NIO Awaits Upside In China's Premium EV Market

Nio Inc - ADR NIO is poised to profit from China’s favorable regulatory incentives, a distinct design and strong performance record, according to Goldman Sachs. 

The Analyst 

Analyst Yuqian Ding initiated coverage of Nio with a Neutral rating and $6.56 price target.

The Thesis

Goldman Sachs considers NIO a “pioneer” in China’s premium EV segment, differentiated by its AI assistant and on-demand charging services.

“We assume EV penetration in China reaches 25 percent/40 percent in the premium passenger vehicle segment in 2020E/2025E, with NIO capturing 12 percent/23 percent share,” Ding said in the initiation note.

NIO’s segment leadership and the pricing power of premium brands could drive upside to margins, the analyst said. 

Ahead of these realized gains, the firm faces five potential catalysts, according to Goldman Sachs: 

• Demand guidance for the ES8 and ES6 models;
• Ramp-driven gross margin growth;
• Improved efficiency through NIO’s production facilities;
• Development of a Phase 2 plant in Shanghai; and
• China’s EV subsidy plan.

As NIO builds scale, though, Goldman Sachs anticipates a net loss of 20 billion renminbi, with negative free cash flow of 24 billion renminbi between 2018 and 2020. Cash burn, model cannibalization and competition serve as risks to the downside, Ding said. 

Price Action

Nio shares were down 2.72 percent at $6.09 at the time of publication Monday. 

Related Links:

Nio On Roller Coaster Since IPO

Bernstein Out Bearish On EV Startup NIO

Photo by Jengtingchen/Wikimedia.