Nio Gets Significant Price Cut From Analyst As COVID-19 Curbs Weigh On Guidance: Will There Be Recovery In The Second Half?

Nio Inc - ADR NIO is expected to overcome near-term COVID-19 lockdown challenges in China on resilient demand and as production recovers, US Tiger Securities Inc analyst said on Thursday.

The Nio Analyst: US Tiger Securities analyst Bo Pei has maintained a Buy rating but lowered the price target to $35 a share from $40 on Nio after the company reported a wider first quarter loss as COVID-19-linked shutdowns hit the Shanghai-based company’s production so far this year.

The Nio Thesis: Rising commodity costs hit Nio’s margins during the quarter. The EV maker reported a gross margin of 14.6% in the first quarter, compared with 19.5% a year ago and and 17.2% in the fourth quarter of 2021.

The company however expects gross margin recovery to take place in the third quarter.

“With the deliveries of new products, higher revenue per vehicle and increasing production output, we expect the vehicle margin to start bouncing back from the third quarter,” CEO William Li told investors in a post-earnings call. 

Nio said its new factory, the company’s second, has begun pre-production builds of the upcoming ET5 sedan that is expected to begin deliveries in September. The company also confirmed plans to launch a premium, five-passenger SUV, the ES7, later this month, with deliveries beginning in August.

See Also: Nio's Q1 Revenue Tops Estimates, Forward Guidance Disappoints: What EV Investors Need To Know

What Next?: The company guided second quarter deliveries to be between 23,000 and 25,000 units, a decrease from 25,768 in the first, primarily due to supply chain disruptions caused by COVID. 

“Second quarter vehicle margin should further decrease from the first quarter, as battery cost, which peaked in April, is now linked to raw material price based on the new procurement agreement with the supplier,” Pei wrote in a note.

The analyst pointed out that while Nio hiked prices by $1,500 for all models in the second quarter, the deliveries were still pre-price-adjustment vehicles. 

“Overall, beyond the temporary supply chain constraints, we see robust volume and margin recovery in 2H as NIO starts to deliver two new NT2.0 models (ET5 and ES7) with higher gross margins.”

NIO Price Action: Nio closed 3.13% lower at $18.23 on Friday morning.

Photo: Courtesy Nio