NIO Stock Could Withstand Macro Headwinds, Says Morgan Stanley


Recently, the Chinese electric vehicle space has been beset by several disturbing developments. Morgan Stanley’s Tim Hsiao counts “geopolitical tensions, pervasive Covid restrictions and ADR radiation risks” which have further impacted electric vehicle start-ups already grappling with operational challenges such as power disruptions. supply of chips, batteries and other elements.

Rising EV manufacturing costs, which will drive up prices, could also mean EV sales will take a hit. However, given the “continuous innovation” in the space, Hsiao sees this headwind fading over time.

Additionally, China’s policies towards electric vehicles are highly supportive, with the sector constituting a large portion of the more than 5% GDP growth that the country has targeted.

As such, while Hsiao thinks smaller EV players may not be able to survive in the “dark macro backdrop”, larger, well-funded companies such as Nio (NIO) should be able to know if the current headwinds. Additionally, the recent secondary listing in Hong King is also helping to ease fears of a US delisting.

That said, based on the latest developments, several adjustments have been made to Hsiao’s model. Mainly based on the macroeconomic slowdown which could put some pressure on the sale of luxury vehicles, the analyst’s volume estimate for 2022 is reduced by 8% to 165,000 units.

Additionally, with legacy OEMs accelerating the shift to hybrid offerings (both HEV and PHEV), which could potentially delay the “holistic BEV transition”, Hsiao has also reduced its longer-term volume estimates (circa 2030 ) from 3 to 7%.

Additionally, to account for a “more cautious view on emerging markets as well as slowing consumption”, Hsiao raised the risk premium for Chinese equities from 2% to 4%. “Our risk premium assumption is on par with our assumption for other traditional OEMs despite the ADR write-off overhang, as we believe this is largely covered by the H-share listing,” the analyst explained.

The result of all of the above is a reduction in the price target from $66 to $34. Nevertheless, there is still a 56% increase from current levels. Hsiao’s rating remains overweight (i.e. buy). (To see Hsiao’s track record, Click here)

It’s also mostly buys from the rest of the high street analysts – 11 in total – and with two more takes, the consensus is that this stock is a strong buy. The average price target is more bullish than Hsiao allows; at $48.59, the figure suggests year-over-year gains of 123%. (See Nio stock analysis on TipRanks)

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Disclaimer: 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.

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