Nio will surge 85% as Tesla’s China success is a ‘rising tide lifts all boats’ phenomenon, JPMorgan says

NIO ES8 electric SUVs are seen displayed at the second media day for the Shanghai auto show in Shanghai

  • Tesla’s success in China is not a “winner takes all” situation, but instead a “rising tides lift all boats” phenomenon, according to JPMorgan.
  • That thinking led the bank to upgrade shares of Nio to “overweight” and assign a $40 price target on the stock, representing potential upside of 85% from Tuesday’s close. 
  • “In China’s smart EV market, we expect Nio to be a long term winner in the premium space among Chinese brands,” JPMorgan said.
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Nio surged 19% on Wednesday after it received an “overweight” upgrade and a $40 price target from JPMorgan, representing upside potential of 85% from Tuesday’s close.

JPMorgan acknowledged that it missed the massive 438% year-to-date rally in shares of Nio, given its previous neutral rating, but said it thinks there’s more room to run for the Chinese premium electric vehicle manufacturer.

According to JPMorgan, Tesla’s success in China is driving a “rising tides lift all boats” phenomenon rather than it being a “winner takes all” situation.

The bank expects the market penetration of electric vehicles to quadruple in China over the next five years, from less than 5% to 20%, driven by a change in consumer preferences and a reduction in EV prices as battery costs fall.

And within China’s electric vehicle market, JPMorgan said it expects Nio “to be a long term winner in the premium space among Chinese brands.”

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Potential catalysts that could help Nio rally toward JPMorgan’s $40 price target include a strong earnings report in November, a robust order backlog update on its lineup of cars, and the unveiling of a new sedan that is expected to be revealed in December. 

And as Nio continues to benefit from the path cemented by Tesla, JPMorgan thinks it could dominate upward of 30% of the premium electric vehicle market, reaching 334,000 units by 2025. 

Still, Nio will have to rapidly scale production to catch up to Tesla. According to data from the China Passenger Car Association, Tesla has been trending at more than 10,000 monthly sales in China since May, putting it on track to deliver well more than 100,000 vehicles in China this year.

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