On Wednesday, JPMorgan adjusted its stance on shares of NIO Inc . (NIO), upgrading the electric vehicle manufacturer to Neutral from Underweight. Accompanying the rating change, the firm also increased its price target for Nio (NYSE:NIO) to $5.40 from the previous $4.80 per share.
The upgrade follows a period of significant volatility for Nio's stock, which experienced a sharp 40% decline, reaching its lowest point in mid-April before making an equally strong recovery. This performance contrasted with the broader MXCN index, which only saw a 1% drop during the same period and later rose by 16%.
JPMorgan's reassessment was prompted by two recent developments. Firstly, the Chinese government has introduced stimulus policies aimed at boosting automobile demand, including for New Energy Vehicles (NEVs), which is expected to benefit Nio.
Secondly, Nio's new battery as a service (BaaS) strategy, which reduces the monthly rental fee for buyers by approximately 25%, has significantly increased store traffic and the BaaS take rate. The take rate has surged to 60-70% from the earlier 20-30%, positively impacting Nio's sales momentum.
Importantly, JPMorgan notes that the BaaS program, which allows buyers to save around Rmb70k, does not affect Nio's revenue as it is provided by a subsidiary in which Nio holds a 19% stake.
The bank has moderately raised its volume estimates for Nio for the years 2024 and 2025 by 9-11%. However, they added that their gross profit margin (GPM) and bottom-line estimates remain below consensus. The revised earnings projections have been factored into the new December 2024 price target of $5.40.