Bank Of America Downgrades Nio On Lower Sales Expectations, Tesla Competition Expectations

Looming lower sales following cuts in subsidies for electric cars and the emergence of an American competitor led Bank of America to downgrade Nio Inc NIO.

The downgrade followed lackluster results reported by the Chinese electric vehicle maker a day earlier, when Nio reported first-quarter sales down more than 50 percent and lower guidance for second-quarter shipments.

The Analyst

Bank of America Merrill Lynch analyst Ming Hsun Lee downgraded Nio from Neutral to Underperform and lowered the target price from $6.20 to $3.

The Thesis

Bank of America expects orders of Nio's ES8 and ES6 electric vehicles to be weak because of cuts in subsidies.

Also coming down the road is more competition from American EV maker Tesla Inc TSLA as it moves toward the completion of its new factory in Shanghai. Media reports suggest Tesla could be producing its Model 3 in China by the end of 2019, though Bank of America expects the competition to emerge in 2020.

Lee also said Nio is less attractive because of high current valuation.

In addition to lowering the target price on the stock, Lee reduced Bank of America's 2019-2020 shipment forecast for the carmaker by 20 to 45 percent.

Price Action

Nio was trading lower by 5.5 percent at $3.76 per share Wednesday morning. The stock rose about 4 percent in Tuesday's session following the earnings release.

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Nio's Lower Share Price Charges Interest In Chinese EV Maker

Photo courtesy of Nio.