Amid positive sector sentiment, investors are inclined to take opportunities on laggards like Nio to play the catch-up, Morgan Stanley said.
Nio's (NYSE: NIO) recent price cuts and intensive start to deliveries of new models drove investor optimism, leading to a significant rally in its shares. In a July 11 research note, Morgan Stanley provided their take on the stock's recent outperformance.
Nio's US-traded ADRs rose 7.91 percent on July 10 and closed up 0.28 percent yesterday, bringing the cumulative gain since June 1 to about 44 percent.
With positive sector sentiment, investors are inclined to take opportunities on laggards, like Nio, to play catch-up, Morgan Stanley analyst Tim Hsiao's team said in a research note yesterday.
"Following start-up peer, Xpeng's share outperformance of +43% since late June, we also look for laggards, like Nio, to gain traction backed by improving monthly sales," the team wrote.
Nio is showing visible monthly improvement, with June sales topping 10,000 units and strong month-end sales uptick, the team said.
Nio delivered 4,100 vehicles in the last week of June -- June 26-July 2 -- up 29 percent year-on-year and reaching its peak for the year, Hsiao's team noted.
"We now look for 15k units of delivery in July, followed by a steady up-trend towards September when the company targets to achieve 20k sales," the report wrote.
Since 2022, Nio has suffered from serious supply constraints of parts, such as castings and controllers. However, recent checks have shown that supply disruptions have now eased, the team said.
While ES6 deliveries are still somewhat limited by a shortage of certain tire rims, this is manageable, the team said.
Nio officially launched the new ES6, based on the latest NT 2.0 platform, in China on May 24, and its deliveries began the same night.
Deliveries of the new ES8, which launches on Nio Day 2022 on December 24, 2022, begin on June 28.
A few days before the launch of the ET5 Touring, Nio announced on June 12 that it was lowering the starting prices of all models by RMB 30,000 ($4,170), but that the previously free battery swap service, became a paid option.
Driven by the ES6 and ET5 Touring as well as the price cut promotion, Nio's overall order intake hit a yearly high of 18,000-20,000 units in the past month, Hsiao's team said in a separate July 5 research note.
Nio's overall foot traffic at its flagship stores in Tier 1 cities grew about 10 percent month-on-month in June, as consumers got a closer and deeper look at the new models following the official launches of the ES6 and ET5 Touring on May 24 and June 15, respectively, the team said.
In terms of absolute volume, foot traffic at these stores exceeded the levels seen in late October, the highest level in the past nine months.
In June, the retail conversion rate -- the ratio of orders to foot traffic -- picked up slightly to 6 percent, thanks largely to incremental orders from ET5 Touring, the team said, adding that the June 12 price adjustment also drove order momentum across the board.
All Nio models posted solid order growth in June, led by the new ES6 and ET5 series, which together accounted for around 80 percent of total orders, Hsiao's team said, citing their conversations with store salespeople.
Notably, the team said it would take a few more rounds of guidance "meet or beat" to fully restore the market's confidence in Nio.
($1 = RMB 7.1884)