Nio will begin trading on the main board of SGX this Friday.
I must say that this is indeed one of the more “high-profile” listings as most of the recent listings on SGX haven’t exactly been that exciting in nature. Backing Nio in this listing would be Credit Suisse and Goldman Sachs both of which are most certainly not new to the game.
Overall, Nio’s listing on SGX is good for the exchange however I’m not completely sold on the fact that it’s best for Nio itself or even for myself as an investor. To put it bluntly, there is no “perfect” solution for this as each exchange does have its own pain points.
In this article, I’ll be covering the pros and cons for each exchange as well as which exchange I’m personally most comfortable with holding Nio shares in.
What is Nio?
NIO Inc. designs, develops, manufactures, and sells smart electric vehicles in China. It offers five, six, and seven-seater electric SUVs, as well as smart electric sedans. The company is also involved in the provision of energy and service packages to its users; design and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after sales management activities.
Yahoo Finance
The above is the somewhat “official” description of Nio.
Here is my own description of the company,
- Premium Electric Vehicle (EV) Maker Based in Shanghai
- Differentiation Factors: Nio Power. Battery Swap Service, no need for charging, just swap batteries almost instantly and off you go.
- Differentiation Factors: Nio House, an exclusive physical club where Nio owners can mingle.
- Differentiation Factors: Nio Service, free Roadside Rescue 24/7. In case your battery run out etc. Nio will bring one to you. Others services such as warranty & servicing are included as well.
Overall, Nio is not selling just a car but beyond that, they are selling a lifestyle and a full suite of services to go along.
Why is Nio listing in Singapore?
There are 2 reasons why I think Nio is listing in Singapore. Note that these are my personal opinions and they can be interpreted as speculative in nature.
1. Delisting Fears
Early this month, the “U.S. Securities and Exchange Commission added more than 80 companies to its provisional list of companies that face delisting in three years if they don’t grant U.S. regulators access to their books.”
Nio was amongst these 80 companies. (Zhirong shared what you should do if you own any of these companies here.)
I believe that delisting fears are indeed a little overblown. Should the US really force these Chinese firms off the exchange, the outcry would probably be 100x worst than what happened with LUNA/UST as the damage would be beyond measure. Some even go as far as to speculate that any forced delisting would almost be equivalent to an act of war.
However, I believe that as unlikely as it is for Nio to be delisted from the Nasdaq, there is still a very slim possibility hence this listing in Singapore is a contingency plan for them should the hammer fall.
2. Anti Monopolistic Practices
In this aspect, I personally speculate that Nio was somewhat “invited” to list in Singapore as part of our government’s effort to regulate the EV market. Lets put it this way, Tesla has no competition and they will always be seen as a brand that is lightyears ahead of its competition.
This is bad for the EV market as should Tesla attain the majority of the market share, they will be able to price their cars indefinitely due to the lack of competition. (remember Grab vs Uber merger?)
As such, I speculate that Nio is not simply listing in Singapore for the sake of access to additional capital (let’s get real, capital in Singapore is a fraction of the other exchanges) but rather to carry out legitimate business activity. Let me know if you see any Nio scaffoldings around.
Which is the best exchange to buy Nio Shares?
As an investor, I’ll prefer to buy Nio shares listed on SGX. Here’s why.
Let’s start with the obvious.
Amongst the 3 exchanges, the one which I would avoid (if I had a choice) would most certainly be the US exchange.
Why I would avoid buying Nio shares on the US stock exchange?
As mentioned above, as unlikely as it is for Nio to be forced off the exchange, a chance exist hence the US stock exchange would possess the greatest risk.
In addition to this, most exchanges would want the listed companies to have legitimate business activities within the country. Unfortunately for Nio, at this point in time, their business activities within the US is still far from that of Shanghai or even Singapore (in time to come).
Disclaimer: I do hold shares of Nio on the US Exchange at the time of writing.
With the US exchange out of the picture here comes the comparison between HKEX and SGX. Ultimately, I would choose SGX over HKEX. The following are my justifications,
2 reasons why I would prefer to buy Nio shares in SGX over HKEX
- Access to capital. HKEX has a minimum lot size of 100 hence with Nio (HKEX : 09866) at 130 HKD, we are looking at a minimum purchase of $2300 SGD per trade. This may be a deterrent to new investors who may not wish to park that much capital into a company that is still considered to be speculative in nature due to the uncertainty behind EV growth/adoption. Furthermore, Nio is not generating profit at present and is only expected to do so in 2025.
- Government Regulation – While Hong Kong is widely considered out of reach of Chinese Regulators, the reality is such that if China really wanted to force some sort of regulation on the Hong Kong stock market, it is likely that such regulations would indeed go through. In this aspect, many investors still feel insecure about investing in the Hong Kong exchange be it due to political or domestic instability.
1 reason why Nio shares may perform better in HKEX
Let’s be honest, SGX is more widely known for the preservation of wealth rather than the active growing of wealth. For reasons too many to list, our home market isn’t exactly the most welcoming towards high-growth stocks.
Reference to the many Singaporean brands such as Osim, Razer & Sea Limited all of which chose everywhere else in the world to list except Singapore. That on its own is an indication of the types of companies which are more suitable for SGX.
Will I be buying Nio shares when they commence trading on SGX?
To be honest, I’m all in on the excitement and the outright answer is; yes I will be buying Nio shares when the opening bell rings. However, considering market conditions at present, I won’t be going heavy on the stock but at the very least just a couple of lots to show support.
On other exchanges, Nio has indeed been on a very steep decline. It’s hard to say at this point if the opening price of Nio tomorrow is at a level where the market feels the decline has been priced in as even in the case of Nio in HKEX, the stock crashed by almost 50% within a week of its opening debut before recovering. Even at present, the stock is indeed following the same decline as that of its US listing.
Volatility in Nio shares will continue as the market continues to avoid high-growth stocks. As always, investors should conduct their own due diligence before investing in such investments.
If you’re not sure how to evaluate stocks, join Alvin at his next live webinar to learn how he analyses and picks stocks for the Dr Wealth portfolio.