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Nio may not have the intense following enjoyed by the industry leader Tesla, but Deutsche Bank thinks the electric-car manufacturer can quickly dominate the expanding Chinese market.
In a Tuesday note delving into whether the company could become "the next iconic auto brand," analysts led by Edison Yu highlighted Nio's growth in the competitive electric-vehicle market. For one, sales are trending higher. The team projected record third- and fourth-quarter deliveries and raised its estimates for full-year sales and earnings.
As adoption of battery-powered electric vehicles "increases and word of mouth spreads, we believe Nio can take material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services," Deutsche Bank said.
The lifted forecast backs the firm's "buy" rating and $24 price target for Nio shares. That target implies a 28% rally from Nio's Monday closing level over the next 12 months.
Nio gained as much as 7% following the note's release.
Some investors balked at the bank's bullish outlook earlier in the month, saying Nio doesn't boast the same loyalty in China as other luxury automakers. There is some truth to such criticisms "given Nio is an upstart," the analysts said, but the bank continues to find "compelling evidence" that Nio is increasingly viewed as a player in the luxury-autos space.
Nio's average customer-referral rate jumped to 62% in the first half of 2020 from 52% last year, according to the bank. Separately, a recent study by China's leading automotive web portal found that Nio had a higher referral rating in China than Tesla, BMW, and Mercedes-Benz, despite being just six years old.
Nio's standing in the Chinese market is already translating to more sales. The automaker boosted its monthly production capacity to 5,000 in September after selling out vehicles produced in August. Third-quarter deliveries are set to reach 11,500, the analysts said, landing above the high end of the company's own guidance.
Nio will still need to face off with other young Chinese rivals, but Deutsche Bank said it was confident the firm would lead the pack.
"With the China EV market already the world's largest and now inflecting upward after the recent downturn, we believe Nio is well positioned to take share in the premium segment," the team said.
Nio traded at $19.92 per share as of 12:40 p.m. ET. The company has three "buy" ratings, five "hold" ratings, and two "sell" ratings from Wall Street analysts.
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