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Goldman Sachs: Time to Buy NIO Stock After Its Selloff

Three months of unmitigated selling pressure on Chinese stocks have left their mark on Chinese electric-vehicle maker NIO (NIO). Since July 1, 2021, shares of Nio have lost over 30% of their value, notes Goldman Sachs analyst Fei Fang — but all bad things must come to an end.

And in Fang’s opinion, it’s now time to buy some Nio stock.

Why buy Nio now? In addition to the broad-based market selloff, after all, Nio suffers from some problems of its own making, in particular an August fatal car accident involving a Nio car driving with its “Navigate on Pilot” (NOP) autonomous driving mode on, and an early-September sales update that reduced expectations for sales volume in the face of “supply chain constraints.” But in Fang’s view, the story surrounding Nio could be about to change.

The next six months, argues the analyst, will see “strong volume expansion” at Nio as the company:

  • Introduces its ET7 electric sedan in China (expected to go on sale in Q1 next year),
  • Enters the Norwegian electric car market internationally.
  • Advertises new wares in China at its upcoming “Nio Day 2021.” Among the unveilings expected there will be Nio’s second electric sedan, the anticipated ET5 (which Fang expects to be comparable to a Tesla Model 3).

Profits should grow nicely as well, especially thanks to the ET7, which Fang points out is expected to be “China’s priciest car model launched by a domestic brand.”

Indeed, Fang argues that this is a strategic move for Nio, introducing a luxury electric car “in the same class with peer full-size premium sedans including Mercedes S-class and BMW 7.” The ET7 will be Nio’s fourth electric passenger vehicle introduced in China, and its first electric sedan. Importantly, it will also go a long way towards reducing range anxiety among electric car buyers. Fang notes that even the car’s basic 75 KwH battery pack will be good for 500 kilometers (300 miles) of range, while an extended range battery pack is good for 700 km per charge (420 miles), and a new “semi-solid state battery” could achieve as much as 1,000 km — 600 miles between chargings.

And of course, there’s Nio’s secret weapon: Its ability to offer “battery as a service,” whereby customers can buy a car and lease a battery separately, such that there’s never a worry that a battery will get old and fail to live up to its promised range throughout its lifetime. If that ever happens, a customer can simply… get a new battery and pop it into the car.

While the new Nio will be expensive for China, it should compete well against foreign luxury brands, inasmuch as it’s being priced closer to the sticker prices of Mercedes’ E-class and BMW 5-series automobiles. The analyst also observes that Mercedes and BMW seem to have done some research for Nio, inasmuch as they’ve scaled production of their E-class and 5-series models to about 10,000 units per month for China — equivalent to the 10,000 units that Nio moved in September.

All of this, in Fang’s view, supports an upgraded rating of “buy” for Nio stock, and a $56 price target, offering 55% upside potential for new investors. (See NIO stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.