Nio (NYSE:NIO) shareholders have had a rough 2023, as Mr. Market chopped off 26% of the company’s stock price. The company’s latest quarterly results were a mixed affair and failed to conclusively shift sentiment. The Chinese EV maker fell short on revenue and guide expectations in Q3 but, with a strong focus on the profitability profile, saw its losses narrow somewhat.
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Even though the company still posted an adj. operating loss of RMB 4.2 billion, Barclays analyst Jiong Shao says that as far as cost savings go, Nio “meaningfully exceeded” expectations. Partly down to the deduction of expenses on account of the support for technology advancement provided by local governments, the company also saw a sequential drop in R&D expenses. And even though Nio only just recently added around 3,300 new salespeople (out of a total of 5,700), increases in SG&A expenses also came in lower than Shao had anticipated.
But while quarterly results often provide a clear picture of where a company is at, in Nio’s case, Shao argues, they have become “less relevant” due to Nio facing two “significant obstacles.”
The company faces a situation characterized by significant cash burn and lackluster sales of its existing product line, and recently cut the workforce by 10%. At the same time, there’s a need for the development of more competitive and distinct products, especially with formidable competitors like BYD and Huawei venturing into NIO’s targeted segment of high-end SUVs, offering attractively priced and competitive alternatives. “It is a difficult situation to resolve,” says Shao.
Later this month, Nio is slated to announce its next flagship product while a new “sub-brand” is set for a launch next year. The stakes are high, then, with Nio’s prospects hanging in the balance.
“At the end of the day,” Shao summed up,” all EV companies are consumer product companies and one can only be successful if it has competitive products at attractive enough price points. We are hopeful for NIO but are mindful of the significant challenges given the hyper competitive nature of the Chinese EV industry.”
All told, Shao maintains an Equal Weight (i.e., Neutral) rating on NIO shares, backed by an $8 price target, implying the stock will post ~11% gain over the next year. (To watch Shao’s track record, click here)
However, the Street’s average target is rather more exuberant; at $11.36, the figure accounts for one-year growth of a robust 57%. Rating wise, based on a mix of 6 Buys vs. 3 Holds, the stock claims a Moderate Buy consensus rating. (See Nio stock forecast)
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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.
