Chinese EV Maker Nio Hits the Brakes on New Sell Rating

Shares of Shanghai-based electric vehicle (EV) maker Nio Inc. (NYSE: NIO) plunged more than 17% Friday morning following a downgrade by Goldman Sachs analyst Fei Fang, who cut the company’s rating from Neutral to Sell and chopped Nio’s price target nearly in half.

Last week, Goldman boosted its 12-month price target on Tesla Inc. (NASDAQ: TSLA) stock to $1,300 per share. The stock closed above $1,500 on Thursday and has added another 0.7% in Friday trading.

In late April, Nio announced an investment of RMB7 billion ($990 million) from a group of investors, including the city and provincial government entities, in Nio China, a new entity that will be majority-owned by Nio, with the other investors owning less than a quarter of the shares.

At the time of the April announcement, Nio stock traded at around $3.60 per American depositary share (ADS). By July 1, the ADSs had climbed to $7.90 and doubled again to post a 52-week high of $16.44 last week. That’s too far, too fast, to summarize Fang’s reason for the downgrade.

In early June, Fang upgraded Nio from Neutral to Buy with a price target of $6.40. It appears that the $990 million investment played a significant role in that upgrade. He seemed particularly impressed by the fact that Nio had become the first domestic premium brand to have generated a waiting list of Chinese customers.

By late June, Fang dropped his Buy rating to Neutral again while lifting his price target to $7. Nio had raised some $475 million in a secondary offering at $5.95 a share.

Nio’s shares continued to soar as June turned to July, and Fang has finally declared a halt. With consensus price target Thursday night of $38.65, the stock’s implied upside was nearly 200%. And that’s on a stock that is expected to post a net loss of $6.25 this year and $4.30 next year.

The carmaker has shown no evidence that sales volume will increase or that profits are due anytime soon, according to Fang. He still believes Nio’s long-term story is a good one because China continues to back EV adoption and because Chinese buyers tend to like premium vehicles.

Nio’s ADSs traded down about 12.6% shortly before noon Friday, at $11.31 in a 52-week range of $1.19 to $16.44. One Nio ADS is equal to one ordinary share.