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Will Nio’s Q2 Earnings Disappoint?

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Nio (NIO), also known as “China’s Tesla,” is scheduled to release its second-quarter earnings tomorrow before the market opens. For Q2 of 2019, Wall Street analysts expect EPS and revenue of -$0.18 and $185 million, respectively.

At 1:30 PM ET today, Nio stock was trading down about 9%. The stock’s weakness was likely due to investors’ anticipation of softer results tomorrow. To see what’s riding on tomorrow’s earnings results, see Could NIO’s Q2 Results Turn Things Around? In this article, we’ll see what analyst sentiment is like for the stock ahead of the Q2 results.

Consensus analyst sentiment for Nio stock

As per data compiled by Thomson Reuters, a total 12 analysts are covering NIO stock. 41.7% have a “buy” rating while 25% have a “sell” rating. The average target price is $5.3, implying an upside of about 71%, based on the stock’s last closing price. Target prices for NIO stock range widely. The lowest one target stands at $1.7, and the highest is $12.6.

Bank of America Merrill Lynch’s take

After Nio reported weak July delivery numbers in August, Bank of America Merrill Lynch’s analyst Ming Hsun Lee reiterated his “underperform” rating. He has a target price of $3 on the stock. Lee said, “We have an Underperform rating on NIO, given: (1) we expect ES8/ES6 orders to be weak, (2) competition in EV is intensified, (3) high refinancing risk due to weak FCF.”

On May 29, Bank of America had downgraded the stock from “neutral” to “underperform.” The bank was expecting weaker demand for Nio vehicles after the rollback of electric vehicle subsidies in China. Lee also lowered his target price on the stock from $6.2 to $3.0. The bank was concerned about increased competition in China’s electric vehicle space. This concern is especially pressing since Tesla (TSLA) is venturing into the domestic Chinese market through its local Gigafactory.

UBS Group weighs in

UBS Group reiterated its “neutral” rating for Nio stock. One of the major factors swaying UBS analyst Paul Gong is his outlook for the Nio E8. On July 18, Gong said, “The expected losses in 2019/20 are likely to trigger several rounds of equity financing to keep NIO solvent given current levels of leverage.” Gong also cut his “ES8 sales forecast by 35% and gross margin by 9pct for FY19 amid a challenging market, the phasing out of subsidies, and the recent recall on battery safety issues.”

Deutsche Bank and Citigroup on Nio

Deutsche Bank (DB), on the other hand, has a “buy” rating on the stock. DB analyst Vincent Ha said, “The worst-case earnings hit to NIO” could come in the second quarter. Ha, however, believes “the ultimate impact would be lower.” He also expects the company’s sales to keep growing.

Citigroup (C) upgraded NIO stock from “neutral” to “buy” on April 4 while reducing its target price from $7.2 to $6.8. Citi analyst Jeff Chung thought at the time that the worst was over for the stock.

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