NIO (NIO) PT Lowered to $7.20 at HSBC

HSBC analyst Yuqian Ding lowered the price target on NIO (NYSE: NIO) to $7.20 (from $7.90) while maintaining a Buy rating.

The analyst said: "Continuing cost optimization likely to improve margins into 2H24e. On 5 September 2024, NIO reported a 2Q24 net loss of RMB5.1bn, slightly below our previous estimates, as we underestimated the sales expense for refreshed models’ marketing in this period. Gross margin improvement is well on track (9.7% in 2Q24 vs. 4.9% in 1Q24), mainly boosted by cost optimization on better pricing from suppliers given higher volumes. Looking into 2H24e, we remain constructive on NIO’s volumes and margin growth outlook given: 1) solid NIO brand sales (sold 20k units in August, per company data), along with auto consumption into high season; 2) more volume expansion from its mass market brand new model ONVO L60, which scheduled for launch on 19 September and delivery from end-September (per 2Q24 earnings call) ; 3) ongoing margins improvement from supply chain cost optimization and better economies of scale, partly offset by lower product mix given the mass price point ramp-up of L60 in the mix. Accelerating product cycle from September. On 15 May 2024, NIO launched its mass market brand ONVO and the first model L60, a mid-sized SUV, under the brand, with pre-sales pricing starting at RMB220k. L60 should have its official debut, and start of deliveries in September (per company data). We believe the new mass market brand/model is likely to be the key volumes driver into 2H24e. Along with new brand “Firefly” targeting entry level boutique cars to be launched in 2025, we see the accelerating product cycle as likely to enlarge NIO’s product spectrum and unlock higher volumes potential. Earnings estimates revisions: We lower our 2024-26e net profit by 26-39%, mainly on lower gross margin as a result of diluted product mix given the lower priced ONVO and new brand Firefly delivery outlook. Our refreshed 25-26 earnings forecasts are still above Bloomberg consensus by 10% and 12%, as we are more constructive on NIO’s volume growth outlook on the accelerating product cycle from 2H24e."

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