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Despite Market Uncertainties, Nio Stock Is Set to Climb

Macroeconomic uncertainties in China are hurting electric vehicle-companies in the region. Case in point, instead of breaking out to new highs on strong…

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Macroeconomic uncertainties in China are hurting electric vehicle-companies in the region. Case in point, instead of breaking out to new highs on strong sales, Nio (NYSE:NIO) is underperforming. NIO stock peaked in July at $55 but is currently trading around $36.

The 20-day and 50-day simple moving averages for NIO are now technical resistance levels. This suggests that the stock needs a strong positive catalyst to push it above its moving average.

Source: Sundry Photography / Shutterstock.com

So what’s holding Nio shares back?

China Worries Weigh on NIO Stock

China’s crackdown on e-commerce firms spooked Nio investors. The government introduced punitive regulations protecting consumer privacy. This is one of the main reasons that regulators frowned upon DiDi’s (NYSE:DIDI) public listing.

Meanwhile, in the property sector, Evergrande Group’s imminent default will harm millions of suppliers, contractors, and especially homeowners. The property management firm owes over $300 billion in debt and does not look like it will pay the funds back. Millions of investors who bought Evergrande property are waiting for construction to resume.

These macro headlines matter to the EV market because consumers have limited disposable income. As a high-end brand in China, the average Nio vehicle is 437,700 yuan (USD 68,000). Nio competes with premium brands like BMW, Tesla (NASDAQ:TSLA), and Audi. Plus, Nio EVs cost more than competitor vehicles on average.

Strong September Deliveries

In September, Nio delivered 10,628 vehicles globally, up 125.7% year-over-year. For the third quarter, deliveries grew by 100.2% Y/Y to 24,439 vehicles. Despite a chip shortage, the EV giant reported an all-time high in monthly deliveries. It delivered 5,260 ES6s, its premium 5-seat smart electric SUV. 1,978 deliveries were ES8s—Nio’s six or seven seater.The five-seater EV coupe SUV came in at 3,390 units delivered.

The Oct. 1 press release announcing these deliveries should have sent NIO stock higher. Instead, NIO shares traded in the low $30s before ending last week barely at break-even. At less than one-tenth of Tesla’s market capitalization, bullish investors cannot understand why Nio is down but Tesla is up. Nio trades at an unfavorable price-to-sales compared to that of Tesla. But Tesla has a better debt-to-equity ratio. That may matter more in the quarters ahead.

The Federal Reserve is set “taper.” But by lessening the financial support it provided during the pandemic, raising rates and purchasing fewer open market bonds, the Fed could hurt firms  with debt.

Quarterly Losses

Higher costs on loans are not Nio’s primary risk, however. Its quarterly losses are still a concern. In Q2, the company lost US$102.1 million. This is a decrease of 45.4% from last year. But even with share-based compensation expenses and accretion on redeemable non-controlling interests to redemption value excluded, Nio still lost US$52 million.

Growth Opportunity

Nio has US$7.5 billion in cash and cash equivalents. It will not need to sell shares to fund its global expansion and research and development efforts.

Additionally, Nio has a battery swap program that earns steady subscription revenue. It also lowers the price of the vehicle and increases its affordability. Furthermore, customers do not need to wait at an EV pump to charge the battery. The battery swap saves time and increases customer satisfaction. Increasing EV affordability will matter in the months ahead. If China’s economy weakens because of the government’s deliberate deleveraging of real estate debt, EV sales may fall.

Investors who want to diversify from Nio may consider holding XPeng (NYSE:XPEV), too. XPeng trades at almost half of Nio’s market capitalization and has negligible debt levels. Tesla is also worth considering.TSLA trades at a premium but it’s worth it since Tesla benefits as the early adaptor in the EV space worldwide.

Price Target

Seven analysts who rate Nio as a stock to buy have an average price target of around $62.00. The price target range is $47 – $72, according to Tipranks. Nio’s current growth score of 55/100 is a good start. And its quality score will improve as operating margins expand.

The Nasdaq is wavering while Nio is holding a steady price level at around $35.00. And October is typically a weak month for technology investors. Next month and early next year, continued growth in EV demand will lift Nio stock.

Now that Nio is done with selling shares to raise cash, it may focus on operating at break-even levels. As it posts profits after that, investors who appreciate the positive cash flow will build a bigger position in Nio. China will ease its regulatory crackdown next. This is another positive macro tailwind. The negative cloud around Chinese stocks will end, giving markets another reason to buy Nio stock.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Energy & Critical Metals

Octopus Energy to build co-located green hydrogen projects in UK

UK utility Octopus Energy is set to develop green hydrogen projects alongside the company’s 4 GW of renewable energy capacity in the UK.
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A new deal signed by Octopus Energy will enable the utility to develop green hydrogen projects alongside the company’s 4GW of renewable energy capacity in the UK.

Octopus Energy has partnered with Innova Renewables and Novus to design, implement and operate green hydrogen projects.

The utility’s arm Octopus Hydrogen will design and install electrolysers, compression and mobile hydrogen storage projects for Novus. The electrolysers will be between 2 and 20MW in scale and will be installed at Octopus Energy’s existing and new solar, wind and energy storage projects.

These combined renewable energy and hydrogen sites will be among the first co-located green hydrogen projects in the UK, helping to establish a green hydrogen market and the model for a decentralised production and distribution business.

The green hydrogen production facilities will be directly connected to on-site renewable energy generation which will be purchased via long-term power purchase agreements, producing between 500 and 2500kg of hydrogen per day.

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Octopus Energy will provide software for optimal control of the electrolysers. The software will provide the utility with insights regarding the best times to divert renewable energy used to balance the grid for the production of green hydrogen, according to a statement. This will help reduce renewable energy curtailment.

Octopus Hydrogen will be combining the full value chain from production, optimisation and delivery to end-users in the transport sector. The projects will enable the three parties to play a key role in energy transition and help the UK move closer to its 2050 net-zero goal.

Will Rowe, Founder and CEO of Octopus Hydrogen, said: “This is an incredibly exciting step forward on the journey for Octopus Hydrogen. Partnering with Innova and Novus will allow us to develop and establish our decentralised model for green hydrogen production in the UK.

“Through this partnership, we will increase the amount of green hydrogen available in the UK by approximately 25 tonnes per day, enough to decarbonise over 500 long haul HGV’s.

“We need to see electrification wherever possible, for home heating and domestic cars, but we also need green hydrogen to help decarbonise the hard-to-abate parts of the transport sector.”

We can’t wait to see you in Milan

Enlit Europe will bring the energy community together during the live event in Milan (30 November – 2 December 2021). Register here

The post Octopus Energy to build co-located green hydrogen projects in UK appeared first on Power Engineering International.

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Japan’s New Prime Minister Admits Abenomics Was A Failure

Japan’s New Prime Minister Admits Abenomics Was A Failure

Sometimes it takes years, if not decades to be proven right in a world that has…

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Japan's New Prime Minister Admits Abenomics Was A Failure

Sometimes it takes years, if not decades to be proven right in a world that has been turned upside down.

Take Abenomics, the "radical" Japanese vision that was supposed to overhaul Japan's economy and society, push wages higher, boost Japanese exports, spark en economic renaissance and drag Japan out of its perpetual deflationary debt trap (but it's not targeting a weaker yen, it was never targeting a weaker yen) yet was nothing more than sanctioned money printing, and which we bashed from the very beginning, to wit:

... and so much more, it was just today, almost a decade after Abenomics first arrived on the scene, that we get the official verdict, that it was - as we said all along - a failure.

Speaking to the FT in his first interview with international media since taking over Japan’s leadership this month, Fumio Kishida, Japan's new prime minister pledged to move the country away from neoliberalism as he lambasted his own party’s failure to deliver broad-based growth under the Abenomics programme that defined the economy for almost a decade.

Kishida told the FT that while regulatory reform remained necessary, he would approach it with a focus on narrowing the gap between the rich and poor. The implication - Abenomics, like money printing everywhere else, was responsible for creating a staggering chasm between the rich and poor.

“Abenomics clearly delivered results in terms of gross domestic product, corporate earnings and employment. But it failed to reach the point of creating a ‘virtuous cycle’,” Kishida said, in his bluntest attack on a program embraced by his two predecessors that propelled the Tokyo stock market through a doubling in value.

“I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption. I believe that’s the key to how the new form of capitalism is going to be different from the past,” he added, Kishida said sounding almost socialist.

In Japan, “neoliberalism” most often refers to the reforms of the 1990s and 2000s, including deregulation, privatization and labor market reform, rather than tight fiscal policy and cuts to public spending. By openly criticising his predecessor, Shinzo Abe, who failed not once but twice as Japan’s longest-serving prime minister and who resigned in September 2020, Kishida took a calculated risk according to the FT, as he prepares for a general election on October 31.

One reason for his assault on Abenomics is that recent polls have showed him with an average approval rating of just over 50 per cent, considerably lower than most of his predecessors when they came into office and a signal, said political analysts, that his honeymoon period for enacting meaningful reform may be short.

The former foreign minister was chosen to replace Yoshihide Suga as leader of the ruling Liberal Democratic party on the understanding that he would offer “status quo” stability and continuity. Despite attempts to remove that image, he has already backtracked on one of his major policy initiatives to raise capital gains tax after share prices fell sharply on concerns that such a move would kill a recent revival of interest by individual domestic investors.

Kishida stressed his new economic approach — involving tax incentives for companies to raise wages and pay increases for nurses and care workers — would attempt to reverse the failures of the “trickle-down” theories and market-led reforms that have guided Japanese policymaking from the mid-2000s.

“Everyone just considers regulatory reform in terms of market fundamentalism, competition and survival of the fittest. That’s the problem with our past thinking on regulatory reform,” Kishida said, calling on companies and the public to share a more holistic vision of the economy.

He also envisions deeper collaboration between the state and the private sector to secure strategic assets and technologies such as chips and rare earths that will be pivotal for economic security.

“It is important to ensure a self-sufficient economy when we are considering future growth,” Kishida said. “We need to make sure that Japan has technologies that are critical to complete global supply chains so we can achieve indispensability.”

Kishida publicly signaled for the first time that he may also take a new approach to the corporate governance reform that has been a pillar of the Abenomics programme alongside aggressive monetary easing and fiscal stimulus.While Japan introduced its first corporate governance code in 2015, Kishida said a separate code may be needed to address the needs of small and medium-sized companies. “It’s not realistic to apply the same rules. Corporate governance is important for small- and medium-sized enterprises but they can’t do it in the same way as big companies,” he explained.

Predictably, corporate executives who got egregiously rich thanks to money printing Abenomics have privately expressed scepticism about the new prime minister’s economic agenda, pointing to how Japan has failed to emerge from deflation and open up rigidly regulated markets even after nearly nine years of strong public support for Abenomics. Their solution: do more of what has failed, after all it makes them richer.

Kishida also faces a more complex geopolitical environment than his predecessors, with China’s increasing assertiveness and a global rush to secure national supply chains following the turmoil caused by the coronavirus pandemic.When asked about the new trilateral security partnership the US has launched with the UK and Australia to strengthen their ability to counter China, Kishida said Japan had no specific plans to join the framework.

But he added: “Considering the stability of the region, it is extremely important for European and US countries to be interested and involved in Asia’s security environment.”

Kishida heads an LDP faction with a historically dovish stance on China, but as prime minister, he has called for a strengthening of the country’s missile and other defense capabilities.

For the upcoming election, the ruling party for the first time included a manifesto pledge to double defence spending, in a break from the long-held tradition to keep its military budget within 1 per cent of GDP.

“On the economic front, it’s important to stabilize relations with China,” Kishida said, before noting recent “questionable behavior” from Beijing. “So on the political level, Japan must be able to firmly assert itself against China.”

Tyler Durden Fri, 10/15/2021 - 20:50
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Energy & Critical Metals

QuantumScape is Still a Long Way From Showtime

QuantumScape (NASDAQ:QS) has had a difficult 2021. After topping out just below $133 per share in December, QS stock has lost more than 80% of its value….

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QuantumScape (NASDAQ:QS) has had a difficult 2021. After topping out just below $133 per share in December, QS stock has lost more than 80% of its value. It’s been tripped up by a number of things recently, including insider stock sales, a devastating short-seller report and a washout within the special purpose acquisition company (SPAC) arena.

Source: Tada Images / Shutterstock.com

At the heart of the matter is a simple question: Does QuantumScape’s battery technology work and offer the benefits that it purports to?

The 188-page report from Scorpion Capital earlier this year made some compelling arguments against QuantumScape’s credibility. And the company hasn’t managed to rebut much of the negative perception Scorpion created.

Rather, management continues going along with their timeline. Perhaps as the company nears commercial battery production the market will start to give QuantumScape more credit. However, a recent development casts some doubt on that theory.

Dissecting QuantumScape’s Recent Partnership

QS stock popped from around $20 to close to $29 in late September on elevated trading volume. After a difficult summer, it looked like QuantumScape might finally be charging up. However, a closer investigation of the recent move showed it didn’t hold much merit.

It started on Sept. 21, when QuantumScape announced that it had signed a partnership. QuantumScape described it as “an agreement with a second top ten (by global revenues) automotive original equipment manufacturer (“OEM”) in which the OEM committed to collaborate with the Company to evaluate prototypes of the Company’s solid-state battery cells, and to purchase 10 MWh of capacity from the Company’s pre-pilot production line facility (“QS-0”) for inclusion in pre-series vehicles, subject to satisfactory validation of intermediate milestones.”

At first glance, this seems great. A top 10 OEM wants to use QuantumScape batteries. That should add a lot of revenue, right? Not so fast.

For one, we don’t know who the OEM is. Think back to QuantumScape’s first OEM partnership. Recall how Volkswagen (OTCMKTS:VWAGY) — according to the Scorpion report — was disappointed with QuantumScape’s work and transparency. It’s understandable why another OEM might not be in a rush to associate its name publicly with QuantumScape.

Furthermore, the 10 MWh purchase agreement, you’ll note, is subject to validation of intermediate milestones. These, according to the company, are expected to be satisfied sometime before it begins production in 2023. That’s potentially still quite a ways off.

A Long and Winding Road to Revenues

There are still a number of obstacles to QuantumScape reaching commercial success. It has to validate its battery technology works beyond a small scale. And then it actually has to get its production up and running and start deliveries. From there, the OEMs have to use the batteries and see if they work better than other options in their vehicles.

This process will take at least a few years to play out, if everything goes well. Meanwhile, short-sellers have raised meaningful concerns about the company’s technology and management team. These allegations have not been adequately refuted, as the sorry chart of QS stock demonstrates.

I agree with my InvestorPlace colleague, Thomas Niel, who writes that potential QuantumScape investors will be able to get a better entry point at a lower stock price in future months.

QS Stock Verdict

I’ve long argued that QuantumScape doesn’t belong on a publicly traded market yet. There simply isn’t enough information for most investors to have a highly informed outlook on the company. The battery technology is profoundly speculative. If it works, QS stock will probably be a multi-bagger. If it doesn’t work, the stock would likely be close to worthless.

This is the sort of binary outcome that venture capital (VC) is good at managing. VC firms can build a portfolio of many such moonshot companies, knowing that, while most will fail, a few will pay off tenfold.

For retail investors, however, this sort of approach is risky. There is little to go on that confirms QuantumScape’s potential. You have to simply trust management and hold through at least 2023 before there will be tangible signs of progress. For most traders, there are much more rewarding ways to invest in the electric vehicle (EV) revolution.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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