Morning Start analyst Vincent Sun initiated Tuesday coverage on NIO shares with a price target of $27, an upside potential of 31.25% based on the previous closing price. The analyst forecasts a compound annual growth rate of 56.6% in revenue from 2021 to 2024 with the first profitable year in 2025 and the company’s vehicle delivery to reach over 410,000 units in 2025 from 91.429 units in 2021.
Morning Star Note
“We initiate coverage on NIO with a no-moat rating and fair value estimate of USD 27 per ADS (HKD 212 per share). As a leading electric vehicle, or EV, manufacturer in China targeting the premium segment, NIO will benefit from vehicle electrification and consumption upgrade trends. Given significant growth opportunities, we forecast a 56.6% 2021-24 revenue CAGR, with the first profitable year in 2025. Our fair value implies a forward 2023 price/sales ratio of 3.0 times”.
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“2021 was a milestone for China’s new energy vehicle, or NEV, sector with significant sales growth reflecting increasing consumer adoption driven by regulatory push and improving charging infrastructure, among others. China sold 3.3 million units of passenger NEVs in 2021, accounting for 16% of total passenger car sales. This implies a 1.7 times year-over-year growth compared to 6.5% for the larger passenger car market. Sales remained strong in the first five months of 2022, up 1.1 times year over year. By 2025. we forecast passenger NEV sales to see a four-year CAGR of 25% to 8.2 million units with 32% penetration, up from 16% in 2021,” Sun added.
“Riding on the industry tailwind and increasing consumer adoption for NEVs, we forecast NIO‘s vehicle delivery to reach over 410,000 units in 2025 from 91.429 units in 2021, taking about 5% share in China’s passenger NEV market. Driven by expansion in vehicle delivery, we estimate the company’s revenue to register a 56.6% CAGR in 2021-24,” the analyst wrote.
According to what NIO‘s management team told Bank of America during the call on Monday, the company ramped up its production pace from 400 to 600 daily units in June.
The increase of production capacity at its plant by 50 percent puts the company on course to deliver around 18,000 vehicles provided it does not suffer from component restrictions or Covid-19 measures in the coming weeks.
The call with the Shanghai-based EV maker covered NIO’s sub-branding, the launch of a new model in 2023, autonomous driving, and increased production capacity. According to the note released, the company also “indicated there could be more surprises in terms of new product launches in 2023, besides the existing pipeline” and confirmed the arrival of new versions of ES8, ES6, and EC6 based on the NT2.0 platform next year.
On Monday, the EV maker said it has decided to “form an independent committee, consisting of independent directors to oversee an independent investigation regarding the allegations made in the Short Seller Report“. NIO added that will provide updates on the Independent Investigation in due course consistent with the requirements of applicable rules and regulations of the three Exchanges.