A Wall Street Analyst Thinks Nio Stock Is Going to $3.90. Is It a Sell?

The global electric vehicle (EV) market is becoming crowded, and Chinese EV makers are among the big reasons. While not yet profitable, Nio (NYSE: NIO) is one of those China-based companies ramping up production and exporting more and more of its high-tech EVs to Europe and elsewhere.

Nio delivered a record 61,855 units in the third quarter and estimates it will have as many as 75,000 EV deliveries in the fourth quarter.

But the stock has dropped by over 50% in 2024, and one Wall Street analyst thinks investors should stay away from it. Goldman Sachs analyst Tina Hou recommends investors sell the stock, and she sees it sinking to as low as $3.90. That price target was reduced from $4.80 and would represent a drop of 16.5% from Monday's closing price.

Nio is growing its brands

Hou downgraded her firm's rating on the stock to a sell with that prediction Monday, according to Barron's. Management expects to approximately double EV sales in 2025 to nearly 450,000 units, but Hou doesn't think the company will come close to that, even after adding two new brands to its portfolio. She thinks Nio will sell just 337,000 EVs next year.

Although that would still represent a 50% increase over 2024, Hou speculates that it would mean Nio's operating losses would continue to rise. She said, "We...expect lukewarm order momentum, slow production ramp-up and delivery volume, and intensifying price competition to be downside stock price catalysts."

Hou did concede that market demand could exceed expectations if China's government provides more favorable policy support.

Without that support, she thinks Nio's new lower-priced Onvo brand will hurt results further with increased expansion costs. The company will also launch a third brand named Firefly next month. Management says it is aimed at the "boutique compact car market" and deliveries will begin in early 2025.

Nio does need demand to grow. Hou's short-term prediction may be accurate, but longer-term investors may still want to own the stock if it does drop below $4.

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Howard Smith has positions in Nio. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.