Why Nio Has A Shot At Becoming The 'Tesla Of China'

Chinese electric vehicle manufacturer Nio Inc – ADR NIO reported Tuesday with forecast-beating second-quarter results and issued a strong third-quarter outlook. 

The Nio Analysts: Piper Sandler analyst Alexander Potter reiterated a Neutral rating on Nio and increased the price target from $4 to $14.

BofA Securities analyst Ming Hsun Lee reiterated a Buy rating and increased the price target from $17.40 to $18.

Why Nio Shares Could Trade In Line With EV Peers: Nio's narrower-than-expected second-quarter loss is due to a higher gross margin, with the vehicle margin coming in at a historical high of 9.7% and several basis points higher than the 5% guidance, Potter said in a note.

More importantly, the company guided to continued gross margin expansion in the third and fourth quarters thanks to lower battery costs, the analyst said.

From skepticism concerning the company's ability to remain a going concern, Nio has come a long way from skepticism over whether it could stay in business, he said. 

The automaker boasts unique products and has a reliance on subsidies, which are two prerequisites for success, Potter said.

With Nio raising capital in two funding rounds, including a secondary offering in June, there are no longer fears that the company may go out of business, the analyst said. 

The stock will therefore trade more in-line with peers, and not at a substantial discount to them, he said. 

The company will slowly reduce its reliance on partners for core capabilities such as self-driving systems, batteries and vehicle manufacturing, and may attempt to internalize these functions over time, according to Piper Sandler.

"A recent capital infusion makes for an atypical ownership structure — but cash is cash, and with a fortified balance sheet and a well-established brand, we think NIO has a shot at earning the 'Tesla of China' moniker," Potter said. 

Bof Says Nio Experiencing Strong Order Momentum: The higher-than-guided vehicle margin was a function of increasing scale in deliveries and revenue, higher average ASP due to a higher mix of ES8 and the improved performance version of ES6, battery cost reduction and improving manufacturing efficiency, Hsun Lee said in a note. 

The guidance for 11,000-11,500 vehicles in the third quarter suggests strong order momentum, the analyst said.

Predicating the move on the better-than-expected quarterly results, BofA raised its 2020 Nio volume estimate by 9% and reduced the net loss estimate by 13%. The firm also narrowed its 2021 and 2022 net loss estimate by 3% and 28%, respectively, citing higher gross profit margins and lower operating expenditures.

NIO Price Action: At last check, Nio shares were rising 0.46% to $13.05. 

Related Links:

Nio Analyst Projects Upside On Stronger Orders, Improving Margins, Cash Flow

Nio's July Deliveries Up 322% Year-Over-Year, Down Month-Over-Month

Photo courtesy of Nio.

Posted In: Alexander PotterBofA Securitieselectric vehiclesEVsMing Hsun LeePiper SandlerAnalyst ColorEarningsNewsGuidancePrice TargetReiterationTop StoriesAnalyst RatingsTech