The recent upward momentum seen in shares of Nio Inc – ADR (NYSE:NIO) is likely to be sustained, according to a BofA Securities analyst who projects incremental upside over the next 12 months.

The Nio Analyst: Ming Hsun Lee reiterated a Buy rating on Nio ADSs and upped the price target from $5.50 to $7.30.

The Nio Thesis: BofA's bullish stance on Nio is premised on stronger orders, anticipated vehicle gross profit improvement in the second quarter, improving free cash flow and a favorable EV purchase subsidy scheme, analyst Hsun Lee said in a Friday note.

The analyst attributed the strength in orders to Nio's improving product quality, fast channel expansion and new capacity addition. From today's 3,500-unit monthly run rate, he sees capacity increasing 5,000 units by the end of 2020, alleviating investor concerns over capacity expansion.

Hsun Lee is also optimistic of new order wins growing sequentially once the company starts delivering in the third quarter and launches a 100kWh battery pack in the fourth quarter.

The higher sales and cost cuts are likely to augment vehicle gross profit expansion, the analyst said. 

Based on the cash raised in Nio's recent equity offering and investment from Hefei government and the improvement anticipated in cash flow, Nio's cash on hand will support the company until 2022-23, he said. 

Accounting for the solid sales momentum and new capacity expansion, BofA raised its 2021-22 volume sales estimate by 8% and 6%, respectively.

Nio Price Action: Nio ADSs, which rose to a high of $6.95 Wednesday, saw some loss of momentum in the wake of the equity offering announced the same day.

The stock was up 2.71% at $6.07 at the time of publication Friday. 

Related Links:

Tesla Vs. Nio Vs. Xpeng: A Look At The Chinese Electric Vehicle Market

Tesla Was Top-Selling Chinese EV Brand In May, Sales Jump 205%: Report

Photo courtesy of Nio.