On Thursday, Citi reaffirmed its positive stance on NIO Inc. (NYSE:NIO), a leading electric vehicle manufacturer, maintaining a Buy rating and a price target of $7.00. The endorsement comes with expectations of a narrowed gross profit margin (GPM) loss in other revenues for the third quarter of 2024 (3Q24) and an anticipated increase in the average selling price (ASP) of vehicles.
For 3Q24, Citi projects other revenues to reach approximately Rmb1.86 billion, with the negative GPM expected to reduce to -9.5%, an improvement from the second quarter's (2Q24) -12.3%.
The analyst anticipates a 1-2% quarter-over-quarter hike in 3Q24 blended ASP, attributing the rise to a decrease in incentives by around Rmb5k, a better product mix with higher ASP, and improved scale effects. This is projected to result in a blended GPM of about 11.5%, up by 1.8 percentage points.
Looking ahead, the forecast for the fourth quarter of 2024 (4Q24) suggests a continuation of volume improvements, with sales expected to surge to between 83,000 and 85,000 units, marking an increase of 32-39% from the previous quarter.
Additionally, Citi does not foresee a short-term refinancing plan for NIO, as working capital is expected to improve in tandem with sequential quarterly revenue growth, driven by higher volumes and ASPs.
In terms of future targets, NIO is expected to set a sales goal of 400,000 to 450,000 units for 2025 at a later date. Citi also notes that NIO is currently trading at a 30-40% price-to-sales (PS) discount for 2025 estimates compared to its competitor Xpeng (NYSE:XPEV).
The analyst suggests that the valuation gap between NIO and Xpeng for the years 2024 and 2025 is likely to narrow, presenting an arbitrage opportunity for NIO, bolstered by sector and policy-driven consumption downgrade tailwinds.
In other recent news, electric vehicle manufacturer NIO Inc. has reported significant financial results for the second quarter of 2024, with a notable increase in revenue and improvements in gross profit margin.
The company's revenue reached 17 billion RMB, marking a 99% increase year-over-year, and the gross profit margin rose to 9.7%. BofA Securities has adjusted its outlook on NIO, increasing the price target to $5.30, while maintaining a neutral rating.
Morgan Stanley (NYSE:MS) has also maintained an overweight rating on NIO's shares, citing factors such as the upcoming launch of the L60 model and expected increase in sales volumes. Meanwhile, Citi has maintained a buy rating, albeit with a lowered price target of $7.00.
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