What happened
Nio (NIO 5.26%) stock surged Tuesday morning as the broader U.S. market rose, and was trading 10.2% higher as of 12:23 p.m. ET.
Ironically, the electric vehicle (EV) maker just got a massive price target downgrade, but investors right now appear to care less about what analysts think and more about what's happening in Nio's home market of China. Based on that, they're evidently buying the high-potential EV stock while it's trading at less than half the price it traded at a year ago.
So what
On Tuesday morning, Citigroup analyst Jeff Chung slashed his price target on Nio to $41.10 per share from $87 a share, according to TheFly.com.
While that's a significant cut, the analyst still maintained a buy rating on Nio. With shares changing hands for less than $23, even at his lower price target, Chung still expects Nio stock to almost double over the next 12 months.
Highlighting how "full lifecycle ownership cost" is a significant factor that influences consumers' decisions about buying EVs, Chung foresees such costs for EVs coming down by nearly 36% compared with traditional internal combustion vehicles if prices of both lithium carbonate and gasoline rise by another 25% to 50% year over year into 2023. Chung also foresees volumes for China's leading EV manufacturers rising.
China's top investment bank, CICC (China International Capital Corp.) also initiated coverage of Nio's stock in Hong Kong, as reported by China-based new energy vehicle-focused website CnEVPost. CICC said it considers Nio the leader in the premium EV market in China.
These analysts' bullish views about Nio aren't a fluke.
After a slowdown caused by China's recent COVID-19 lockdowns, Nio reported a 38% sequential jump in deliveries in May. For June, it expects roughly 12,900 deliveries at the upper end of its guidance range, versus only 7,024 deliveries in May.
Nio looks poised for even faster growth as the year progresses given its recent launches of the ET5 midsize sedan and the ES7, a mid-to-large size SUV that can tow caravans and trailers. Its two sedans in particular -- the ET5, which will go on sale in September, and the ET7, which Nio started selling only in March -- could give Nio a huge advantage in China's premium EV market.
Image source: Nio.
Meanwhile, Nio has also announced price increases for all its existing models, but rolled out upgrades to woo customers. These include an offer for existing owners to upgrade their cars for costs so low that they'll effectively be getting upgraded versions, but at prices that are still lower than Nio's newly-hiked prices for the same trims. It's a smart move to retain brand loyalty in an intensely competitive market.
Now what
Two things should work in Nio's favor now. First, sales volumes and deliveries are bouncing back as the Chinese government relaxes its latest round of COVID-19 restrictions. A local media outlet has even reported that Nio's stores in China are seeing footfalls at the same levels they were before the latest coronavirus wave there. Second, Nio is taking fresh orders for all models at higher prices.
Combined, these factors should boost Nio's top line in the months ahead. That's pretty much all shareholders want to see, and what new investors are betting on now.
