Chinese investment bank CICC upgraded Nio to outperform in a note published on July 21. The bank gave Nio a price target of $13.50, 5.3 percent higher than Nio's closing price on Monday.
CICC's reasons are as follows:
Nio orders are plentiful, deliveries continue to improve and Nio China has landed a strategic investment that addresses its funding needs for the next 18 months.
The company's deliveries from April 2020 onwards have increased significantly year-on-year and continued to climb sequentially.
We believe that the current annual production capacity still limits the number of product deliveries, and there is still room for improvement in subsequent monthly deliveries along with capacity climbing and new product launches.
The company signed the final investment agreement with the strategic investor at the end of April as scheduled, and the cash injection is progressing smoothly, which is conducive to the company maintaining a cash surplus and business stability.
EBIT is expected to turn from a loss to a profit in 2022.
Going forward, we expect the company to deliver 100,000 ES6 and EC6 units in 2022; ES8 deliveries are expected to be 15,000 units and about 50,000 units of the new sedan-based chassis, for a total of 165,000 units.
We believe that the company's total gross margin will be about 19.2% in 2022 based on 1) the expected battery pack price continues to decrease by 20% from 2020; and 2) the gross margin from battery leasing is expected to reach more than 20% after the separation of body and battery, both reasons.
We assume that the company's 22 years R & D investment accounted for about 7%, sales and management expenses accounted for about 11%, can achieve EBIT% about 1.2%.
BaaS (Battery as a Service) model: The separation of body and battery will bring four benefits to the company.
The Ministry of Industry and Information Technology (MIIT) has added a new classification of "battery replacement mode" for new energy vehicles, laying the foundation for the implementation of "separation of body and battery".
We believe this business will bring four benefits: 1) "Battery as a Service" to accelerate price parity in the procurement process; 2) improved residual value of used cars to maintain the tone of high-end brands; 3) "Battery as a Service" to improve the convenience of using cars; 4) separation of vehicle and battery technology progress curve and extend the life cycle of existing models.
These four benefits, we believe, will ultimately translate into unit sales.
The biggest difference between us and the market? Based on the above judgment on the development of the company and the industry, we have greater confidence in the company's fundamentals.
At the same time, due to the decline in the cost of power batteries and other costs, we expect the effectiveness of cost reduction is expected to exceed market expectations; BaaS business will also bring benefits to the company will exceed market expectations.
Potential catalysts: product delivery volume continues to rise, cost reduction and cost control effect is visible, BaaS business officially launched.
Valuation recommendation
We raise the company to outperform ratings.
Based on new gross profit assumptions, we adjust the company's 2020/2021 forecast loss to $8.17/$4.53 billion.
We value Nio based on DCF and EV/Sales unit valuation methodologies, with the company's fundamentals and the probability of survival improving post-2022, resulting in a valuation upgrade.
Based on the three assumptions of optimistic, neutral, and pessimistic in the DCF valuation model, the target price range is $7.8-$14.
Based on current company fundamental trends and market sentiment, we raise our price target on the company by 145% to $13.50.
