NIO: Recent Pullback Spells Opportunity



The global chip shortage has caused havoc for the auto industry. Due to a lack of semiconductor chips, Nio (NIO) even had to recently suspend production for five days at its Nio-JAC factory.

Based on talks with various OEMs, J.P. Morgan analyst Nick Lai says that during 1Q or 2Q21, the shortage will see Chinese OEMs collectively losing between ~5% to ~20% of production.

Accordingly, Nio has reduced its 1Q21 delivery guidance to 19,000 units from the prior 20,000 to 20,500 forecast. Lai’s forecast calls for 20,000 deliveries.

So, how will the global issue affect Nio’s earnings and estimates?

Lai believes that if Nio can deliver 19,500 units in the quarter, it would amount to a “potential 2/3% top/bottom line shortfall” when compared to his forecasts.

After considering the current availability of chips, Nio management’s production guidance for 2Q21 stands at roughly 7,500 units per month. This amounts to the company delivering 22,500 units in the quarter vs. Lai’s ~21,100 deliveries estimate.

“We believe our current forecast remains achievable and potentially conservative,” Lai said. “Into 2H21, most Chinese OEMs (e.g. Geely, Xpeng, Dongfeng Motor, SAIC, Guangzhou Auto) have indicated chip shortage or tightness should gradually ease, and production should resume to normal levels towards year end, although most management teams also indicate visibility is low at ~2-3 months at the moment.”

Nio Stock has suffered heavy losses in recent weeks due to a variety of reasons. Lai attributes investors favoring value over growth, liquidity and concerns over chip shortages, as well as “impending mounting competition especially after the Shanghai Auto Show” as the causes for the shares’ weakness.

That said, Lai remains a firm Nio bull. The consensus view suggests demand in the NEV (new energy vehicle) segment will be “very robust” and Lai agrees that following the arrival of various new models in 2H21, competition will only intensify.

Nio, though, targets the premium segment, where Lai expects “relatively limited competition,” believing that despite the current global chip shortages, Nio’s sales will roughly double from 44,000 last year to sales of 90,000 units in 2021.

To this end, Lai rates NIO an Overweight (i.e. Buy) along with a $70 price target. Investors stand to take home ~84% gain, should the target be met over the next 12 months. (To watch Lai’s track record, click here)

Looking at the consensus breakdown, most agree with Lai; based on 7 Buys vs. 3 Holds, the stock currently boasts a Moderate Buy consensus rating. There’s plenty of upside projected, too; At $63.64, the average price target suggests shares will be changing hands for a 69% premium a year from now. (See Nio stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


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