Al Root

NIO stock caught a downgrade from the Street. Shares are up, anyway, and valuation and volume are two reasons for that.

Tuesday, J.P. Morgan analyst Nick Lai downgraded the U.S.-listed shares of the Chinese electric-vehicle maker to Hold from Buy. His price target went to $4.70 per American depositary receipt from $7.

The company's new ET9 sedan will help volumes, but it is a high-end car, so the impact will be limited, he writes. The ET9 isn't a mass-market vehicle, it starts at around $100,000.

Despite the cut, NIO's ADRs were up about 2% in premarket trading at $4.37, while S&P 500 futures were flat, and Dow Jones Industrial Average futures were down about 0.2%.

Part of the reason for the counterintuitive reaction is the starting point. Coming into Tuesday trading, NIO stock was down about 16% over the past three months. ADRs of XPeng -- another U.S.-listed Chinese EV maker -- were up roughly 30%, while ADRs of Li Auto were down about 7%.

NIO was the worst performer. Investors appear to favor volume growth -- for a reasonable price.

Over the past three months, NIO sales rose almost 50%, which is impressive, but short of XPeng's mammoth 100% rise. Li is the largest of the three, and its sales rose about 12% over the past three months.

Li grew the slowest, but it's also the cheapest stock, trading for about 0.5 times estimated 2025 sales, according to FactSet. NIO trades for about 0.7 times. XPeng is growing faster, and has the highest multiple, trading for about 0.9 times estimated 2025 sales.

Wall Street, on balance, embrace Lai's view. They see better opportunities in the faster-growing XPeng or the cheaply valued Li. With the downgrade, about 55% of analysts covering NIO stock have Buy ratings. The average analyst price target is about $6.

About 75% of analysts covering XPeng stock have Buy ratings. The average price target is about $13.30 per U.S-.listed ADR. That's below the $$15.69 level they closed at on Monday.

About 85% of analysts covering Li shares have Buy ratings. The average price target is about $31 per U.S.-listed ADR. Those closed at $22.88 on Monday.

Write to Al Root at allen.root@dowjones.com

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February 04, 2025 09:08 ET (14:08 GMT)

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