Deutsche Bank cuts estimates on Nio: 'We continue to believe the product'

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Deutsche Bank cuts estimates on Nio: 'We continue to believe the product'

Deutsche Bank reiterated a Buy rating on Chinese electric automaker, Nio Inc. (NYSE: NIO ) and cut their 12-month price target on the stock to $16.00 (from $17.00) as the company’s growth trajectory appears weaker than expected.

In the second quarter, there were 23,520 units delivered, resulting in revenue of 8.8 billion RMB, which fell short of the expected 9.1-9.2B forecasts due to a decline in ASP. The gross margin of 1.0% was lower than the consensus estimate of 3.3%, primarily due to challenges in both vehicle margin and "other sales."

Operating expenses, totaling 6.2B RMB, exceeded expectations, largely due to increased spending on research and development. As a result, the adjusted EPS for the quarter came in at $(3.28), which was below the consensus estimate of approximately $(2.85).

Analysts wrote in a note, “NIO's growth trajectory appears somewhat weaker than expected despite having multiple new models fully ramped up. This seemingly reflects a problem in its sales structure, which now must be significantly expanded to better compete against legacy premium peers. While we don't see large downward pressure on demand, the emergence of this situation impairs management's credibility after it had just regained some over the last few months.”

The management's projection for the third quarter of 2023 is weaker-than-expected, as they anticipate a range of 55,000 to 57,000 deliveries, equating to revenue between 18.9B to 19.5B RMB. This contrasts with Deutsche Bank's forecast of 60,000 units, suggesting that September's performance is expected to decline once more to a range of 15,000 to 17,000 deliveries, as opposed to the 19,329 achieved in August.

Shares of NIO are down 0.09% in pre-market trading Wednesday.

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