Nio’s stock dives after analyst’s call to sell, given increasing competition

Analyst Nick YC Lai cut his rating on the stock to underweight from neutral, and slashed his price target by 41%, to $5 from $8.50. The new target still implies a further 10% downside from current prices. The stock hasn’t closed as low as $5 since June 2, 2020.

Lai acknowledged that his downgrade is “admittedly a late one” given how far the stock has already fallen, which he blames on slow January sales and investor concerns over sales and earnings momentum in 2024.

The stock had plunged 35.5% year to date through Thursday, which Lai said compares with an 18% decline in the broader China-based automaker market. And the iShares MSCI China ETF
MCHI
has slipped 2.4% this year while the S&P 500 index
SPX
has gained 6.7%.

Lai said his concerns going forward are twofold.

First, Nio only has one new model, called “Alps,” targeting the mass market this year, and that may not even hit showrooms until the fourth quarter.

Second, the lack of new models comes as “competition in the mass market may only intensify,” given expected new launches from peers, including XPeng Inc.
XPEV,
-5.42%
and BYD Co. Ltd.
BYDDY,
-1.07%

002594,
-0.17%

Lai expects smartphone maker Xiaomi Corp.’s
XIACY,
-0.83%

1810,
-1.34%
eventual entrance into the EV market will introduce “another significant competitor” in the mass market.

He cut his 2024 revenue estimate for Nio to RMB73 billion ($10.1 billion), which is below the current FactSet consensus of RMB78.9 billion. And Lai widened his adjusted per-share loss estimate to RMB8.38 from RMB7.69, which compares with the FactSet loss consensus of RMB6.41.

If there’s a positive side, Lai said it’s the fact that Nio has been cutting spending and costs, and has been reducing sales discounts despite price cuts by competitors in order to protect margins.