Better-than-feared may not sound like a resounding endorsement, but for Nio (NYSE:NIO) investors at present, it serves as a welcome relief. Sentiment surrounding the Chinese EV maker has been subdued for some time. However, despite a mixed Q4 performance, the outlook offered some evidence things might be looking up after all.
For one, Nio expects Q1 deliveries to be in the range between 31,000 and 33,000. At first glance, that looks pretty bad, considering the company delivered 50,045 vehicles in Q4. However, given deliveries reached 10,055 in January and just 8,132 in February, the figure implies deliveries should reach around 14,000 in March, indicating sales are picking up.
The quarter’s expected haul is significantly better than what Deutsche Bank analyst Edison Yu had in mind. “This compares to our expectation for mid 20,000 and suggests March will rebound meaningfully from Jan/Feb run-rate to 13,000-15,000 units,” he explained. Moreover, driven by cost savings, the company anticipates the Q1 vehicle margin will be around 9-10%, also better than Yu’s expectation for a mid-single digit showing. According to the company, that should improve further to between 15-18% in Q2, although Yu considers that might goal be a bit “aggressive.”
One factor keeping sentiment low revolves around the fact Nio has no plans for any new NIO branded models this year with management already stressing it intends to sit out what has become a “raging price war” in the EV space. “Hence,” says Yu, “the key will be the sales force revamp that brought in >3,000 headcount to augment/deepen the brand’s reach.” The analyst does not think Nio is “structurally falling victim to other EV upstarts” but more that it is failing to bring on board enough traditional BBA gasoline customers.
While there will be no new NIO branded models introduced in 2024, Q3 will see the launch of the Alps brand. That will be Nio’s first mass market vehicle and volume deliveries are anticipated to begin in Q4. Yu thinks the company is taking a sensible approach with its ambitions for the car, whereby it will focus on “maximizing volume” (~10,000 per month for the initial model) and expects “stable margin” to be 5-10% points under the core NIO brand.
All told, Yu maintained a Buy rating on the shares, backed by a $9 price target, implying the stock will deliver returns of 55% in a year’s time. (To watch Yu’s track record, click here)
Overall, on the Street, the Buys and Holds are evenly split here, showing 6 of each, and with the addition of 1 Sell, the stock claims a Moderate Buy consensus rating. At $7.32, the average price target implies the stock has a 12-month upside of 26%. (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.
