Carmakers like Tesla and NIO have created annual events like “Battery Day” and “NIO Day” to reveal big announcements, introduce new products and to hype itself up just enough to send its stock higher.

On Jan. 9, NIO, the Chinese luxury electric vehicle (EV) maker held its fourth NIO day with some key announcements:

• First company’s sedan, ET7, with a starting price of US$69,193 — deliveries to start first quarter of 2022
• Most notably… A new battery pack that will increase the range of its vehicles to 621 miles — while Tesla’s Model 3 drives only 353 miles.

How NIO came back from the dead

In April, NIO nearly escaped bankruptcy with a $1b rescue-investment from investors. Since then, NIO has become one of the hottest EV stocks in 2020 — rising over 1,600% in the past year.

Despite selling only 17k cars in the third quarter of 2020, less than 3% of General Motors vehicle sales, NIO has become the third-largest automaker by market cap.

In JPMorgan’s views, NIO’s extreme valuation is justified by seeing it as a tech company with more growth opportunities including:

• Content monetization through an app store or turning your car into a “smartphone with wheels”.
• Self-driving capabilities which NIO is planning to charge monthly for.

But there are two problems with this view:

1. It takes a massive user base to monetize with content
2. The profitability of self-driving features is still unknown.

A blessing and a curse

NIO operates in one of the largest and most competitive EV markets in the world, China — with over 400 domestic EV car makers (not including global competitors).

China’s EV market had grown from just 5% global market share to nearly 50% in 2019 — supported by its generous subsidies. But in April, China began rolling back these subsidies with two key changes:

• Subsidies will only apply on cars less than US$42,376, leaving out luxury EV makers like NIO and Tesla.
• Subsidies will be cut by 20% in 2021 and 30% in 2022.

Ultimately, this would benefit lower-cost EVs and harm luxury sales — negatively impacting NIO.

For investors… Open the floodgates

Hundreds of EV startups have popped up over the past few years — many of which likely won’t survive.

One of the biggest threats to these startups is competition from existing carmakers, who are well funded and have existing manufacturing/sales capabilities to push out its own EVs.

Nearly every carmaker is planning to release an EV in the coming years — flooding the market with supply which could trigger a collapse in EV stocks.

Learn more: Here’s what you need to know about NIO before investing