NIO stock is falling after an analyst said to sell, citing a relative lack of new models and overall weakness in Chinese demand for cars. Investors in automotive stocks need to pay attention.
Thursday, J.P. Morgan analyst Nick Lai downgraded shares of NIO to the equivalent of Sell from Hold, reducing his target for the stock price to $5 a share from $8.50. "We see downside to consensus volume/revenue estimates," wrote Lai, adding a "lack of new models relative to peers may further weigh on its stock performance."
He estimates 2024 sales will be about $10.1 billion. The consensus estimate compiled by FactSet is closer to $10.7 billion.
NIO's U.S.-listed American depositary receipts were down 7.69% on Friday at $5.40 apiece.
Coming into Friday trading, NIO's ADRs were down about 40% year to date.
Lai also raised concerns about the Chinese auto industry. Sales through the Lunar New Year fell 9% year over year. And Chinese car stocks he tracks were down about 18% year to date through Thursday trading.
"We now project passenger vehicle sales or demand will remain under seasonality until April/May," Lau wrote. He suggests watching the Beijing auto show which starts in late April to see if demand starts to pick up.
Unusually low demand would have implications for more than just NIO. Shares of XPeng, Li Auto, as well as, of course, Tesla, all trade on Chinese automotive data points.
The data regarding Tesla look fine so far. Citi analyst J eff Chung wrote recently that Tesla's retail sales in January rose about 52% from a year earlier. That's a strong result, but Tesla serves China and European markets from its plant in Shanghai. What is more, Tesla's plant in Germany is ramping up. Both factors make it hard to draw conclusions from one month of data.
With the downgrade, 65% of analysts covering NIO stock rate the shares at Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
The average analyst price target for NIO's U.S.-listed ADRs is about $10.
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