Stocks To Sell

NIO Stock Price Targets: $10 From Morgan Stanley or $5.40 From JPMorgan?

Wall Street can’t seem to get its act straight when it comes to Nio (NYSE:NIO) stock. As my colleague Eddie Pan recently noted, during the first quarter Morgan Stanley (NYSE:MS) was the biggest buyer of the Chinese electric vehicle manufacturer’s stock.

The investment house scooped up 10.1 million shares of NIO, increasing its stake in the company by more than half to 28.2 million shares. It has a buy rating on Nio stock and a $10 per share one-year price target, a nearly 100% implied gain from the EV maker’s current price.

At the same time, JPMorgan Chase (NYSE:JPM) analysts had a sell rating on the stock that it just upgraded to neutral.

It has a $5.40 price target, or a 3% implied gain. Overall, Wall Street has a hold rating on the stock but an $8.48 per share consensus price target, implying 62% upside in Nio stock.

So which is it? Should investors be buying this EV stock just like Morgan Stanley or should they stay away?

The Bull Argument

On the one hand, an argument can be made to rush in. Nio stock has been beaten down pretty hard over the past year. Shares are down 42% in 2024 and 68% from its 52-week high.

It did rally higher earlier this month after reporting a surprise update to its delivery report. After telling investors to expect deliveries to come in lower than previously expected, Nio enjoyed a massive 134% gain increase from the year-ago period. It delivered 15,620 vehicles.

Last week it followed up by introducing its new low-price EV, the Onvo L60 SUV. The car that will retail for 219,900 yuan, or just under $30,500.

That makes it competitive to one of Tesla’s (NASDAQ:TSLA) bestselling EVs, the Model Y SUV, which sells for 263,900 renminbi (RMB), or $36,500.

Renminbi is China’s official currency while the yuan representing the country’s primary unit of the currency. They are often used interchangeably.

The EV price war isn’t just a phenomenon occurring in the U.S. It is a global phenomenon as demand for EVs wanes. EV manufacturers everywhere, including in China, are slashing prices to boost sales. Nio hopes this will spur Chinese consumers to buy more of its vehicles.

Additional Bullish Sentiment

But it’s not just China EV manufacturers trying to grow sales. Beijing is stepping in too. The Wall Street Journal recently reported, China is “encouraging unprofitable carmakers to keep producing as officials try to boost economic growth, preserve jobs and expand China’s role in the global electric-vehicle business.”

It has subsidized new energy vehicle manufacturers to the tune of $173 billion between 2009 and 2023. In one case, a government injected $27.5 million into a company that sold fewer than 2,000 cars in the first quarter of 2024.

Morgan Stanley’s argument for its bullish outlook for the stock is the government’s stimulus policies will provide a tailwind for the EV maker just as it introduces a cheaper-than-expected car.

It advises investors to keep an eye on how big the consumer response is to the Onvo L60.

Similarly, JPMorgan’s upgrade from sell to neutral is based on stimulus tail winds too.

The Bear Argument

While the Onvo L60 is cheaper than the Tesla, it’s not the cheapest car on the market. As InvestorPlace’s Louis Navellier notes, BYD (OTCMKTS:BYDDY) makes an even cheaper model.

It sells the Seagull that retails for less than $9,700. Navellier writes, “if Nio is trying to compete in price war, the company definitely has some catching up to do.”

And Nio is burning through cash at a torrid pace. It has $2.2 billion in net cash available but burned through $2.3 billion last year, according to The Wall Street Journal. And that’s the problem with Nio. It’s a money-losing operation that has no hope of turning a profit for several years.

There is no need to rush into Nio stock right now. The higher deliveries could be a one-off event. The cheaper model from the luxury EV maker might not be the big hit it hoped for, particularly since there are much less expensive models available. Also, a cheaper model will further erode its margins.

Wall Street might not be able to get its act straight, but that doesn’t mean you should be a buyer of Nio stock. 

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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