JPMorgan Sees Nio As Attractive Long-Term Bet In Fast-Growing Chinese EV Market

Nio Inc – ADR NIO shares have broken into record territory after an analyst at JPMorgan issued upbeat commentary on the overall Chinese new energy vehicle, or NEV, market.

The Nio Analyst: Nick Lai upgraded Nio's stock from Neutral to Overweight and increased the price target from $14 to $40.

Emerging and Structural Shift In Industry Trend: Penetration of Chinese NEVs that includes fuel cell, hybrid and battery vehicles is poised to increase from less than 5% in 2019 to 20% in 2025, Lai said in a note. This is premised on a shift in customers from ICE to EVs and expected production cost-parity between ICE and EV by 2022/23, as battery cost drops further.

China is witnessing "a rising tide lifts all boats" phenomenon, which is not only leading to a fast growing NEV addressable market but also benefitting suppliers relevant to the broader EV supply chain, Lai said.

JPMorgan's positive view on Nio is based on its bullish top-down sector view. The analyst estimates Nio will likely earn a 7% market share in the passenger EV market by 2025, or specifically a 30% share in the premium space the company focuses on.

Related Link: Nio's 4th Annual 'Nio Day' Coming In January: What Investors Need To Know

Nio, being within the top 10 by market share, will benefit from the emerging and structural shift from "B" to "C," as more EV buyers are individuals, rather than corporates or individuals living in cities with purchase quotas, the analyst said.

The company also stands to gain from the extension of NEV subsidy program toward 2022, with battery swap business model being covered by government's subsidy, and a meaningful pick up in new model launches.

"We come to the conclusion that Nio remains attractive from a long term perspective," Lai wrote in the note.

Upcoming Catalysts: Anticipated solid third-quarter results in mid-November. The analyst expects third-quarter gross profit margin to expand further from 8% in the second quarter to 12% in the third quarter.

Robust order backlog, in particular, for the newly launched EC6 crossover model is another catalyst.

A new sedan model scheduled to debut on "Nio Day" should further enhance the company's current product portfolio.

NIO Price Action: Nio shares were rallying 9.99% to $23.78.