Nio Is In A Good Spot To Take China's EV Market, But This Analyst Says Valuation Already Reflects That

Nio Inc - ADR NIO shares have risen 20 percent year to date, but one analyst thinks its momentum has peaked.

The Rating

UBS analysts Paul Gong and Yizhe Wang maintained a Neutral rating on Nio with a $7 price target.

The Thesis

UBS is particularly encouraged by Nio’s early demand. As yet, the automaker has 5,000 unfulfilled ES8 orders and 6,000 ES6 orders, with about 17,000 prospective buyers seeking test drives of the latter.

“We think the backlog number improved visibility for ES8 delivery volume in this quarter, and considering that ES6 will not launch until June 2019, the early order book colour may ease some concerns from investors, in our view,” the analysts wrote in a note.

Chinese subsidy reductions are not expected to threaten the inelastic demand for luxury vehicles.

UBS suspects Nio's $1.2 billion on hand and $700 million borrowing facility will sustain operations for the upcoming quarters. Management has proposed a $2 billion cash budget for 2019 and 2020 excluding the cash required for factory construction.

“We still think NIO is well positioned in China’s EV megatrend from a top-down view,” Gong and Wang wrote, noting that valuation already reflects this potential.

Price Action

At time of publication, Nio's stock traded at $7.45 per share.

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Photo courtesy of Nio.