Morgan Stanley Says NIO’s Short-Term Margin Pain Is Inevitable By

© Reuters. Morgan Stanley Says NIO (NIO) Short-Term Margin Pain Is Inevitable

By Sam Boughedda

Morgan Stanley analyst Tim Hsiao maintained an overweight rating and $31 price target on Chinese electric vehicle company NIO (NYSE:) on Monday, though he said short-term pain on the margins was “inevitable”.

Speaking on its first quarter NDR takeaways, Hsiao said in a note to customers that while margin pain is inevitable, it is most likely transitory, with supply dynamics remaining fluid and NIO reaffirming its point. view that the worst is over.

“NIO reaffirmed its outlook for an upward sales trend from June… Doubling overall production capacity to 30,000/month by the end of 2H will give NIO’s new models and upgraded SUVs a full market opportunity from Q3 Plant 1 could operate at full rate in Q3 Plant 2 would provide additional boost in Q4 There is no surefire way to guarantee supply of all components, but NIO has done adequate preparation with multiple sources, additional strategic stock, improved architecture, etc.,” Morgan Stanley said. Hsiao. “The company expects a noticeable volume ramp of ET5, which is expected to reach 10,000 units per month 3-4 months after launch. In addition to this, NIO expects overall monthly shipments of ES8, ES6 and EC6 with upgraded smart hardware (e.g. more powerful smart cockpit, panoramic camera and 5G connectivity) will remain stable at the 9-10,000 mark, supported by a competitive product proposition in the full-size SUV market medium to large.”

“The aforementioned models in the pipeline should lay a favorable foundation for vehicle delivery to double sequentially in 2H22,” the analyst added.

However, he acknowledged that margin pressure in Q2 is the main concern.

“NIO shed some light on its margin trajectory in a challenging industry environment. It expects vehicle gross margin to fall 3-4ppt QoQ in 2Q, due to unfavorable scale and manufacturing costs. battery/chip, as pointed out in the 1T results call.”

Hsiao added, “However, he is looking to improve the model mix, price increases and scale advantages to allow gross margin to return to Q1 level in Q3 or Q4 if raw material prices are stabilizing. In addition, the margin of services and others should improve in 2H.”

Michael J. Chiaramonte