On Thursday, UBS adjusted its outlook on NIO Inc. (NYSE:NIO), a China-based electric vehicle manufacturer, by reducing its stock price target to $7.20 from the previous $8.00. The firm has chosen to maintain a Neutral rating on the stock.
The price target revision comes amid concerns over NIO's financial performance and competitive positioning. According to UBS, NIO's quarterly operating loss has remained over 6 billion RMB, and the company's revenue growth has been almost negligible. This is despite the ongoing electrification trend within China's automotive industry.
UBS also expressed skepticism regarding NIO's potential to narrow losses through its new mass-market brand initiative, the Alps program. The analyst pointed out the challenges NIO faces due to BYD (SZ:002594)'s volume dominance and absolute cost advantage in the market.
The report further highlighted that NIO's efficiency improvements are lagging amid intensifying competition within the electric vehicle sector. With the market's increasing focus on profitability and shareholder return, and NIO's declining market share in the Chinese EV market, UBS voiced caution regarding the stock's prospects.
The valuation of NIO by UBS is based on a 1.4x 24E price-to-sales (P/S) multiple, which aligns with peers such as Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV). Still, the firm indicated that there are further downside risks if NIO continues to widen its losses or lose more market share.
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