Yu launched coverage of the company early in September with the equivalent of a Buy rating and a $24 price target—one of the highest targets among his peers. “The main push back we received on our bullish view is NIO’s brand does not create the same level of excitement and loyalty in China that Tesla [ticker: TSLA] or the German luxury auto makers command,” writes Yu in a Tuesday morning research report.
“We continue to see compelling evidence that NIO [NIO] is increasingly perceived by customers as a high-quality premium brand with best-in-class technology and service,” he adds. He says NIO has a high referral rate by existing owners and that its brand has favorability scores above BMW (BMW.Germany) and Daimler’s (DAI.Germany) Mercedes-Benz. “As [battery EV] adoption increases and word of mouth spreads, we believe NIO can take material share in the premium segment,” he writes.
NIO scored well on J.D. Power’s China NEV, short for new energy vehicle, 2020 initial quality survey, which tracks problems in the first few months of ownership. It’s a solid data point, but the more complex the car, the higher the score can go. The score is the number of problems reported in the first 90 days of ownership per 100 cars. So a score of 100 means, on average, there was one problem per car.
Brand is a longer-term issue for investors. NIO will report deliveries in October. Yu expects the company to deliver 11,500 vehicles in the third quarter.
The report offers an interesting look into the minds of Chinese investors—and Chinese consumers—that Wall Street doesn’t always get. Yu, along with many of his peers, is based in Hong Kong.
Overall, Yu is more bullish than the average analyst. The view of the Chinese equivalent of Wall Street is middling for NIO stock. About 53% of analysts covering the company rate shares a Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average and S&P 500, for comparison, is about 55%. The average analyst price target on NIO is just above $17, about 10% lower than where shares are trading.
It’s been tough for analysts to keep up with NIO stock. Shares are up 392% year to date. NIO’s American depositary receipts are up 4.9%, at $19.73, in recent trading. The S&P 500 is down 0.6%.
Write to Al Root at firstname.lastname@example.org