Electric vehicle companies have been some of the best-performing stocks so far this year. Among the biggest winners has been Tesla, whose shares have been hitting fresh highs in spite of the effects of the coronavirus pandemic. However, other specialty carmakers have been surging as well, thanks in no small part due to Tesla’s remarkable success. One of them has been a Chinese electric carmaker called Nio (NASDAQ: NIO), whose shares had at one point tripled since the start of the year. However, a sudden downgrade by a top Wall Street analyst has sent shares plunging.
Goldman Sachs analysts ended up downgrading Nio from a “buy” to a “neutral” back in late June as the excitement surrounding the company seemed to reach feverish, if not unjustifiable, heights. Just before the weekend, however, Goldman ended up further downgrading the stock to a “sell.” In a note to clients, analysts doubled down on their $7 per share price target, which would mean a 50% decline from current prices.
The investment bank went on to say that Nio’s surging market cap has little to do with the company’s overall car sales and profit projections. As such, Goldman thinks the company is currently overvalued, and that a correction is on the horizon. While a short-term decline is to be expected if the bank’s analysts prove correct, the long-term situation remains unclear. Whether or not Nio will end up being a success will depend largely on if it can brand itself as the top EV manufacturer in China, competition with the likes of Tesla. Goldman also says that it thinks revenues will almost double annually up to 2022, which might be pretty good, but its to be expected given how small Nio’s revenues are at the moment.
Shares ended up falling just under 20% on Friday following the news. Nio, which has been given the nickname of being the ‘Tesla of China,’ quickly became one of the most exciting IPO’s earlier this year as speculative investors flocked to the fledgling carmaker. Nio is still up substantially, having more than doubled this year even despite Friday’s losses, but this major analyst downgrade could be a sign that enthusiasm could be starting to fizzle out.
On the other hand, other specialty EV makers have seen their shares continue to rise, with many analysts being far more optimistic about these companies. Another Tesla rival, Nikola, was recently upgraded by JPMorgan to a “buy” due to the optimism surrounding its brand of electric trucks. Time will tell how these new Tesla rivals will fare with their competing electric vehicles.
Nio Company Profile
NIO Inc operates in China’s premium electric vehicle market. The company designs and jointly manufactures, and sells smart and connected premium electric vehicles, driving innovations in next-generation technologies in connectivity, autonomous driving, and artificial intelligence. Its model includes EP9 supercar, ES8, ES6, and EC6. The company sells vehicles through its own sales network, including NIO Houses, NIO Spaces, and their mobile application. The majority of the revenue is earned from selling vehicles. – Warrior Trading News
