Nio Analyst Sees Opportunities In 2022 And Beyond; So Why Is He Halving The Price Target?

Zinger Key Points
  • A jPMorgan analyst says Nio's valuation multiple is at a 50% discount to Tesla, which is justified.
  • The analyst adds that Nio will likely see volume growth of about 80% in 2022/2023.

Nio, Inc. NIO shares have underperformed the EV industry since last year and are trading way off their all-time highs of $66.99 reached in early January 2021.

An analyst at JPMorgan said he sees opportunities for the EV maker in 2022 and beyond, but announced a steep cut in the price target for the shares.

The Nio Analyst: Nick Lai maintained an Overweight rating on Nio shares, but reduced the price target from $60 to $30.

The Nio Thesis: Nio will benefit from rising EV penetration, given its distinctive "premium position" in the Chinese market, analyst Lai said in the note. The new model launches scheduled for 2022 will help a meaningful pickup in sales volume, the analyst said.

The analyst noted that the company will begin deliveries of its ET7 sedan by late first quarter and will follow it up with the ET5 mid-size sedan and the ES7 SUV.

Nio will likely see volume growth of about 80% in 2022/2023, Lai said. Longer term, content and software monetization will likely become an increasing portion of revenue and profit, he added.

Related Link: What Nio Investors Should Know About Imminent Hong Kong IPO: Secondary Listing, No Stock Sale, Singapore Plans And More

The price target reduction, Lai said, is due to a less aggressive multiple of 2.5 times he applied to 2025 enterprise value/sales and discounting it back at 12% to present value. This is down from the 4.5 time multiple that was applied in the past, the analyst said.

Nio's valuation multiple is at a 50% discount to Tesla, Inc. TSLA, which is justified, given the latter's China NEV market position and technology leadership, Lai said.

The analyst also said JPMorgan hasn't yet incorporated present value arising from Nio's potential software monetization opportunity.

NIO Price Action: At last check, Nio shares were down 3.37% at $22.10.

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