Is it finally time to let the Nio (NYSE:NIO) bulls out of the pen? The Chinese EV maker has been getting little love from the market over the past few years, but the company’s latest quarterly readout had plenty of positives about it.
Vehicle deliveries reached a record 57,373 in Q2, amounting to a 143.9% year-over-year improvement and up 90.9% sequentially. Meanwhile, the company’s margin profile is improving; the Q2 vehicle margin came in at 12.2%, up from 6.2% in the same period last year and 9.2% in 1Q24. Gross margins grew from 1% in the year-ago period and 4.9% in the prior quarter to 9.7%.
Those were some of the quarter’s positives, but the good part for investors has so to do with what’s coming next, says J.P. Morgan analyst Nick Lai. “We expect vehicle GPM to improve sequentially in 2H and reach 14- 15% in 4Q, in line with management’s guidance,” he said.
Moreover, in 2025, Nio will introduce at least four new models, including the ET9 under the NIO brand, the L60 (set to launch in mid-September) and a second SUV model under the Onvo brand, and the first new model from Firefly.
“With three brands, NIO would have a comprehensive product line-up to cover mass and premium markets with a price segment of Rmb 150k-800k,” Lai added.
On the sales front, management expects the Onvo L60 to reach 20,000 monthly sales in FY25, and Lai also thinks it could achieve a third of Tesla’s Model Y’s sales due to its “attractive pricing.” NIO is also likely to benefit from the “scale effect” in the mass-market segment, with Lai expecting FY25 sales of 366,000 units (57% YoY growth), excluding any impact from the Firefly brand.
Lastly, as of the end of June, the company’s cash reserves stood at around Rmb 40 billion ($5.64 billion) and with “improving sales and profitability,” Lai anticipates a significant reduction in cash burn during the second half of 2024. “We expect NIO’s cash position to be retained at c.Rmb 40bn level at year-end, and hence concerns on further fund raising or equity dilution risk could be removed,” the analyst explained.
All things considered, Lai believes it’s time for investors to take a fresh look at Nio. He’s upgraded his rating from Neutral to Overweight (i.e. Buy) and raised his price target from $5.30 to $8, suggesting a potential 59% upside from current levels. (To watch Lai’s track record, click here)
The rest of Wall Street is taking a more measured approach, with 5 Buys, 5 Holds, and 1 Sell, resulting in a Moderate Buy consensus. The average target currently stands at $6.06, offering a potential upside of ~21%. (See Nio stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
