Why Nio's 2022 Outlook Remains Solid, According To Mizuho

NIO Inc. - ADR NIO reported better-than-expected third-quarter results but issued soft guidance for the fourth quarter.

The Nio Analyst: Mizuho Securities analyst Vijay Rakesh maintained a Buy rating on Nio shares and decreased the price target from $67 to $65.

The Nio Thesis: Nio's December quarter revenue guidance was modestly below consensus, analyst Rakesh said. Production line upgrades and supply constraints are likely to be near-term headwinds for the company, he added.

"NIO's 2022 outlook remains solid, however, with new Neo Park plant in 3Q22, ET7 launch in 1Q22, and entry into five new markets in the EU," the analyst said.

The global EV transition is accelerating, with battery EV penetration in China increasing to 17.5% in September and globally to 10-11%, the analyst noted.

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The 230 basis-point sequential decline in vehicle margin in the third quarter is due to increased subsidized rate purchase financing, the analyst said.

Nio said its new 75kWh LFP/NCM hybrid battery will begin deliveries in November and would be a gross margin tailwind, Rakesh noted.

However, higher raw material prices will likely be near-term offset, resulting in an overall flattish gross margin of 20% in the fourth quarter and 2022, he added.

The company's new NT2.0 technology platform is expected to ramp in 2022 and drive stronger gross margins over time in conjunction with scale, the analyst said, citing the company.

Longer-term, Nio targets vehicle gross margins at 25%, and the key will be a strong Europe rollout and mass-market entry, Rakesh said.

Nio will likely unveil its planned mass-market model, the ET5, at its Nio Day event on Dec. 18, the analyst said.

The downward price target adjustment was due to lowered estimates to account for near-term softness signaled by the company, Mizuho said.

"We see NIO positioned well to continue growth with premium branding, EV penetration accelerating in China, Europe expansion underway, and mass-market entry potentially in 2022-23," the firm said.

Nio Price Action: Nio shares were up 5.76% at $41.85 at last check Thursday morning.

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Photo: Courtesy Nio