After losing about 70% of its value in 2022, shares of the Chinese EV (electric vehicle) maker Nio (NYSE:NIO) continue to underperform the broader markets so far this year. While analysts’ average price target suggests significant upside potential, increased competition and pressure on margins indicate that the downtrend in the stock could be sustained, at least in the near term.
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It’s important to highlight that Tesla’s (NASDAQ:TSLA) aggressive pricing strategy is affecting the profit margins of its competitors, such as Nio. Despite Nio’s higher car sales in September and the third quarter, its margins could remain under pressure. Investors should be aware that Tesla’s ongoing price reductions have compelled competitors like Nio to provide promotional discounts in order to increase sales volume.
For Nio, the company’s gross margin was 1% in Q2 compared to 13% in the prior-year quarter. Furthermore, its vehicle margin was 6.2% in the second quarter compared to 16.7% in the prior-year period. The slump in margins reflects changes in product mix and promotional discounts.
While Tesla’s pricing strategy is hurting its margins, increased competition in the EV space is a cause for concern. Based on Q3 deliveries, Li Auto (NASDAQ:LI) has outperformed Nio in terms of growth. Additionally, the Huawei-backed EV company Aito recently announced that it had received over 50,000 orders for its M7 model in less than a month since its launch. In response to this news, Nio’s stock experienced a 4.36% decline on October 9th.
Is Nio Stock Expected to Go Up?
As Nio stock has lost substantial value, analysts’ average price target indicates significant upside potential from current levels. The company’s focus on mass production and ramp-up of new models augur well for volume growth. Further, its transition to a new car platform and expansion of its power and service network are viewed as positive developments.
However, the competitive headwinds and near-term pressure on margins keep analysts cautiously optimistic about Nio stock.
Nio stock has received six Buy and four Hold recommendations for a Moderate Buy consensus rating. Further, these analysts’ average price target of $14.24 implies 70.74% upside potential from current levels.
Bottom Line
While analysts’ price targets suggest significant upside potential in Nio stock over the next 12 months, the heightened competitive headwinds could continue to hurt its share price in the short term.
