NIO Inc. (NYSE:NIO) shares have recently sparked some excitement among investors. The Chinese EV maker reported solid Q2 2024 numbers earlier this month, with deliveries showing consistent growth in recent months and expected to continue increasing in the upcoming quarter.
Moreover, Nio reported improving margins of 12% per vehicle, with plans to reach 15% by the end of the year. The company has indicated that higher production volumes will enable better economies of scale, pushing it toward its long-term target of 25% margins.
Despite being down 40% year-to-date, NIO shares have shown signs of recovery, climbing 47% from its June low.
However, a 5-star investor, known by the pseudonym JR Research, believes this optimism may be premature.
“Notwithstanding management’s optimism, investors must acknowledge that NIO remains far from its long-term goals,” writes JR, who is among the top 1% of TipRanks’ stock pros.
JR cites the difficulty in gaining customers in the “intensely competitive” Chinese market, especially in comparison to competitors such as BYD, which have had more success. Domestic profits have become all the more important in light of geopolitical difficulties abroad, particularly in the lucrative European market, notes JR.
While acknowledging that the company has a sizeable foothold for luxury EVs in China with over 40% of the market, the investor notes that “it still has not managed to deliver consistent deliveries performance and is not profitable.”
JR argues that this does not reflect well on the company’s hopes of successfully expanding beyond high-priced customers.
“NIO’s optimism in a potentially more competitive lower-priced category will likely be more challenging than anticipated,” writes the investor, who adds that this is especially the case “given its current unprofitability in its premium segment.”
Overall, JR expresses skepticism about NIO’s ability “to scale effectively while contending with more intense competition in the mass market segments.”
As a result, JR gives NIO shares a Hold rating and warns investors to not “be fooled into celebrating too early.” (To watch JR Research’s track record, click here)
JR’s take contrasts slightly with the broader Wall Street sentiment, where NIO holds a Moderate Buy consensus rating, with 6 Buys, 4 Holds, and 1 Sell. The stock’s 12-month average price target of $5.97 suggests a potential upside of ~10%. (See NIO stock forecast)
So, a little excitement is fine – just don’t throw a party yet.
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
