Over the last few years, traditional automobile manufacturers such as Ford (F) and General Motors (GM) have trailed the broader markets. In the last five years, shares of Ford and General Motors have returned -37% and 23%, respectively.
Alternatively, companies solely focused in the electric vehicle (EV) space have gained significant momentum and are trading at steep valuations. Tesla’s (TSLA) stock is up over 1,100% in this 5-year period. Even in 2020, when companies across sectors are trading at depressed valuations due to COVID-19, EV stocks have soared to record highs.
Even after this recent surge, yesterday, investment bank Goldman Sachs (GS) upgraded two China-based EV stocks — NIO (NIO) and Li Auto (LI).
NIO stock upgraded to Neutral
Goldman Sachs analyst Fei Fang upgraded NIO from “Sell” to “Neutral” with a 12-month target price of $59, up from just $7.70. NIO closed trading at $45.36 yesterday and has gained a staggering 1,120% year-to-date. Despite the upgrade, shares fell 10.2% on Dec.1 but are trading up 2% this morning.
Previously, on July 17, 2020, Goldman Sachs had downgraded NIO to “Sell” as it believed the stock price and valuation did not reflect significant changes to the company’s profit or volume expectations.
Fang admitted to underestimating the benefits of regulatory incentives and the introduction of NIO’s battery as a service program, which allowed a turnaround in EV demand this year, according to a report from The Fly. These tailwinds have helped NIO increase shipments at a stellar pace in 2020. Further, according to Fang, EV vehicle penetration is forecast to rise from 5% in 2020 to 20% in 2025.
In November, NIO delivered 5,291 vehicles, an increase of 109.3% year-over-year which was also a new monthly record for the company. In the first 11 months of this year, NIO has delivered 36,721 vehicles, indicating a rise of 111.1% compared to the prior-year period.
The company confirmed it is looking to accelerate the expansion of production capacity to meet a rise in order growth for December. In Q3, NIO’s sales were $666.6 million, above analyst estimates of $655 million. Its loss per share of $0.12 was also above consensus estimates of a loss of $0.17 per share.
NIO’s delivery figures in Q3 rose 154% to 12,206 and it expects to deliver between 16,500 and 17,000 vehicles in Q4. NIO also increased its Q4 revenue estimates to between $922 million and $948 million, significantly higher than Wall Street revenue projections of $806 million.
Li Auto’s target price raised to $60
Fang also raised Li Auto’s target price from $20 to $60 and maintained a “Buy” rating. Fang said Li Auto was able to post positive earnings just three quarters after the launch of its flagship vehicle Li ONE. The analyst believes Li Auto is differentiating itself from other Chinese automakers by focusing on the highly lucrative SUV segment.
In November Li Auto delivered 4,646 Li ONEs which was a monthly record. The company produced over 5,000 units last month and received a higher number of new orders. At the end of November 2020, Li Auto has 45 retail stores and 97 servicing centers in 38 cities.
The company is planning to expand its sales and servicing network in China to meet growing demand. Shares of Li Auto fell over 3.1% to $34.86 yesterday and are trading 0.8% lower on last look.
Despite the recent weakness, Li Auto stock has more than doubled since it went public in July.
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NIO shares were trading at $46.17 per share on Wednesday morning, up $0.81 (+1.79%). Year-to-date, NIO has gained 1,048.51%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More…
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