NIO Shares Jump After Strong Sales, Margins Prompt Solid Guidance

By Kimberley Kao

NIO's shares rose sharply in Hong Kong after the Chinese EV maker narrowed losses in the second quarter, driven by stronger margins and record quarterly sales, and guided for higher sales in the current quarter.

Shares of the Shanghai-based company were 14% higher at 38.75 Hong Kong dollars in Monday afternoon trading, on track for their biggest one-day percentage gain in four months. Its American depositary receipts jumped 14% on Thursday after the results. Hong Kong's trading session was canceled Friday due to a typhoon alert.

NIO on Thursday reported a narrower quarterly net loss of 5.13 billion yuan, equivalent to $723.7 million, on a near doubling in revenue. It guided for 61,000 to 63,000 vehicle deliveries in the third quarter after delivering a record 57,373 units in the second quarter, more than doubling from a year earlier.

Analysts said that the EV maker delivered strong margins despite fierce price competition and that the L60, the first model launched under its low-cost ONVO brand, will be a positive catalyst for sales. However, some raised concerns about losses and profitability amid higher expenses.

NIO's first-half net loss was wider than expected due to research and development costs, CGS International analyst Ray Kwok said in a note.

CGSI lowered its earnings forecasts through 2025, citing expectations of higher expenses from marketing, research and development, and from the expansion of its battery-swapping station network. It trimmed the stock's target price to HK$70.00 from HK$75.00.

Morningstar cut its fair-value estimate on the stock to HK$58.50 from HK$59.30, saying that NIO's net losses could widen through 2025 on likely lower selling prices and higher operating expenses.

"Visibility towards profit turnaround [is] still lacking," Bernstein analyst Eunice Lee said in a note, flagging margin pressure from product-mix deterioration and rising selling expenses as concerns.

Yet the long-term outlook remains optimistic, given NIO's strong quarterly sales and margin guidance for the year.

That prompted Deutsche Bank to raise its 2024 operating margin assumption and increase the target price to HK$65.50 from HK$64.00.

"NIO is our new sector top pick in the China auto space," Deutsche Bank Research's Bin Wang said in a note.

"Despite intensifying competition even in the premium segment, we believe NIO is undervalued for long-term investors," said Vincent Sun, senior equity analyst at Morningstar. Margins will likely continue their recovery in the second half of the year "as economies of scale kick in with additional contribution from ONVO cars," Sun said in a note.

Write to Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

September 09, 2024 02:54 ET (06:54 GMT)

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