The recent volatility has affected the tech sector the most, and further down the tech rabbit hole, EV makers have possibly suffered the cruelest blow. However, considering the surge across the board for these high-flyers over the past year, in hindsight, a sharp pullback, does not sound so surprising.
Nio (NIO) – dubbed “the Tesla of China” – was one of the segment’s star performers in 2020. And despite clawing back some losses in the market’s comeback, the stock is still down by 10% year-to-date.
However, the electrification of the auto industry isn’t going anywhere and is expected pick up steam over the next few years. From only 4% penetration today, EVs are anticipated to increase to 25% of global light vehicle production (LVP) by 2025.
With this in mind, Mizuho analyst Vijay Rakesh thinks Nio and its unique approach, position it as one of the best placed companies to reap the rewards.
“NIO has a key differentiation from peers,” the 5-star analyst said. “A premium EV offering with a lower cost of ownership through its novel Battery-as-a-Service (“BaaS”) battery swap module. With a small 0.1% share of overall global light vehicle production (“LVP”), we believe NIO has significant upside as it expands in China, into Europe in 2H21E, and potentially into other markets.”
NIO’s BaaS program allows customers to swap batteries in 5-10 minutes, while remaining qualified for China’s national EV subsidies. This enables Nio to sell their cars without batteries, in the process saving customers roughly 35 to 50% in upfront payments. China is focused on building out a national battery swap station infrastructurewhich would make EVs accessible to the 40% of the populace without the means for their own charging space.
“While NIO is focused on the premium EV segment,” Rakesh noted, “A China subsidy and an innovative BaaS program make NIO’s cars eminently affordable compared to competing brands such as Tesla.” Overall, Rakesh estimates NIO held a 33% share of the China battery swap station market in 2020.
While the company is also eyeing intranational expansion by entering the European market in 2H21, being domiciled in China offers Nio another advantage. China has more than 50% of global EV sales, boasts the largest EV charging infrastructure, and has the most battery manufacturing capacity.
By 2025, China’s MIIT’s (Ministry of Industry and Information Technology) strategy calls for 20% of vehicles sold to be new energy vehicles (NEV), which is a fourfold increase from the present ~6% penetration rate and should be “a multi-year tailwind for NIO.”
To this end, Rakesh initiated coverage of Nio with a Buy rating and $60 price target. The implication for investors? Upside of 45%. (To watch Rakesh’s track record, click here)
Most of Rakesh’s colleagues agree; Nio’s Moderate Buy consensus rating is based on 8 Buys and 3 Holds. The average price target stands at $64.67, suggesting gains of 44% over the next 12 months. (See Nio stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
