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Continue buying NIO shares, says analyst after investor meeting
Investment bankers are not always sure about the stocks they recommend to buy (or sell). But there is one thing you can trust that they will be useful: getting direct access to the company’s management and digging up facts that may interest other investors. Last week, Deutsche Bank analyst Edison Yu provided this service to outside investors when he was able to host Steven Feng and get the NIO CFO (NIO) to provide some information about the future plans of the Chinese electric car company during “virtual meetings” with investors. ” In a broad discussion, Feng revealed NIO’s plans for the future with respect to: Continuing to expand its “premium / luxury” business in China. Building an EV to compete with the next Tesla Model 2. Expanding its business in Europe. Building the brand in China NIO believes it offers customers in China a “ownership experience” superior to what Tesla can offer. While investors may fear that the price cuts instituted in the country in Tesla’s EV Model Y crossover could hurt NIO’s business, Feng says that, in contrast, in China, Tesla tends to serve a useful purpose by attracting business owners. traditional cars with an internal combustion engine for the idea of owning an electric vehicle. But, once they are interested, customers generally prefer to buy an NIO. Why? Name recognition is a factor. Feng says that in China, NIO has 80% brand awareness and is admired for its interior design, handling / suspension and “after-purchase service” – in particular its technology that allows NIO car batteries to be ” chargeable, exchangeable, and upgradeable “(for longer range batteries). 55% of NIO owners today subscribe to the company’s “Battery as a Service” plan, buying their cars, but signing the batteries that operate them. And NIO plans to launch self-driving software as a $ 100-a-month subscription offer starting in the first quarter of 2022. Tesla, in contrast, sells its batteries integrated into its cars – and sells its software package autonomous steering as an upgrade. Facing Tesla 2 Likewise, Feng sees Tesla’s next economic model, Tesla 2, more as an opportunity than a threat. NIO plans to maintain its focus on the luxury market in China, but also to develop a new brand of cheaper EVs to compete with the Tesla 2, increasing its production volume of cars sold at lower prices “in the coming years”. That way, Feng confides, NIO can “maintain its premium reputation while the company seeks greater growth”. International expansion NIO’s ambitions are not restricted to China either. On the contrary, the company already plans to expand to the European market later this year. While in China the company aims for 25% to 30% market share in the premium EV segment, in Europe, NIO says it will be satisfied with only 10% to 15%. The company plans to offer “tailored” European offers to the local market. And to support all of this expansion, NIO – which sold less than 44,000 cars last year – plans to expand its production capacity to 150,000 cars a year by the end of 2021. Even so, NIO will not be ready. According to Feng, the company sees its total addressable market worldwide at around 700,000 cars a year. Purchase Valuation Based on all of the above, Yu values NIO’s shares as Buy along with a target price of $ 70. The implication for investors? Positive of 56%. (To see Yu’s background, click here) Wall Street broadly agrees with this analysis. In the past few months, NIO has received 7 Buy ratings from Street analysts, compared to 3 Holds. With an average price target of $ 65.24 per share, the upside potential is 45%. (See NIO’s stock analysis at TipRanks) To find good ideas for trading EV shares at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock insights. Disclaimer: The opinions expressed in this article are exclusively those of the analyst presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investment.