Written by Cláudio Afonso | LinkedIn | X
With some local electric vehicle subsidies set to expire at the end of the year, consumers are rushing to secure delivery of their new car in China, prioritizing brands that can deliver before December 31. This time-sensitive buying pattern has led to canceled reservations for automakers struggling with fast production ram-up.
Macquarie analyst Eugene Hsiao downgraded on Wednesday Nio’s Hong Kong-listed shares from “Outperform” to “Neutral,” slashing the price target to HK$38 from a previous HK$65. The firm also reduced its price target for Nio’s U.S.-listed shares to $4.80, down from $6.60.
“We are concerned about comments that 50-60% of Onvo orders were affected by the expiration of local purchase subsidies by end-2024,” Hsiao wrote in a note, highlighting delivery delays as a critical issue.
The challenges were mentioned by Nio CEO William Li during the company’s earnings call earlier this Wednesday. The chief executive acknowledged the subsidy-driven cancellations, explaining that late deliveries could cause customers to miss out on local financial incentives.
“We are concerned about comments that 50-60% of Onvo orders were affected by the expiration of local purchase subsidies by end-2024,” the analyst noted.
“We also understand that on the subsidy side, by the end of this year, some local subsidies and also the national trading subsidy will become. In that case, for some users who placed orders later may not have their cars picked up by the end of this year, and that will affect their subsidy. In that case, we have also looked at the users who eventually turned us off or turned a ton, and 50% to 60% of those users eventually rejected us was because of the late delivery and the failure of not getting the subsidy by the end of this year,” Nio CEO William Li said during the earnings call.
Based on the transcript shared, it seems that the percentage mentioned refers to the orders canceled and not to the overall number of orders mentioned in the analyst’s research note.
“It’s also understandable [that], after all, Onvo product is around 200,000-something [yuan] and 10,000 or 20,000 subsidy can be a significant amount to them. For ET9 and the Firefly, in general, they also have their own ramp-up pace and the preparation. But for these two products, we will prepare the launch stores more actively,” he admitted.
Macquarie also lowered its FY24 and FY25 sales estimates for Nio by 5% each. “We think it’s too early to determine whether Nio brand cannibalization risks are material or if Onvo demand will meet initial expectations,” Hsiao noted.
“While the Firefly launch in 1H25 presents upside potential, the weaker-than-expected demand for core Nio products and subsidy-related headwinds prompted an 18% miss in 4Q revenue guidance midpoint versus consensus.”
In late October, the analyst upgraded Nio from a “Neutral” to an “Outperform” rating, lifting the price target of the U.S.-listed shares to $6.60. The analysts sees now “lower dilution risk in the near term” following the investment into Nio’s Chinese subsidiary in late September.
“We think it is too early to say if Nio brand cannibalization risks are real or if Onvo demand is as strong as initial order indications suggested. There remains upside from the Firefly launch in 1H25, and we see lower dilution risk in the near-term given the recent Rmb3.3bn investment in Nio China,” the analyst noted.
“However, the slower pace of production ramp and negative subsidy impact give us pause. Weaker demand for core Nio brand and a slower Onvo production ramp led to an 18% miss for the 4Q revenue guidance midpoint vs consensus,” Hsiao added.
Nio’s CEO said the company expects a sales record for the final quarter of 2024 while projecting sales to double next year, hinting that they can surpass 442,000 units across the three brands.
Nio shares closed 0.4% higher on Wednesday at $4.65.
When unveiling it, the company said the ET9 is designed “specifically for the new generation of high-end business users”.
Written by Cláudio Afonso | LinkedIn | X
