Nio’s (NYSE:NIO) ongoing efforts to turn profitable, lower costs and become more efficient got further credence on Wednesday when it was reported that the Chinese EV maker intends to spin off its battery manufacturing unit.
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According to two people in the know, that could take place by the end of year with the company planning to look for external investors once the spin-off is done. The unit is overseen by senior manufacturing engineers who have previously worked at Apple and Panasonic.
Evidently, investors liked the news, sending shares up in the session. Whether that represents a proper shift in sentiment remains to be seen. Moving forward, Morgan Stanley analyst Tim Hsiao expects investors will closely monitor the company’s fluctuating vehicle sales and cash generation in 2024.
“Price discipline and cost savings bode well for the NIO brand’s profitability, yet some investors doubt that its tech- and service-driven user experience will enable it to gain share over luxury incumbents, who are becoming more aggressive on pricing,” Hsiao went on to say.
Upon achieving an annual sales volume of 300,000 and a 20% vehicle margin, the company expects to break even on net profit. However, for Nio to stand out from the crowd, Hsiao thinks it will be essential for the company to succeed in its battery swapping and autonomous driving endeavors, which are its primary sources of recurring revenue.
According to management, approximately 15-18% of Nio’s 430,000-plus customers use power swapping (PS) stations on a daily basis. This translates to an average of 40 users per day for each urban swapping station. NIO envisions reaching a break-even point when the daily usage hits 60-65 users. This projection assumes a service revenue of Rmb30 per visit and an annual station cost of Rmb700,000.
The company also stated that its NOP+ driver assistance software’s urban road coverage has surpassed its 2023 target of over 60,000 km. NIO intends to reveal additional information about NOP+ development on December 10. Despite not having monetized NOP+ yet, management anticipates it will become a significant and ongoing source of revenue in the future
All told, Hsiao reiterates an Overweight (i.e. Buy) rating on NIO shares, along with an $18.70 price target. That’s a bullish objective and represents one-year upside of 141% from current levels. (To watch Hsiao’s track record, click here)
The average target on the Street is a more modest $11.36, although hitting that milestone will still generate a tidy 51% profit. Rating wise, based on 6 Buys against 3 Holds, the stock claims a Moderate Buy consensus rating. (See Nio stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
