The Tesla vs. NIO Saga: Supply Chain Disruptions Edition

Gather around, it’s that time of the year again: we are comparing Tesla’s and NIO’s growth side by side, both of which just posted Q3 2021 delivery numbers in what has been a thrilling quarter filled with supply chain hardships. I mean, we even saw behemoth Mercedes halt deliveries for its best-selling SUV in the US.

Let’s look at the chart, and as always, we are comparing the two companies by their deliveries count versus quarters since start of deliveries (37 for Tesla and 14 for NIO):

Tesla absolutely smashed it over the past year, and if you are surprised you simply have not been paying attention. They did open that giant factory in China, and they did say it would surpass their OG factory in terms of production. In typical Tesla fashion, they delivered on their promise, of course with some delays and countless oopsies along the way, so what. Also, looking back, the Model 3 launch was a pivotal point for the company’s trajectory, I wonder if there were any hints it would be a tremendous success.

NIO was like “we can easily produce 150k cars by the end of 2021” but COVID-19 had other plans, so it does not look like they will be hitting that this year. They are still in the fight though, NIO is talking about seizing idle production capacity in Europe and signed a contract with JAC to double its car production (NIO does not manufacture its own cars, JAC, a state-owned automotive manufacturer, handles that). The takeaway here is that they have been growing at an impressive pace and are technically ahead of where Tesla was back when it was that young. It’s hard to predict where NIO deliveries could be in 2 years given the exponential nature of mass production ramp ups, but NIO will likely need a different product lineup to hit Tesla numbers (especially as their focus is on premium segments that may already be saturated, more on that later).

Alright let’s chart this differently, cumulative deliveries:

Shear hockey stick, we all get it. A small observation: Tesla surpassed 2 million deliveries this Q3 (have not seen this on any headline yet, free alpha) and is now delivering vehicles at a rate of ¼ million per quarter, I bet this will be talked about widely on their earnings call next week.

A stat that I find nuts: Tesla’s US EV market share is now close to 80% and 21% globally (need to update the number for Q3 after all EV automakers report), and despite shipping over 2 million cars, their global automobile market share is like less than 0.1% (there are approximately 1.4 billion cars on Earth). That’s a lot of cars. What’s even more breath taking to me is all the effort it took Tesla to get to this point, electrifying the rest of the global fleet will take many decades and that’s assuming we continue to push towards electrification.

Alright cool, now onto random nuggets of information. Stick around, you might learn something:

Tesla scrappiness and vertical integration has proven instrumental in mitigating supply chain pressures. Do you wonder why is it that while the other American, European and Chinese automakers are sitting on idle lines, Tesla is still pumping out cars? They have been rewriting the firmware on the cars to be compatible with substitute chips, this is a huge engineering effort and with added risk as these are most likely non-automotive grade components. The risk of components failing early -leading to higher guarantee expenses- will not show on Tesla books as their accounting practices place warranties under goodwill rather than setting capital aside as per the industry standard. It’s also true that they can do this given their lower production volumes, but still, Ford ‘Boomer McBoomerson’ Motors probably does not develop its own code and is waiting for a 3rd party supplier to try to do what Tesla did months ago. Despite the scrappiness, Tesla is not out of the woods and Elon warned chip and ship shortages could still stall Tesla’s growth.

Further delays for Tesla’s product roadmap. By now this is standard operating procedure, but the Semitruck and Cybertruck start-of-production dates have been further delayed as confirmed by Elon himself on last week’s AGM event (or at least that’s the excuse they are using). I do find it funny that no one really asks about the Roadster delays anymore, which was announced 4 years ago and still has not shipped despite the $50,000 pre-order deposits some paid. I also see the ever-increasing product launch delays as a risk to Tesla’s R&D muscle, do the best R&D engineers in the world want to go work at a large corporation, with a bloated stock, that has already laid down its product roadmap for the next 5 years? Maybe. But there’s an increasing number of exciting opportunities out there, including Elon’s very own SpaceX and Neuralink. This alone justifies the Tesla Bot for me, a huge long term R&D project that also gives the company optionality to continue expanding onto new industries.

Shanghai flips Fremont. For the first time, Tesla’s Giga-Shanghai has flipped the OG Gigafactory in Fremont in terms of production output, as announced by Elon himself on last week’s AGM event. It is interesting that most of the MIC (Made in China) vehicles are Model 3 and Model Y meant for export, supposedly with the export/local production mixture being adjusted through the quarter to make up for the long lead times associated with shipping boats out of China via boat. As an example, in July 2021 (early Q3) Giga-Shanghai produced 8,998 local vehicles and 20,000 exports. In contrast, in September 2021 (late Q3) Giga-Shanghai produced 12,885 local vehicles and 31,379 exports. The export-local split staying at an almost consistent 70/30 through the quarter, while production ramped up significantly. Despite the large number of MIC exports and the backlogged ports in North America, Tesla’s deliveries do not appear to be significantly impacted. Maybe we will see a slow down on Q4 (pending earnings call guidance) or maybe Tesla is doing something scrappy: we have seen a large number of companies chart small vessels which are able to unload on smaller ports, which bypasses the large backlogs. I also think it’s important to point out Tesla’s (aka the S&P500’s 7th largest company by market cap) increased exposure to China, which brings an entirely new risk profile given the CCP’s attitude towards technology giants and the mounting international tensions around Taiwan. I don’t see anyone pricing this in, granted Apple would have a similar exposé but they do not own their factories and their revenues are not entirely dependent on producing hardware at this point.

NIO expands into Europe. They introduced their ES8 SUV in Norway and are talking about doing the same with their ET7 Sedan in Germany, with further talks of using up idle European production lines to make their EVs. I find this odd and makes me question the Chinese’s market appetite for EVs, with both NIO and Tesla MIC now looking outwards instead of inwards. I speculate it could be due to cheaper EVs being available in China and the smaller premium market segment being saturated, which makes premium demand overseas a better target for EV automakers looking to increase their margins. I previously argued that China would be an easier market to penetrate as wealth is spread much less evenly in China compared to North America: the bulk of Chinese EV customers are probably located in coastal cities, so EVs with not-so-great range still offer a strong value proposition (also possibly why only the MIC Tesla Model 3 uses the cheaper, less energy dense LFP prismatic batteries).

NIO’s product line remains confusing AF. NIO’s website now lists 4 vehicles, the ‘ES8’ a 7-seater premium SUV, the ‘ES6’ a 5-seater performance premium SUV, the ‘EC6’ a 5-seater premium SUV, and the ‘ET7’ a premium sedan that has not yet shipped. That’s a lot of premium SUVs and not a lot of differentiation, I speculate young NIO has been partially forced to embrace this product strategy as product launches drive hype (a strategy Tesla is very familiar with), while JAC owning their production lines gives them flexibility and the ability to produce multiple low-volume vehicles. In contrast, Tesla first developed a roadster sports vehicle, then a premium sedan, then an obnoxious SUV, and only then an affordable sedan. This Roadmap made sense, prioritizing low volume — high price variants to then ramp up to higher volume — lower price vehicles, with enough product differentiation to avoid complete cannibalization