To The Moon

NIO Surges Over 32% in Five Days, Is an EV Rebound on the Horizon?

NIO shares surged over 32% across five consecutive days of gains following its Sept. 5 earnings report. Other leading electric vehicle makers also experienced upward momentum in the past five trading sessions.

Year-to-date, $BYD COMPANY(01211)$   remains the only major EV manufacturer in the green, climbing over 13%. Conversely, Chinese EV makers NIO, $XPeng Inc.(XPEV)$   , $Li Auto(LI)$   , and $ZEEKR (ZK.US)$ have dropped between 20% and 50%. $VinFast Auto (VFS.US)$ and $Rivian Automotive, Inc.(RIVN)$   have both tumbled more than 40%, while $Tesla Motors(TSLA)$   has dipped 8%.

Is the recent rally signaling a potential rebound for EV companies?

JPMorgan Backs NIO

$NIO Inc (NIO.US)$ reported record quarterly deliveries and revenue for the second quarter, alongside a notable reduction in net loss. The company’s Q2 gross margin improved significantly from the previous quarter, with vehicle gross margin rising to 12.2%, an increase of 600 basis points year-over-year.

Nio also issued its strongest-ever guidance for a single quarter, forecasting Q3 deliveries between 61,000 and 63,000 units, exceeding analysts’ expectations.

JPMorgan analyst Nick Lai upgraded Nio to "Overweight" from "Neutral," raising the price target to $8.00 from $5.30, indicating a 90% upside from the September 5 closing price. Compared to Wednesday's closing price of $5.60, the new target suggests a 43% increase.

JPMorgan is optimistic about Nio's prospects, citing clearer strategic planning and product lineup for 2025, along with rapidly improving cash flow. The firm forecasts operating cash flow will turn positive in the second half of 2024, alleviating investor concerns about potential financing or equity dilution risks.

Nio Inc. founder and CEO William Li announced on a conference call that the ONVO L60 will launch on Sept. 19, with deliveries commencing at the end of the month. The starting price will be below the pre-sale price of 219,900 yuan, making it 30,000 yuan cheaper than Tesla Inc.'s Model Y.

Li expressed optimism about the ONVO L60's sales prospects. "We aim for monthly deliveries to reach approximately 10,000 units by December," Li said. "We anticipate achieving a supply capacity of 20,000 units per month sometime next year."

Lai expressed bullish sentiments on Nio's stock rebound, stating, "With the stock price halving year-to-date and expectations low, we believe Nio may exhibit a relief rebound beyond year-end, driven by financial and operational turnaround."

Citi has initiated a "30-day positive catalyst watch" on Nio shares (NIO), maintaining a Buy rating and a $7 price target following the Q2 report. The firm expects an improved product mix with higher selling prices and better scale effects in Q3.

However, Mizuho and Bank of America remain cautious, maintaining neutral ratings with price targets of $5.00 and $5.30, respectively.

Q3 Peak Season and Policy Impact May Act as Catalysts

JPMorgan is optimistic not only about Nio but also about BYD and XPeng. Analyst Nick Lai wrote, "Among China OEMs, we favor BYD in the long term and believe that Nio and XPeng could experience a relatively stronger rebound in the coming months, given their significant year-to-date underperformance."

Sales of electric vehicles have remained robust amid price wars and policy subsidies. The China Association of Automobile Manufacturers reported on September 10 that the retail penetration rate for new energy passenger cars in China reached a record 53.9% in August, surpassing 50% for the second consecutive month.

Nio delivered 20,176 new vehicles in August, marking the fourth straight month of deliveries exceeding 20,000 units. From January to August, Nio delivered a total of 128,100 vehicles, a 35.77% increase from the same period last year. 

BYD’s retail sales hit 379,600 units in August, a 57.1% year-on-year increase and a 21.7% month-on-month rise, setting a new monthly sales record and achieving the highest monthly year-on-year growth rate this year.

Analysts point to two main short-term catalysts for the electric vehicle sector: the traditional peak sales season in Q3, marked by numerous auto shows and new model launches, and China's vehicle scrappage policy, which has doubled subsidies for purchasing new energy passenger cars from RMB 10,000 to RMB 20,000, thereby boosting demand for electric vehicles.

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