If there was any debate still on whether EVs will ultimately rule the Chinese auto landscape, then Bernstein’s Eunice Lee thinks the company’s latest findings are conclusive.
“Our proprietary research shows EV purchase intentions among Chinese consumers have meaningfully picked up in the last year,” the analyst said, “And affiliation to the EV startup brands is surprisingly high.” By 2025, Lee expects EVs to make up 25% of the Chinese auto market and this should rise to 43% by by 2030, marking EVs as the “future” of the Chinese auto industry.
This must be good news, then, for the company dubbed “the Chinese Tesla” – Nio (NIO). Well, yes and no, actually.
Lee thinks Nio’s “user-centric offerings,” including its Battery as a Service (monthly battery subscription) and battery swapping technology are “very attractive to driving brand equity and sales.” As such, the company is already a “credible EV brand” in China. Add in Nio’s focus on building a robust community around its brand, with such offerings as the NIO House – a lounge/clubhouse for NIO owners- and the NIO App, and there’s no doubt the company has a lot going for it.
However, ultimately, Lee says she is worried about intensifying competition in the premium sector – Nio’s forte. While in the large sedan segment, where NIO’s ET7 will be vying for market share, to-date there have been limited EVs, over the next 12-36 months, Audi, BMW, and Mercedes are all planning on rolling out more EVs.
And as the company continues to scale, the analyst is worried that the user experience “will get diluted.” “As the number of NIO owners grows, we expect NIO’s user experience management to gradually leave the scale zone that generates most economies of scale,” Lee explained.
While any community operator would be faced with such a problem, given NIO’s “unique ripple marketing model,” the issue is magnified. For instance, loyal owners might lower their participation once they the app community is not as “active and harmonious” as it once was.
And while the mooted introduction of a mass market brand could become a meaningful volume driver, it is “too early to incorporate any impact.”
Accordingly, Lee initiated coverage of Nio with a Market Perform (i.e. Hold) rating and $45 price target. The figure implies 9% upside from current levels. (To watch Lee’s track record, click here)
Lee’s take, however, is at odds with rest of the analyst community. All other 8 recent reviews are positive, providing the stock with a Strong Buy consensus rating. Furthermore, the average price target is a bullish one; at $58.57, the figure suggests shares will climb by 42% over the one-year timeframe. (See why NIO is a ‘Perfect 10’ stock)
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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.
