Another Day, Another NIO Stock Upgrade and Another Big Price Jump

27 Aug 2020

Barron's

Another Day Another NIO Stock Upgrade and Another Big Price Jump

Morgan Stanley upgraded shares of the Chinese electric-vehicle maker to the equivalent Buy from Hold and took the target price from $12 to $20.50 a share.

There is a pattern developing with electric-vehicle stocks. They go higher every day. At least that’s what it seems like.

Morgan Stanley analyst Tim Hsiao upgraded shares of Chinese electric-vehicle maker NIO (ticker: NIO) on Wednesday to the equivalent Buy from Hold and took his target price from $12 to $20.50 a share. The result? NIO stock jumped 17% to almost $21 share in afternoon trading. There appears to be no stopping the momentum.

The jump follows on Tuesday’s 19% rally, sparked by UBS analyst Paul Gong upgrading shares to Hold. Hold ratings aren’t a big deal, but Gong took his price target from $1 to $16 a share.

NIO shares are now up 46% for the week and 412% for the year. The stock’s 52-week low was $1.19 in October. Back then, investors were worried about cash burn and access to capital. NIO stock started to rise after the company raised money from a local government.

According to reports, access to capital is one reason for Hsiao’s upgrade. Another reason cited is the newly announced battery-as-a-service business model. NIO will sell customers the car and rent them the battery. It lowers the cost of vehicle acquisition and makes charging and battery use feel more like filling up with gasoline.

Barron’s hasn’t reviewed the upgrade report. Hsiao is in Hong Kong, making his reports a little more difficult to obtain. But we know that his price target is the highest among analysts. The average price target is about $13.50 a share, well below where the shares trade.

NIO shares have recently picked up steam as Chinese EV deliveries have rebounded off pandemic-induced lows. NIO delivered about 3,500 vehicles in July, up 322% year over year. What’s more, investors are now thinking about NIO selling cars outside of China. All the excitement leaves NIO trading for about 7 times estimated 2021 sales. Sales multiples are used because NIO isn’t profitable yet.

For comparison, Tesla (TSLA), the EV behemoth, trades for about 9 times estimated 2021 sales.

Tesla’s stock is up 410% year to date, nearly the same as NIO’s. Both far exceed comparable returns of the S&P 500 and Dow Jones Industrial Average.

Tesla stock was up a pedestrian 5.6% on Wednesday to $2,134.05. Jefferies analyst Philippe Houchois increased his now Street-high Tesla stock target price to $2,500.

Tesla also hit a new 52-week high on Wednesday, briefly giving the company a market value of more than $400 billion.

Write to Al Root at allen.root@dowjones.com