If anyone was under the impression electric vehicle stocks would pause for a breather following 2020’s blistering rise, they forgot to hand Nio (NIO) the memo. The Chinese EV maker has seamlessly advanced into 2021, with shares already up by 31% since the turn of year.
The company has been a prime beneficiary of the current trend for both EV makers and growth stocks. Following the recent annual Nio Day event, J.P. Morgan analyst Nick Lai counts “four strategic milestones,” why he believes Nio will “continue to trade more like a fast-growth technology/EV stock than a carmaker.”
These include the pivot away from the existing products’ Mobileye EQ4 solution to an in-house autonomous driving (AD) solution based on Nvidia architecture. A solid-state battery for the next new model – an ET7 sedan – boasting 150kwh capacity or range of more than 1,000km, and the “commercialization of LiDar to deliver super-sensing capability on ET7.”
Most intriguing of all, however, will be the “beginning of content monetization – e.g. AD as a service.”
Lai believes this opens up a whole new world of monetization possibilities for car makers and suggests “future cars will be like smartphones with wheels.”
For Nio’s next model, the ET7 sedan, owners will be able to access a full AD service for Rmb680 a month.
“Assuming 5-7 years of usage,” Lai says, “Cumulative payment would be similar or higher than the one-time AD option payment at Tesla or Xpeng.”
In the future, Lai expects Nio will ramp up content monetization revenue in other products or services.
The analyst’s sensitivity analysis suggests “such content revenue could increase rapidly from 2022, implying accretion of equity present value of ~US$21-35/shr.”
Accordingly, Lai reiterates an Overweight (i.e. Buy) rating on NIO shares and bumped the price target up from $50 to a Street high of $75. Investors could be pocketing gains of 18%, should Lai’s thesis play out over the coming months.
Nio has decent support amongst Lai’s colleagues, but its current valuation presents a conundrum. NIO’s Moderate Buy consensus rating is based on 8 Buys and 4 Holds. However, the share gains keep coming in thick and fast, and the $52.28 average price target now suggests shares will decline by ~19% over the next 12 months.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.