NIO (NYSE:NIO) shares are making impressive gains this week, with a substantial climb of nearly 15%. Investors appear to be applauding the Chinese EV maker for taking a leaf out of Tesla’s playbook by announcing price cuts on its models. The company has slashed prices across its models by Rmb30,000 (~$4,200), resulting in a 6% to 9% reduction for its EV portfolio, effective immediately. In an effort to mitigate the loss of revenue, the company has also stated that new buyers will no longer be offered free battery swapping services.
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These actions, says the company, are made from a position of strength. Eliminating free or bundled battery swaps from the vehicle aims to strike a balance between the rights of current users and reducing the cost of purchasing the car. On the other hand, the decision to monetize NIO’s battery swap network indicates the company’s belief in the maturity and added value of their energy replenishment system.
Considering this, the company anticipates that the reduced prices could lead to a sequential increase in sales of existing models by 10-20%, consequently driving a resurgence in sales volume in the second half of 2023.
“From a financial perspective,” notes Morgan Stanley analyst Tim Hsiao, “since bundled battery swaps have always been recorded as deferred revenue in NIO’s financial results, the immediate top-line impact should be manageable.”
Price cuts aside, Nio also thinks there are other ways to boost sales. To better reach the right customer, the company is working on a “more nuanced sales strategy” for its 8 different models.
And given its market share in lower tier cities is significantly lower than that of tier 1 cities, it is also working on sales strategies that are a better fit for the locality.
While these are promising initiatives, Hsiao thinks that for the market to continue showing confidence, it is on Nio to now execute its game plan properly.
All told, Hsiao rates NIO shares an Overweight (i.e., Buy) along with a $12 price target. Should that figure be met, investors will be sitting on returns of 35% a year from now. (To watch Hsiao’s track record, click here)
Most on the Street are thinking along the same lines although not all are on board. Based on a total of 8 Buys vs. 4 Holds, the analyst consensus rates the stock a Moderate Buy. The majority also believe the shares are undervalued; at $10.62, the average target is set to generate 12-month gains of 20.5%. (See NIO stock forecast)
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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.
