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A prominent player in the electric vehicle (EV) industry, NIO (NIO) recently caught Wall Street's attention with its improved financial numbers and robust second-quarter sales growth. Even analysts at JPMorgan, who advise caution on Chinese stocks more generally due to geopolitical tensions, have upgraded NIO from "neutral" to "overweight" following the Q2 report, which showcased notable sales growth and margin improvements, along with the promise of new models next year.
Despite a cautious market stance toward Chinese EV stocks, NIO differentiates itself with substantial cash reserves and continuous innovation, particularly in the European market. NIO is actively pursuing strategies to mitigate the impacts of new EU tariffs that could impose additional rates of up to 38% on Chinese EV makers.
The company is making headway in Europe by introducing its EL8 model and expanding its battery swap stations and other infrastructure, demonstrating resilience against tariff challenges. NIO’s regional strategy also involves deepening local engagement and potentially establishing manufacturing capabilities within Europe to further cushion against tariff effects. NIO’s commitment to maintaining its growth trajectory and market presence in Europe could break the barriers despite the geopolitical and economic challenges.
About NIO Stock
Based in Shanghai, Nio (NIO) is a renowned EV company that continues to dominate the Chinese market with its unique models and competitive price range. The company produces a diverse array of SUVs and sedans, including hybrids. Beyond vehicle manufacturing, Nio enhances its customer experience with a suite of home services, such as battery swapping and maintenance repairs. The company currently boasts a healthy market cap of $9.57 billion.
After shedding 42% of its value during the first half of 2024, pressured by lower production and late deliveries, NIO has rebounded from its lows with more than 43% gains over the last month. The stock is still down 40% on a YTD basis, and trades 91% below its 2021 highs.
In terms of valuation, NIO shares are currently trading at a 1.20 enterprise value (EV)/sales ratio, which aligns with the sector median and is significantly lower than its historical average valuation of 6.30. This suggests the EV stock is reasonably valued at current levels.
NIO Posts Record Deliveries in Q2
NIO shares shot up more than 14% on Sept. 5 after the firm revealed its Q2 earnings print, which surpassed Wall Street's revenue expectations. The Chinese EV maker posted revenue of $2.46 billion, marking an excellent 99% growth YOY, driven by a substantial increase in vehicle deliveries, which rose 144% from the previous year.
The company achieved 57,373 delivery units, an all-time high, including across a range of premium smart electric vehicles, SUVs, and sedans, significantly expanding its market share in the premium EV segment. Operational costs were also reduced by 14% to $716 million.
During the quarter, NIO improved its vehicle and gross margins by 12.2% and 9.7%, respectively, fueled by ongoing cost optimizations and an increase in vehicle delivery volume, which helped enhance profitability. On an adjusted basis, NIO reported a loss of $0.34 per share, slightly improved from its loss of $0.36 last quarter.
NIO Launches New Brand
Recently, NIO launched a vehicle brand named ONVO to compete with Tesla's (TSLA) best-selling Model Y. Under this brand, the company plans to launch the Onvo L60 model, which was unveiled in May 2024. Production vehicles began rolling off the assembly line earlier this month, with deliveries scheduled to start by the end of September.
Priced at $30,500, the Onvo L60 is more economical than Tesla's Model Y, which is priced at $34,600, giving NIO a competitive edge. Additionally, the vehicles will feature smart systems and intelligent driving capabilities.
By the end of 2024, NIO plans to establish over 350 service centers across 200 cities to support ONVO vehicles, complemented by dedicated ONVO service centers based on customer demand. The ONVO brand marks a strategic expansion for NIO, broadening its market reach and potentially securing a strong position in the mass market for electric vehicles. If deliveries are on time and match the promised price range over the long term, it could be a game-changer for NIO stock.
What Do Analysts Say About NIO Stock?
Following record Q2 deliveries and growth, analysts are increasingly bullish on NIO's stock prospects. Jefferies and Citi weighed in after earnings, citing potential growth catalysts, including new models and increasing sales volume. Both brokerages think that NIO stock could be an appealing buy for long-term investors.
Separately, JPMorgan recently upgraded NIO stock to “overweight” from “neutral.”
"With the stock price halving YTD and hence expectations low, we believe NIO may well exhibit a relief rebound beyond year-end, driven by financial and operational turnaround," wrote analyst Nick Lai in a note to clients. Additionally, the analyst said that NIO has significantly improved its financial reserves, reducing worries about the need for additional fundraising or the risk of diluting its shares by issuing more stock.
JPMorgan also raised its price target on NIO to $8 from $5.30, implying expected upside of more than 48%. By comparison, the 12-month average price target is $6.40, indicating an expected 18.7% premium from current levels.
Overall, Wall Street analysts remain relatively cautious about NIO stock, which has a consensus rating of “hold.” Out of 14 analysts who cover the stock, 2 have a “strong buy” rating, 2 have a “moderate buy” rating, 9 have a “hold” rating, and 1 has a “strong sell” rating.
