Tesla Rival Nio Retains Bullish Rating From This Analyst, But Gets A Price-Target Cut: Here's Why

Nio Inc NIO investors this year will focus on the electric vehicle maker’s ability to maintain deliveries and margins amid supply chain constraints and new COVID-19 cases in China, higher input costs and crucial vehicle launches, according to brokerage firm US Tiger Securities Inc.

The Nio Analyst: US Tiger Securities analyst Bo Pei has maintained a 'buy' rating but lowered the price target to $40 a share from $45 on Nio after the company reported mixed fourth-quarter results.

The Nio Thesis: The Shanghai-based EV maker is targeting a vehicle gross margin of 18% to 20% this year. It has said it will be investing heavily towards sales expansion in China and Europe and expects R&D costs to more than double from last year.

“It expects 2022 total gross profit to cover SG&A costs, implying an SG&A ratio of roughly 18%, as it expands its sales network in China and enters new European markets,” Pei said.

Nio plans to expand to Germany, Netherlands, Sweden, and Denmark this year.

The EV maker reported a loss of 16 cents per share on an adjusted basis in the fourth quarter and revenue of $1.5 billion. Analysts' consensus was a loss of 21 cents per share on revenues of $1.53 billion, according to Benzinga Pro.

New Models To Add Volume: Nio said on Friday it will begin delivery of its ET7 luxury sedan on March 28. Deliveries of its ET5 mid-size sedan will begin in September, while its ES7 SUV will be launched soon with deliveries starting in the third quarter.

“ET7's key competitor is BMW 5 Series, which has a monthly sales volume in China of 12,000-15,000 units….ES7's specific segment has an annual volume of 200,000 in China, and is still growing.”

See Also: Nio's William Li Says EV Maker On Track To Break Even In 2024 Amid Rising Chip, Raw Material Prices

The EV maker indicated it has over 15,000 orders for the ET7, which will also compete with Tesla Inc’s TSLA Model S. 

Capacity Expansion: Pei said the expansion of Nio’s first factory F1 is expected to be completed in mid-year and add 20,000 units per month. The construction of the second factory F2 is largely finished and it will start producing ET5 in the third quarter. 

Increasing Prices? Nio does not plan to increase prices for the current models (ES8, ES6, and EC6). Instead, it plans to launch a smart hardware upgrade for these models in 2022 and could adjust prices later.

“Nio feels confident in securing parts and batteries in 2022, given its strategic partnerships with suppliers," said Pei. The EV maker expects to break even in 2024 for the full year. 

Price Action: Nio stock closed 9.4% lower at $19.9 a share on Friday. The stock is down 40.5% year-to-date.

Photo courtesy: Nio