What happened
After a stunning rally last week, Nio (NIO +1.00%) stock opened Monday on a quiet note and was trading down 5.5% as of 10:45 a.m. ET. An analyst downgrade just ahead of earnings is hitting investor sentiment even as Nio just confirmed it will not follow the footsteps of rival Tesla in increasing prices of its electric vehicles (EVs).
So what
Nio is set to report its fourth-quarter and full year 2021 earnings after market close on Thursday. In a new research note sent to investors, Deutsche Bank analyst Edison Yu offered his views on Nio's upcoming earnings report.
Among other things, Yu expects soft first-quarter guidance from Nio and expects the company to deliver just about 25,000 vehicles in the quarter, or almost the same number as it delivered in the fourth quarter. The challenges posed by the COVID-19 lockdown in China are largely to blame.
Image source: Getty Images.
Nio said it delivered 25,034 units in the quarter ended Dec. 31 and a total of 15,783 EVs in January and February.
Yu reiterated his buy rating on Nio stock given its upcoming model launches and long-term growth potential, but he slashed the stock's price target nonetheless from $70 a share to $50 per share given the geopolitical concerns, supply constraints, and the threat of delisting of Nio shares from the U.S. stock exchange.
Now what
Two things appear to be worrying investors in Nio today: a stagnation in growth and rising costs that could add to the company's already mounting losses: In its third quarter, Nio reported a net loss of $443.7 million, up almost 141% year over year and a more than fourfold jump sequentially.
Of late, speculation was ripe that Nio could increase prices of its EVs in line with Tesla to pass on rising input costs to consumers. Within a week's time, Tesla increased prices of its vehicles in China twice citing inflationary pressure.
However, Nio has denied any plans to raise prices for now, according to online media company IGreatBI as quoted by CnEvPost. Online media company SINA further quoted Nio as stating it believes "price stability is good for the interests of users and the market" and that the company will make "flexible decisions" as the cost situation evolves.
While sticking with its existing prices could make Nio cars more competitive, it also means the company will have to absorb higher costs on existing sales prices, and that'll likely hurt its bottom line.
NYSE: NIO
Key Data Points
Nio shares have plunged in recent months, and the market is pinning hopes on a strong earnings report from the company to help lift its stock price higher. So although Yu's new price target still represents almost 140% upside from Nio stock's Friday's closing price, the analyst's muted outlook expectation is making some investors jittery despite Nio's solid growth plans ahead.
