Nio's stock gains as J.P. Morgan analyst gives two reasons to stop selling

By Tomi Kilgore

J.P. Morgan's Nick Lai upgrades the EV maker's stock, citing new battery-as-a-service strategy

Shares of China-based electric vehicle maker Nio Inc. resumed their rally on Thursday, as J.P. Morgan's Nick Lai recommended investors stop selling - three months after he had turned bearish.

Lai said there were two main reasons for his change in stance:

The Chinese government's policy to stimulate auto demand, including neighborhood electric vehicles (NEV), which should benefit Nio.Nio's new battery-as-a-service strategy, in which monthly rental fees were lowered by about 25%, has "successfully boosted store traffic" and the BaaS take rate to about 60% to 70% from 20% to 30%.

The stock (NIO) rose 1.5% in premarket trading.

It had dropped 7.9% on Wednesday, after surging 14.2% over the previous two days.

J.P. Morgan's Lai raised his rating on the stock to neutral, after downgrading it to underweight on Feb. 23. He raised his price target to $5.40 from $4.80.

On Wednesday, before the upgrade, Lai had noted that the concerns over the Biden administration's new tariffs on imports from China shouldn't hurt EV makers, as they have no exposure to the U.S.

Lai is also upbeat on Nio's new Onvo, or "Le Dao" model, which was unveiled on Wednesday. The new Onvo L60 is a midsize family sport-utility vehicle, with a starting price of RMB219,000, or the equivalent of about $30,470.

"We believe pricing for 'Onvo' will be benchmarked and lower than Tesla Model Y, with a monthly run rate of [approximately 10,000] units after ramp-up," Lai wrote in a note to clients.

Tesla Inc. (TSLA) generated $4.59 billion in sales from China during the first quarter, or 21.6% of total sales. Tesla's stock edged up 0.3% in Thursday's premarket.

He now expects Nio's monthly sales to increase - to between 22,000 and 23,000 during the fourth quarter, from about 15,000 units a month during the current second quarter.

Also read: Nio's stock soars as April EV deliveries more than double, new ET7 sedan launches.

Lai also expects gross profit margin to improve to 12% in the fourth quarter from about 3% in the first quarter.

Nio's stock has tumbled 41.2% year to date through Wednesday, while Tesla shares have dropped 30%. In comparison, the iShares MSCI China ETF MCHI has rallied 13.6% and the S&P 500 index SPX has gained 11.3%.

-Tomi Kilgore

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05-16-24 0834ET

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