It’s time for a reassessment of Nio’s (NYSE:NIO) prospects, according to J.P. Morgan analyst Nick Lai.
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Back in February, due to concerns that the EV maker’s sluggish sales momentum could negatively impact profitability, thereby resulting in consensus downgrades for earnings and revenue, Lai reduced his NIO rating to Underweight (i.e., Sell). Over the past month, however, two new developments have taken place, leading Lai to have a more favorable view of what lies ahead for the company.
The first revolves around the Chinese government’s stimulus policy aimed at boosting auto demand, including for new energy vehicles (NEVs), which should benefit Nio. The second concerns Nio’s new Battery as a Service (BaaS) strategy. This strategy reduces buyers’ monthly rental fees by approximately 25%, has successfully increased store traffic, and has improved BaaS adoption rates from the previous 20-30% to 60-70%. Additionally, this strategy has driven sales momentum, as buyers effectively save RMB 70,000 with the BaaS program without impacting Nio’s revenue, since the BaaS is offered by Nio’s 19%-owned subsidiary.
The latter decision gets a thumb up from Lai. “We welcome such a move, especially in an intense pricing environment,” says the analyst. “By successfully lifting the take rate, NIO effectively broadens its addressable market and lowers the entry price point for the mass BEV segment of below Rmb300k for two important volume models – the ES6 and ET5 (accounting for 75% of sales in 2023).”
Looking ahead, Lai anticipates some improvements for several “key metrics” over the coming quarters. Lai sees monthly sales growing from ~15,000 units in 2Q24 to 22-23,000 in 4Q24. Meanwhile, he expects the overall GPM (gross profit margin) will improve from ~3% in 1Q24 to 12% in 4Q24.
Given all the above, Lai has now upgraded his rating on Nio back to Neutral, while his price target has increased from $4.8 to $5.4. However, the share price currently sits just 2% below this new target. (To watch Lai’s track record, click here)
Turning now to the rest of the Street, where Nio claims a Moderate Buy consensus rating, based on a mix of 7 Buys, 9 Holds and 1 Sell. The average price target stands at $6.63 and factors in one-year returns of ~26%. (See Nio stock forecast)
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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.