Nio Analyst Sees Meaningful Tailwinds For EV Brand's Sales Volume

The correction in Nio Inc's – ADR NIO stock continued Tuesday, as the stock tanked despite the Chinese electric vehicle manufacturer reporting record November deliveries. 

An analyst at Goldman Sachs upgraded Nio Tuesday on the basis of the fundamentals of the Chinese EV market. 

The Nio Analyst: Fei Fang upgraded shares of Nio from Sell to Neutral and hiked the price target from $7.70 to $59.

Transition Underway: A multiyear transition in which passenger vehicles are moving away from fossil fuel engines and transmission systems to being powered by batteries and electric motors is underway, Fang said in a Tuesday note.

The analyst raised his Chinese new energy vehicle penetration forecast for 2025 from 13% to 20% and from 37% to 53% in 2035, with penetration zooming to 80% in 2050.

Unit demand will likely quadruple in the next four years from 1 million units to 4.3 million units, he said. 

"The existence of such growth opportunities has attracted investors to price considerable optionality value into the current EV leaders." 

Related Link: BofA's Takeaways On Nio's 2021 Plans

Goldman Concedes Underestimating Nio: Goldman's mid-July downgrade of Nio was predicated on valuation, which at that time reflected over-optimism, given no substantial changes to expectations for Nio's volume and profit, Fang said.

The analyst said he had underestimated benefits accruing to Nio from powertrain breakthroughs, especially with the cell-to-pack/blade large cell technologies, the introduction of a battery-as-a-service program and regulatory incentives.

"Combined, all of these factors have provided significant tailwinds to Nio's sale volumes," he said. 

It is now evident the market is looking through earnings cycles and is discounting multi-decade expansionary opportunities into current share prices, Fang said.

With only 9% upside to Goldman's new price target of $59, the analyst said the shares appear fully valued, rendering a Neutral rating appropriate.

Reflecting the revised EV penetration assumptions, Nio's capacity expansion, strong demand and improving unit profit, Goldman upwardly revised its bottom-line forecast for the period from fiscal years 2020 through 2022.

NIO  Price Action: Nio shares, which came under pressure Monday, extended the pullback into Tuesday's session and were last seen trading down 11% to $44.97.

The retreat has taken Nio's shares below a near-term support around $48.50. Further weakness could drag is toward the next support area around $44-$44.50.

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Related Link: High-Flying Chinese EV Stocks Hit Roadblock Amid Domestic Regulatory Scrutiny

Photo courtesy of Nio.