What a ride 2020 has been so far for Nio (NIO). The Chinese EV manufacturer has taken the bull by the horns and has ridden it all the way to massive gains of 427%.
There’s no doubt the hype on EV vehicles in 2020 is almost at fever pitch, with investors banking on the sector disrupting the entire auto industry over the coming years. However, as in any emerging industry there will be winners and losers.
After initiating coverage of Nio earlier this month, the main pushback for Deutsche bank's Edison Yu from investors concerned the fact Nio “does not create the same level of excitement and loyalty in China that Tesla or the German luxury automakers command.”
While Yu concedes that “given NIO is an upstart,” there is some truth to that assertion. The analyst points to recent data that shows “NIO is increasingly perceived by customers as a high-quality premium brand with best-in class technology and service.”
The evidence is twofold.
First, according to a study in leading Chinese automotive web portal Bitauto, which measured how likely a customer is to refer a car brand to others, NIO was both the highest-ranking premium brand and overall brand (54%), beating Tesla (52%) and BMW (42%).
“The study suggested this could be due to aggressive promotional activity and customers putting more value on post-purchase service, which is an area we believe NIO thrives in,” Yu said.
Secondly, Nio beat Tesla again in J.D. Power’s 2020 China New Energy Vehicle (NEV) Experience Index Study, coming in as the top brand in the BEV segment “based on problems per 100 vehicles.”
The study also showed that the proportion of NEV owners born in the 1990s has risen from 24% in 2019 to 37% indicating “that younger buyers are much more open to emerging brands.”
All of which leads Yu to conclude, “We believe NIO can take material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services. Near term, we continue to expect record 3Q/4Q deliveries and margin, boosted by the newly launched EC6 SUV coupe (deliveries began on Friday), 100 kWh battery pack option, and BaaS roll-out.”
To this end, Yu reiterated a Buy rating on NIO shares along with a $24 price target. According to Yu, then, there’s room for another 15% of upside from current levels. (To watch Yu’s track record, click here)
So, that’s Deutsche Bank’s view, what does the rest of the Street have in mind for the stock? NIO's Moderate Buy consensus rating is based on 4 Buy ratings, 3 Holds and 1 Sell. However, the analysts expect shares to trend downwards by 19% as indicated by the $17.14 average price target. (See Nio stock analysis on TipRanks)
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