NIO Stock Can Double. J.P. Morgan Explains Why.

14 Oct 2020

Barron's

NIO Stock Can Double JP Morgan Explains Why

Analyst Nick Lai raised his price target on the Chinese electric-vehicle maker all the way to $40 from $14—almost double where the stock trades.

NIO stock was up almost 10% to $23.73 in premarket trading after the bullish call.... — NIO stock was up almost 10% to $23.73 in premarket trading after the bullish call. Getty Images

J.P. Morgan analyst Nick Lai upgraded the stock of Chinese electric-vehicle maker NIO to Buy from Hold on Wednesday, taking his price target all the way to $40 from $14. That is double NIO’s average price over the past month and nearly double where the stock was trading before the bullish call.

NIO stock (ticker: NIO) jumped Wednesday morning, up 22%% at $26.39 with 20 minutes left in the trading day.

Lai thinks China’s EV penetration will be four times higher by 2025, meaning that about 20% of all new cars sold in China would be battery powered. That is good news for all EV players. Lai also rates the stock of Xpeng (XPEV) a Buy, with a $27 price target. He doesn’t cover the other pure-play Chinese EV startup Li Auto (LI).

China is the largest market in the world for new vehicles.

It feels as if analysts are all-in on Chinese EV startups. With the upgrade, almost 60% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stock in the Dow Jones Industrial Average is about 58%. Xpeng shares have three analysts and three Buy ratings.

The bullish views come despite high valuation compared with traditional auto makers. Chinese EV makes aren’t profitable yet and trade for roughly 4 time estimates 2022 sales. Car companies trade for far less than one times sales.

Still the three Chinese EV companies trade at a discount versus EV behemoth Tesla (TSLA). Tesla trades for more than seven times estimated 2022 sales.

Tesla is the one EV stock that analysts don’t seem to like. Only about 20% of the 37 analysts covering Tesla stock rate shares Buy. Valuation appears to be the main reason. The average analyst price target for Tesla shares is about $310, implying a value of roughly $290 billion—still enough to make Tesla the world’s most valuable auto maker.

Weak analyst reviews haven’t hurt Tesla’s share-price performance, though. The shares are up about 438% year to date, far better than comparable returns of the S&P 500 and traditional automotive peers. EV stocks, overall, are on fire in 2020. EV stocks Barron’s tracks are up more than 370% year to date.

NIO stock is up more than 500% year to date now, edging out even Tesla stock’s mammoth gains. Li and Xpeng don’t have full-year trading histories. Both companies sold shares to the public earlier in 2020.

Li stock is up about 70% from its $11.50 IPO price, and up about 25% from the $15.50 level where it opened for trading after the IPO. Xpeng stock is up more than 35% from its $15 IPO price, but shares are down about 12% from the $23.10 level where they opened for trading after the IPO.

Haitong International analyst Ji Shi initiated coverage of Xpeng on Tuesday with the equivalent of a Buy rating and a $25 price target. BOC International analyst Lou Jia also started coverage of Li Auto with a Buy rating and, coincidentally, a $25 price target.

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