- Nio Inc. plunged as much as 18% on Friday after Goldman Sachs downgraded the Chinese electric vehicle maker to “sell” due to its high valuation.
- Shares of Nio have surged 221% year-to-date as of Thursday’s close as investors’ euphoria around electric vehicle companies soars, in part driven by Tesla’s meteoric rise.
- In a note published on Friday, Goldman downgraded Nio from “neutral” and reiterated its $7 price target, representing 46% downside potential from Thursday’s closing price.
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Nio Inc., often dubbed the “Tesla of China,” fell out of favor with investors on Friday after Goldman Sachs downgraded the electric vehicle manufacturer to “sell” from “neutral.”
Shares plummeted as much as 18% to $10.68 and could keep falling if Goldman’s analysis proves right. Goldman set a $7.00 price target for Nio, implying downside potential of 46% from Thursday’s close. Goldman previously downgraded Nio from “buy” to “neutral” in late June.
Nio has enjoyed a sizable rally so far in 2020 as investor euphoria around electric vehicle manufacturers builds, in part driven by Tesla’s meteoric rise. Shares of Nio were up 221% year-to-date as of Thursday’s closing price of $12.95.
Goldman thinks Nio’s surging valuation reflects “over-optimism” given that there have been “no substantial changes” to the company’s car volume and profit expectations, according to the note.
In the short term, Goldman expects Nio to have enough cash for the next two years thanks to a recent capital injection, and thinks revenues can grow 80% in 2020, 86% in 2021, and 72% in 2022.
In the long term, Goldman said Nio’s bull case will be based on China’s EV adoption rate and the company’s ability to successfully position its brand as the first home-grown, high-end vehicle brand of China, which could afford it the ability to charge a premium price for its products.
Goldman would become more constructive on Nio if the company accelerates its product launches and expands its product line-up, or if stronger-than-expected regulatory incentives increase demand for electric vehicles among consumers, according to the note.
While Goldman turned bearish on Nio, other electric vehicle makers have been the subject of bullish analyst calls over the past week.
On Monday, Piper Sandler said Tesla could continue its monster run and surge 55% from current levels due to its longterm software opportunity. And last week, JPMorgan upgraded Nikola Corp. to buy on three upcoming catalysts for the EV truck maker.
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