- Nio jumped 5% on Thursday after the Chinese EV maker was upgraded to "Buy" at Goldman Sachs.
- The bank said Nio could surge 66% on the strategic potential of its upcoming ET7 vehicle.
- "We believe Nio provides the visibility of strong volume expansion in the next 6 months, driven by the upcoming ET7," Goldman said.
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Nio surged as much as 5% on Thursday after it received an upgrade to "buy" at Goldman Sachs with a $56 price target, representing potential upside of 66% from Wednesday's close.
Goldman made the upgrade after shares of Nio shed nearly $30 billion in market value amid ongoing regulatory pressures in China, supply chain constraints, and a fatal accident that took place in one of Nio's vehicle when the Navigate On Pilot system was turned on.
But Nio should see renewed upside as the company begins delivering its premium ET7 sedan model early next year. The release of the ET7 could spark demand for Nio's vehicles and cement the company as a leader in the premium EV market.
"We believe Nio provides the visibility of strong volume expansion in the next six months, driven by the upcoming ET7, the Nio Day 2021 in Suzhou, the accelerating battery as a service build-out, and the entrance into Norway," Goldman explained.
The ET7 is an important launch for Nio for four key reasons, according to Goldman.
1. The product design of the ET7 is strategic, as it mirrors full-size premium sedans from Mercedes and BMW with a comparable price point. Goldman notes that the Mercedes S-class and BMW 7 series have scaled to more than 10,000 vehicle sales per month in China. Nio's ET7 could scale to similar levels, according to Goldman.
2. "The price point makes ET7 China's most expensive car model ever launched by domestic manufacturers, strengthening Nio's brand equity in the premium space," Goldman said.
3. Nio is offering a battery as a service plan, which lowers the purchase price of the car by allowing customers to lease the batteries that power the car.
4. The continued evolution of Nio's autonomous driving technology will be on full display in the upcoming ET7, which sports 33 high-performance sensors including both LiDAR and cameras. These sensors will enable forward collision warning, automatic emergency braking, lane keeping assist, and an automatic parking system.
But risks are abound for Nio, Goldman said, highlighting the intensifying competition in the EV space, potential production woes, and higher than expected prices that could limit volume.