Wall Street analysts are expecting 2023 to be a good year for Nio shares. Let's break down one Nio bull's forecast for the Chinese electric vehicle maker.
The majority of analysts believe that buying Nio (NIO) shares at current price levels is a good idea. Of 13 analysts who recently rated the stock, only four have remained neutral, while the rest are all long on the Chinese electric vehicle (EV) maker.
In this article, we'll highlight the recent ratings report from Morgan Stanley analyst Tim Hsiao. Hsiao recently updated his position on Nio's stock, predicting an upside of nearly 50% for 2023.
How might this EV stock see such a sizable gain this year? And why did Hsiao cut his price target on Nio, despite his bullish forecast?
Let's dive in.
Why Is Morgan Stanley Bullish on Nio?
Morgan Stanley analysts have been bullish on Nio's stock for a few key reasons, including:
- Nio is a growth stock with long-term value being unwrapped amid recent operational progress.
- The company has "deep-enough pockets" to finance its growth ambitions, coupled with a robust net cash position — Nio ended 2022 with about $6.2 billion in cash.
- Nio has what it needs to meet its delivery estimates despite supply-chain issues and also sees next-generation power replenishment technology as key to its future growth.
Why Hsiao Lowered His Price Target on Nio
Analyst Tim Hsiao's earlier bullish forecasts for Nio did not pan out. Last year, shares of the EV company plummeted nearly 70% thanks to a series of macro headwinds.
The previous time the Morgan Stanley analyst set a price target on the stock was after the company reported second-quarter earnings results in September 2022. At the time, Hsiao forecast a share price of $31 for Nio.
In Hsiao's latest rating, he maintained his "overweight" recommendation on the stock but cut his price target considerably — from $31 to $16.10 per share.
According to Hsiao, 2023 will be another eventful year for the Chinese electric vehicle maker. The company has already started it out with a bang, reporting that it had beaten its target of a 50% year-over-year increase in deliveries. In December 2022, the company delivered 15,815 vehicles.
At its "2022 Nio Day" event the company announced new models such as the ES8 and EC7 SUVs, as well as innovations in the area of power replenishment technology.
But Hsiao believes that we won't immediately see the effects of these initiatives and that instead, Nio's stock will be influenced mainly by volume delivery during the "low season."
Our Take
2022 was a tough year for electric vehicle makers, due largely to supply-chain challenges. These headwinds escalated costs and impacted new vehicle deliveries.
The stock of Nio peerTesla (TSLA) -Get Free Report plunged around 69%, while other EV companies saw even steeper drops. Rivian (RIVN) and Lucid (LCID) tumbled around 82% and 83%, respectively, in 2022.
The supply-chain challenges should persist throughout 2023. So movements in EV stocks will depend on how companies conduct their operations.
Nio's deliveries at the end of 2022 were a good indication of the company's current supply capacity.
And because Nio's stock climbed double digits after the release of the delivery results, we can assume that the market is pleased with what lies ahead in a less problematic 2023.
However, at least in the short term, high interest rates should continue to impact growth stocks like Nio. In addition, Nio is a Chinese stock, which means it runs the risk of regulatory pressures and even delisting from the New York Stock Exchange.
Nio has a bumpy road ahead of it, and even though the company offers long-term value, Hsiao's short-term upside forecast of nearly 50% looks pretty unlikely.