The IPO of Chinese battery electric vehicle maker Nio Ltd. (NIO) has caused quite a stir on Wall Street. After reading a raft of stories Tuesday about the "disappointing" pricing of the IPO at $6.26 per share, the low-end of the mooted range, I was unprepared for the stock's 75% jump in Thursday's trading. After being halted for "volatility" in early trading Friday, NIO shares seem to have found support at $10/share.
As I have mentioned countless times in my Real Money columns, my background includes 11 years as a sell-side autos analyst, so I love to see attention focused on the sector. As I have also mentioned many times, I believe the attention lavished on Tesla (TSLA) by virtually every financial writer with access to a computer is overdone. So now Tesla has real competition in the high-end battery electric vehicle (BEV) market in China, and real competition for dollars from investors eager to invest in a future dominated by electric propulsion systems for vehicles.
So, is Nio the Chinese Tesla? No, and to quote A Tribe Called Quest, "if you call it that, then stop." If you insist on calling Baidu (BIDU) the Chinese Google (GOOGL) , Alibaba (BABA) the Chinese Amazon (AMZN) , Weibo (WB) the Chinese Facebook (FB) , iQiyi (IQ) the Chinese Netflix (NFLX) , you should stop with the relativistic analysis. The Chinese market is going to develop in idiosyncratic fashion and while consumers everywhere may love to stare at their phones, companies are run very differently.
The U.S. tech titans have benefited from an intellectual openness that is really unique to the U.S. Not to sound too patriotic, but there is a reason that the FAANG names are all headquartered here in America. I have spent my entire adult life traveling all over creation meeting with company managements, and there really is something different here. That's not a value judgment, it is just acquired knowledge.
The problem with openness, though, is that it leads to excess. Elon Musk is running Tesla with all the intellectual rigor of a fifth grader, and at some point his access to capital -- which he has raised with admirable skill -- is going to run out. That may be on March 1, 2019 when the company's $920 million of 0.25% convertible notes mature, and it may happen later, but it will happen.
Nio, in contrast, has very strong relationships with a broad consortium of global players, including a significant investment from Tencent (TCEHY) . Nio sources Li-ion batteries from Chinese powerhouse CATL (also an investor in Nio) sources its advanced driver assistance systems (ADAS) systems from Intel's (INTC) Mobileye and is a member of the Apollo autonomous vehicle consortium headed by Baidu (another early investor in Nio).
Nio's founder and CEO William Li has put together a dream team of investors and industry partners, and that is something that has eluded Tesla. For example, and for reasons that are still unclear to me, Tesla broke up with Mobileye in 2016, depriving Tesla of the lidar expertise (Mobileye sources its lidar sensors from French supplier Valeo (VLEEY) ) that I believe will be a necessary enhancement to camera-based systems to make autonomous vehicles a reality for individual buyers.
Nio doesn't even manufacture its first vehicle, the ES8 SUV, with those responsibilities handled by Chinese carmaker JAC.
It's a recurring theme. William Li has built the perfect 21st century car company while Elon struggles to overcome "production hell" at a factory that was built in 1961.
So, that's why I don't stereotype. In the case of BEV plays, the difference between NIO and Tesla is as philosophical as any. The Chinese company is open to industry partnerships and has built engineering centers away from its headquarters (Munich for hardware and San Jose for software) to exploit the world's top talent. The American company, in contrast, seems to be closed to any sort of new ideas that might improve its cash-burning and at times laughably inefficient (they are still making Model 3s in a tent, for goodness sake) manufacturing operations.
It's not about geography it's about building a company to meet 21st century realities, as hinted at by Nio's brand name in China -- Wei Lai or "blue sky coming." William Li seems to have mastered that while Musk was off doing his many well-covered personal activities. Thus, I believe Nio will have "funding secured" long after Tesla has faded away from investors' radar screens.
