Nio (NYSE:NIO) investors have had little to be happy about this past year and the lack of any new NIO branded models launching in 2024 has also served to keep sentiment low.
But while the lack of a meaningful catalyst is not great news for investors, Morgan Stanley analyst Tim Hsiao notes that the company is taking steps to improve the overall business.
“NIO expects its 2024 face lift, nationwide urban NOP+ rollout and expanding power swap network to underpin a recovery in volumes back to 20k/month, while cost savings and price discipline should lift margins into 2Q,” Hsiao explained.
For Q1, the Chinese EV maker anticipates deliveries in the range between 31,000-33,000, so it will be a while before it hits 20,000 a month. In any case, before reaching monthly sales of 30,000 units and a vehicle margin of 20%, the company does expect net profit to hit breakeven. That said, it has noted that OCF (operating cash flow) was positive in 3Q/4Q23. “Overall,” Hsiao adds, “management expects FCF to improve on the back of higher OCF from scale and lower capex in 2024.”
While some investors doubt Nio’s ability to return to monthly sales of 20,000 units without adjusting prices on 2024 models, management remains optimistic. The company believes the nationwide urban rollout of its ADAS (advanced driver assistance system) software, NOP+ (Navigate on Pilot Plus), in Q2, and the expanding power swap network (projected to reach 3,400 locations by year-end) will support a gradual recovery from Q2 onwards. Additionally, the company has suggested that promotions for the 2024 model upgrades will likely focus on NOP+ free trials and power swap coupons rather than reducing prices, as such promotions are seen to have minimal effects on Nio’s brand and profitability.
And while it’s true no new Nio branded models will be launched this year, the company will have a first mass market vehicle, the Alps brand, hit the market in Q3, and the launch could “serve as a wildcard” for 2H24. The initial model is slated to be priced lower than the Model Y, despite being larger and boasting superior specs and smart features although the gross profit margin is anticipated to decrease by 5-15%.
“While Alps’ vehicle margin will be lower than that for the NIO brand,” Hsiao explained, “management expects it to enhance NIO’s asset liquidity and supply chain bargaining power, while Alps could also leverage NIO’s data in autonomous driving.”
All in, Hsiao rates Nio shares an Overweight (i.e., Buy) along with a $10 price target. Should the figure be met, investors will be sitting on returns of 76% a year from now. (To watch Hsiao’s track record, click here)
Amongst Hsiao’s colleagues, the Buy and Hold ratings are evenly split here, 6 apiece, and with an additional 1 Sell, the stock claims a Moderate Buy consensus rating. The average target stands at $7.08, and factors in 12-month gains of 24.5%. (See Nio stock forecast)
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Disclaimer: The 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.
