CICC maintains $85 price target for NIO, says sales expected to remain high in 2021

The recent volatility in overseas market conditions and investor sentiment has caused NIO shares to pull back, but its core competencies and operating performance are on an upward trajectory in the medium to long term, said CICC, China's top investment bank, adding that it maintains an unchanged outperform rating on the company.

In a report released Wednesday, CICC said it expects NIO to sell 93,000 units in 2021 and is bullish on the company's medium- to long-term volume growth.

The team said NIO's costs have room to decline and adjusted its earnings forecast for 2021 and 2022 to RMB -3.68 billion and RMB 420 million.

CICC said it maintains an unchanged price target of $85 for NIO, corresponding to a 71% upside.

NIO fell 13% on Tuesday and has lost about 27% in the past three weeks.

NIO's unaudited earnings report released after the bell on Monday showed that total revenue for the fourth quarter was RMB 6.64 billion, up 133.2 percent compared with the same period last year and up 46.7 percent compared with the previous quarter.

NIO's net loss for the fourth quarter was RMB 1.39 billion, narrowing 51.5% compared to the same period last year and widening 32.6% compared to the previous quarter.

The adjusted loss per ADS for the fourth quarter was RMB 0.93, a 25.6 percent widening from the prior-year quarter and higher than analysts' expectations of a loss of RMB 0.45.

In the fourth quarter, NIO reported auto sales of RMB 6.17 billion, up 130 percent year-over-year. The gross margin on auto sales was 17.2%, compared to negative 6.0% in the year-ago quarter and 14.5% in the third quarter of 2020.

NIO Q4 revenue in line with expectations, adjusted loss per ADS higher than expected

CICC believes that NIO's improved operating performance, including gross margin and operating profit, exceeded market expectations in the fourth quarter due to lower BOM costs and scale effects. However, large foreign exchange gains and losses pulled down net profit for the fourth quarter and full year.

The team said that NIO continued to improve in all operating indicators in the fourth quarter:

Gross margin on vehicle sales improved by 2.7 percentage points to 17.2% from the previous quarter, already exceeding the average level of local car companies and closing in on the higher gross profit level of Chinese and foreign joint ventures.

New energy credits revenue was RMB 120 million, contributing 1.8 percentage points to the overall gross margin, which was offset by a negative contribution from energy replenishment-related services.

The company's expenses per vehicle were effectively controlled, with R&D expenses of RMB48,000 and sales and administration expenses of RMB70,000 per vehicle. This was at historically low levels and also helped achieve a 4.3 percentage point improvement in single-quarter operating profit margin sequentially.

However, the company raised $5 billion overseas in the second half of the year, which led to an impairment of US dollar-denominated assets amid exchange rate fluctuations, which disturbed net profit in the fourth quarter.

NIO has always claimed to be a user-centric company, which CICC said they believe is at the core of the company's high premium and high sales.

CICC said that with adequate capital, the company will also continue to build on its strengths in user experience, which include:

Sales network expansion, with 20 new NIO House locations and 120 new NIO Space locations in 2021.

Service network expansion.

Charging and battery swap network expansion, with second-generation battery swap stations gradually deployed in the second quarter and expected to increase to 500 battery swap stations, 600 charging stations and 15,000 destination charging posts by the end of the year.

NIO expects to sell 20,000 to 205,000 units in the first quarter. Considering that NIO sold 7,215 and 5,578 units in the first two months of the year, CICC said its March sales target is at 7,207 to 7,707 units, which is expected to set a new quarterly and monthly delivery high, the best performance among China's new car makers.

CICC also said NIO is strengthening its attributes as a technology company and its core competencies continue to improve. The team stated.

The percentage of users choosing BaaS has rapidly increased to 55%, and its battery operation company has raised RMB 1.44 billion through two rounds of financing. Combined with partial bank credit, the company is expected to continue to expand its "vehicle-electricity separation advantage.

In terms of technology, the launch of ET7 is expected to enable the company to keep a leading spot in smart driving.