On Thursday, Citi updated its outlook on NIO Inc. (NYSE: NIO), a China-based electric vehicle manufacturer, adjusting the price target to $8.50, down from the previous $10.40. Despite the reduction, the firm has kept a Buy rating on the company's shares.
The revision comes as Citi incorporates NIO's year-to-date strong sales momentum and the anticipated introduction of new models, ONVO and Firefly. The analyst at Citi forecasts an increase in sales volume, raising the 2024-25 estimates from 190,000/259,000 units to 227,000/308,000 units, with expectations for 2026 at 390,000 units.
However, the firm has reduced the gross profit margin (GPM) projections for 2024 and 2025 by 1.5 and 1.9 percentage points respectively, setting them at 10.0% and 11.5%, with a 2026 estimate of 13.2%. The adjustments reflect a more conservative view of the company's profitability over the next few years.
In addition to sales and profit margin adjustments, Citi has increased its forecast for selling, general, and administrative (SG&A) expenses as well as research and development (R&D) costs to align with management guidance. Consequently, the analyst predicts net losses for NIO extending from 2024 to 2026, with the figures expected to be Rmb16.2 billion, Rmb12.5 billion, and Rmb6.0 billion respectively.
The new price targets, now set at $8.50 and HK$65.20, are based on a 1.7x price-to-sales (P/S) multiple applied to the company's projected 2024 revenue. This multiple is derived from a 1-year average, indicating a valuation method consistent with past performance. Despite the downward revision in the price target and profitability outlook, Citi's Buy rating suggests a continued positive view on NIO's stock potential.
In other recent news, electric vehicle manufacturer NIO Inc. has been the subject of several recent developments. After a GAAP net loss in the first quarter, NIO's gross profit margin matched the Bloomberg consensus at 9.2%, as noted by Citi, which maintained its Buy rating on the company. Despite this, NIO anticipates a net loss around RMB 5 billion for the second quarter of 2024, with vehicle revenue projected at RMB 15.3 billion.
In another development, NIO projects its second-quarter electric vehicle deliveries to more than double from the previous year, with an anticipated increase in revenue to approximately $2.3 million. This follows a significant net loss in the first quarter. Furthermore, the company has secured approval to construct a third production facility in China, expanding its manufacturing capacity and focusing on producing models for its more affordable car brand, Onvo.
Among other recent news, NIO is part of a select group of automakers approved by China to begin public road tests of level three autonomous driving technologies. This is part of a broader initiative to expedite the integration of highly autonomous vehicles into the market. Analyst firm Morgan Stanley maintained its Overweight rating on NIO, while BofA Securities revised its price target for the company down to $5.90 due to anticipated increases in operating expenses.
InvestingPro Insights
As Citi revises its stance on NIO Inc. (NYSE: NIO), investors may find additional context in the latest metrics and analyses from InvestingPro. With a current market capitalization of $10.9 billion, NIO's financial health is a blend of strengths and challenges. Notably, the company holds more cash than debt, providing some financial flexibility. However, NIO is quickly burning through its cash reserves and has been flagged by analysts for weak gross profit margins, which aligns with Citi's reduced gross profit margin forecasts.
InvestingPro data indicates that NIO has experienced a revenue growth of 12.89% over the last twelve months as of Q4 2023, yet the company's gross profit margin stands at a modest 5.49%. These figures illustrate the company's ability to increase sales but also highlight the challenges in maintaining profitability. Additionally, NIO's stock price movements have been quite volatile, with a significant 32% drop over the past six months, reflecting market sentiment and potential concerns over profitability, as analysts do not anticipate the company will be profitable this year.
For investors seeking a deeper dive into NIO's financials and future prospects, InvestingPro offers additional insights. There are more InvestingPro Tips available, providing investors with a comprehensive analysis to inform their investment decisions. To access these tips and take advantage of a special offer, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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