UBS Analyst Upgrades NIO to a Buy. Here’s Why He Could Be Wrong.

NIO - UBS Analyst Upgrades NIO to a Buy. Here’s Why He Could Be Wrong.

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Nio (NYSE:NIO) stock gained $1.97, or 9%, on Monday after UBS Analyst Paul Gong upgraded the company’s stock from “hold” to “buy” on Monday. The stock rose to $23.90 a share.

However, Gong lowered his price target for the electric vehicle manufacturing company from $42 to $32, highlighting the uncertainty attached to NIO stock.

Here is why Gong could be wrong.

NIO stock enjoys similar attention to Tesla (NASDAQ:TSLA) and its chief executive officer, Elon Musk. Millennials who bolstered Tesla stock during the peak of Covid-19 were the ones buying NIO stock, since it was cheaper but still in the electric vehicle industry — projected to be the future of automobiles.

But Elon Musk was able to sustain Tesla stock’s value and demand with his numerous tweets and deals like the 100,000 electric vehicles agreement signed with Hertz (NASDAQ:HTZ), the largest American car rental company. NIO, meanwhile, relied on the projected global adoption of electric vehicles and positive comments like those from UBS for growth.

Nio also rose in October 2021, when Goldman Sachs analyst Fei Fang upgraded his projection from “hold” to “buy” and left his price target at $56.

While NIO’s plan to enter Germany, the Netherlands, Sweden and Denmark in 2022, and continue to expand sales in Europe is solid, global slow down due to the ongoing Russia-Ukraine war, spreading Covid-19 infections in China and China’s decision to cut subsidies are some of the challenges I projected would weigh on the demand for new ET5 midsize sedan and impede Nio’s potential in the near-term in 2022.

“We remain cautiously optimistic about the future development of the industry,” said Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers (CAAM). “Affected by the current conflict between Russia and Ukraine, the external environment of the industry is more complicated.”

It is important to note that most of NIO’s announcements and the projections that experts are basing their analysis on came before the Russia-Ukraine war and the change in the global economic outlook. I think I should stress that NIO is a good company with strong fundamentals. Hence why I think it’s a “hold” until the global outlook improves.

On the date of publication, Samed Olukoya did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samed Olukoya is a financial markets analyst with over two decades of experience. He founded Investors King and has worked with top business platforms across the world.


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