require a shareholder’s vote.
	When NIO’s Class A ordinary shares become tradable on SGX, they will be quoted and traded in U.S. dollars. Class A ordinary shares will be traded in board lot sizes of 10 Class A ordinary shares. Note that only Class A ordinary shares of NIO will be traded on SGX.
	As the Company will be secondary listed on SGX, Rule 210(10) of the SGX-ST Listing Manual would not apply to the Company. NIO’s ADSs will continue to be primarily listed on NYSE, with concurrent secondary listings on both SGX and HKEx. 
	 

ADSs refers to NIO’s American depositary shares, each of which represents one Class A ordinary share.   Did you know?  
NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF (EVS) was listed on SGX on 20 January 2022, where the product seeks to replicate the returns of the MSCI China All Shares IMI Future Mobility Top 50 Index, and is the first SGX listed ETF to offer investors access to Chinese companies that are expected to derive significant revenues from energy storage technologies (including electric vehicles), autonomous vehicles, shared mobility and new transportation methods.  
SGX Commodities Team is also looking to launch energy metals derivative contracts in the drive towards electrification. With the global EV market on a strong growth trajectory, Singapore Exchange (SGX) is planning to launch a suite of derivative contracts for battery raw materials – Cobalt Metal, Cobalt Hydroxide, Lithium Carbonate and Lithium Hydroxide, as a pricing benchmark and tool for market participants to manage price risk exposures on energy metals pertaining to the battery construct. SGX will be partnering Fastmarkets, the price reporting agency for these derivative contracts that are expected to launch in 2022, subject to regulatory approval (click here for more).



NIO Inc. – Leading Player in Premium Smart EV Market  – Lists on SGX

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Contemporary Amperex Technology (CATL) (300750 CH)

NIO Inc. – Leading Player in Premium Smart EV Market – Lists on SGX

NIO (market cap of US$26 billion) is a pioneer and leading company in the premium smart EV market, driving innovations in autonomous driving,...

Singapore Exchange Ltd (SGX)