NIO: Why Deutsche Bank Is Lowering Its Price Target Ahead of Earnings

At the start of the week, Tesla released Q1 results, delivering record profits in the quarter. On Thursday, April 29, Nio (NIO) – often dubbed the Tesla of China – will try to match its rival’s achievements when it announces the quarter’s financials.

As with Tesla, investors will have a rough idea of what’s in store after the company released the quarter’s delivery numbers earlier this month. In Q1, Nio made 20,060 deliveries, a new record, up from Q4’s 17,353 deliveries and amounting to a 423% year-over-year uptick.

Deutsche Bank’s Edison Yu expects sales of 7.44 billion RMB and gross margin of 15.5%, “both in-line with consensus.” This will result in EPS of (0.68) RMB, while the Street has (0.72) RMB.

Looking ahead, the analyst thinks Nio will guide for roughly 22,000 deliveries in Q2. For the full year, Yu anticipates 95,000 vehicle deliveries, revenue of 35.5 billion RMB, gross margin of approximately 18%, and EPS of (2.40) RMB.

Apart from advancing its recently announced new industrial campus, Yu does not anticipate much action in 2021. Citing “product cadence and semis shortage,” as the reasons why there aren’t any major catalysts on the horizon.

It’s further down the line, in 2022, when things are bound to pick up. Next year will be a “pivotal” one which will see the first year of availability for the “flagship” ET7 sedan. Yu expects the vehicle to sell out “every single month.” In conjunction with the ET7, in 2022, NIO will also launch its autonomous driving subscription service.

Yu notes that even the founder/CEO of rival Li Auto was “impressed” by the vehicle, and last week said the ET7 was “one of the best EVs at the Shanghai Auto Show.”

That said, talking of the competition, the Chinese EV market is getting over saturated, and is now one where the “number of well-funded players seems to increase every week.” Yu expects the competition to only intensify in what is already the world’s most competitive EV market.

The competition worries and the “broader re-rating among EV stocks this year” are why the analyst reduces the price target from $70 to $60. Nevertheless, there’s still upside of 43% from current levels. Yu’s rating remains a Buy. (To watch Yu’s track record, click here)

Turning now to the rest of the Street, where the Buys outnumber the Holds at a ratio of 7 to 3, resulting in a Moderate Buy consensus rating. The average price target stands at $59.84, almost the same as Yu’s. (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.