JP Morgan analysts led by Nick Lai raised their price target on NIO sharply to $40 in a report released on Wednesday.
NIO shares closed at $21.62 on Tuesday, and JP Morgan's price target means NIO has 85% upside potential.
NIO shares went up by more than 7 percent in pre-market trading on Wednesday.
JP Morgan's last rating on NIO was Neutral and was made on June 21, when the price target was $14.
In its latest report, JP Morgan gave NIO an Overweight rating and admitted that "we missed the stock's major rally YTD."
The report said Nio remains attractive from a long term perspective.
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Here is their report:
We are upgrading the stock to OW from Neutral and set a new Jun-21 PT of USD40 based on 3.0x 2025E EV to sales.
Admittedly, we missed the stock's major rally YTD. Instead of trying to justify a higher PT, we review our long term investment thesis based on our bullish top-down sector view, introduce 2025 earnings projection and draw implication to the current stock price.
We come to the conclusion that Nio remains attractive from a long term perspective.
We project the company to earn a ~7% market share in passenger EV market by 2025 or specifically ~30% share in the premium space which Nio focuses on.
In the near term, key catalysts would include:
1) anticipated solid 3Q results in mid-November, where we forecast GPM to further expand to ~12% vs. 8% in 2Q20.
2) Robust order backlog, in particular, the newly launched EC6 crossover model for which the wait time is around eight weeks due to initial productionramp and very strong demand.
3) A new sedan model scheduled to debut on "Nio Day" in December which should further enhance the company's current product portfolio (of two SUVs - ES8 and ES6, and one crossover - EC6).
Following the introduction of our 2023-25 earnings forecasts, we lift our Jun-21 PT to USD40 based on 3.0x EV to 2025E sales, the same valuation approach (of 3.0x EV to 2025E sales) we apply to Xpeng Auto, another Chinese EV start-up.
This also presents a meaningful discount to Tesla's current 5.1x EV to 2025E sales, which we believe is reasonable considering Tesla's technology leadership globally and market share momentum especially in China.
Previously, we followed average of three approaches in Nio's valuation analysis including EV/sales, PER and EV/EBITDA, which gives us a PT of USD36.
Considering consistency of valuation methodology across EV OEMs under coverage, we now move Nio's approach to EV/sales.
Investment Thesis, Valuation and Risks
NIO Inc. (Overweight; Price Target: $40.00)
Opportunities in 2021:
(1) Rising NEV penetration with an emerging and structural shift from "B" to "C" – with Tesla's localized Model 3 and aggressive pricing; we see an increasing (and unexpected) trend where more EV buyers are individuals, rather than corporates or individuals living in cities with purchase quotas – this structural wave could broaden EVs' addressable market, but lead to faster concentration in the EV business; NIO could benefit as long as it stays within the top 10 by market share.
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(2) The extension of the NEV subsidy program toward 2022, where the battery swap business model is covered by the government's subsidy scheme, is encouraging.
(3) We project a meaningful pickup in new model launches, especially in 4Q20, along with the new model, EC6. The new sedan model is scheduled to debut on "Nio Day" in December which should further enhance the company's current product portfolio (of two SUVs- ES8 and ES6 and one crossover- EC6).
Valuation
Following the introduction of our 2023-25 earnings forecasts, we lift our Jun-21 PT to USD40 based on 3.0x EV to 2025E sales, the same valuation approach (of 3.0x EV to 2025E sales) we apply to Xpeng Auto, another Chinese EV start-up.
This also presents a meaningful discount to Tesla's current 5.1x EV to 2025E sales, which we believe is reasonable considering Tesla's technology leadership globally and market share momentum especially in China.
Previously, we followed average of three approaches in Nio's valuation analysis including EV/sales, PER and EV/EBITDA, which gives us a PT of USD36. Considering consistency of valuation methodology across EV OEMs under coverage, we now move Nio's approach to EV/sales.
Risks to rating and price target
Downside risks include:
Worse-than-expected execution and delivery of vehicles;
Worse-than-expected overall auto market sales/EV demand; and worse-than-expected competition from rivals with products at similar price points.
Summary Investment Thesis and Valuation
Investment Thesis
Opportunities in 2021:
(1) Rising NEV penetration with an emerging and structural shift from "B" to "C" – with Tesla's localized Model 3 and aggressive pricing; we see an increasing (and unexpected) trend where more EV buyers are individuals, rather than corporates or individuals living in cities with purchase quotas – this structural wave could broaden EVs' addressable market, but lead to faster concentration in the EV business; NIO could benefit as long as it stays within the top 10 by market share.
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(2) The extension of the NEV subsidy program toward 2022, where the battery swap business model is covered by the government's subsidy scheme, is encouraging.
(3) We project a meaningful pickup in new model launches, especially in 4Q20, along with the new model, EC6. The new sedan model is scheduled to debut on "Nio Day" in December which should further enhance the company's current product portfolio (of two SUVs- ES8 and ES6 and one crossover- EC6).
Valuation
Our Jun-21 PT of US$40 is based on 3.0x EV to 2025E sales- the same valuation approach (of 3.0x EV to 2025E sales) we apply to Xpeng Auto, another Chinese EV start-up.
This also presents a meaningful discount to Tesla's current 5.1x EV to 2025E sales which we believe is reasonable considering Tesla's technology leadership globally and market share momentum especially in China.
With launch of NOP, is NIO better positioned to handle competition from Tesla?
