It's no surprise that Chinese electric vehicle (EV) maker Nio (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report has suffered since the beginning of the year. The market has been skeptical about both Chinese stocks and EV stocks.
However, Nio recently announced that it will start trading on the Hong Kong stock exchange next week. Wall Street analysts expect this move to mitigate the company's political risk and send its stock on a rally. Here's why.
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A Hedge Against Delisting
Since Beijing's latest regulatory clampdowns pushed Chinese stocks to the point of delisting from the U.S. markets, shares of companies from various sectors — including Nio, Alibaba (BABA) - Get Alibaba Group Holding Limited American Depositary Shares each representing eight Report, JD.com (JD) - Get JD.com Inc. 京东 Report, and Baidu (BIDU) - Get Baidu Inc. 百度 Report — have plummeted.
Chinese regulators are concerned particularly about the U.S. Securities and Exchange Commission's requirement that U.S.-listed companies share data with the agency and allow it to conduct audits of their businesses.
In Nio's case, the company's management has communicated that it will always abide by the rules of U.S. regulators and that it has plans to do its secondary listing in Hong Kong on March 10.
Unlike Chinese competitors XPeng (XPEV) - Get XPeng Inc. American depositary shares each representing two Class A 小鹏汽车 Report and Li Auto (LI) - Get Li Auto Inc. Report, whose primary listings are in Hong Kong, Nio has already completed two years of listing on the NYSE and qualifies for a secondary listing in Hong Kong.
Bernstein analyst Eunice Lee recently wrote that Nio's listing in Hong Kong could create a hedge against its potential delisting from the NYSE. The main downside of a secondary listing is that Nio would be unable to raise capital by issuing new shares in the next six months.
In addition, Nio is also seeking a listing on the Singapore stock exchange.
EV Industry Macro Fears Ahead of Nio's Earnings
Growing inflation… rising interest rates… supply-chain disruptions… The Russian invasion of Ukraine should aggravate these global economic headwinds even more.
And these headwinds will directly impact EV makers. For example, Rivian (RIVN) recently announced that it will increase the price of its vehicles by up to 20% to compensate for the high costs it has already absorbed.
Nio will report its earnings on March 24, and investors are apprehensive about what to expect in 2022. How much will all these headwinds impact the company's growth?
It's likely that the turbulent macro backdrop will dictate not only Nio's performance in the short and medium terms, but also that of the automotive industry in general.
Is Nio a Double-Bagger?
Even amid the uncertain macroeconomic backdrop, the consensus among Wall Street analysts regarding Nio's stock remains bullish as ever. Analysts think its business fundamentals are at their most attractive multiples since 2020, and political risks are winding up. Nio is currently at a discount of over 64% since its historic peak in January of last year.
Based on 13 analysts covering NIO, the consensus is for an average price target of $52.59 over the next 12 months. This implies an upside potential of more than 140%.
Below we list some of the key ratings on NIO:
- The attractive valuation characterized by its discounted cash flow and innovative battery-swapping model are the main reasons that CSLA analyst Soobin Park sees NIO rising up to 60% by 2022, with a price target of $35. Yet Park believes that, even in the face of macro headwinds, the investment thesis for NIO remains intact.
- JPMorgan analyst Nick Lai, a bit less bullish, still believes that NIO has relevant upside ahead. He's set a price target of $30 — implying an upside of 37% in the coming months. Lai thinks Nio will benefit from EV market penetration due to its premium pricing in China. Also, he believes that the launch of its new model scheduled for 2022 will provide good sales progress.
- Finally, Citi analyst Jeff Chung believes Nio's entry on the Hong Kong stock exchange should mitigate the political risks that have haunted the stock for the past six months. Thus, he expects a short-term positive reaction in NIO and has set a price target of $87.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)