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Nio warns of lower Q1 sales, scraps Shanghai plant
Bloomberg | 2019/3/8

Nio Inc., in another sign China¡¯s auto market is still cooling, lowered its outlook for first-quarter deliveries and canceled plans to build a manufacturing plant in Shanghai.

The latest guidance from the Chinese electric vehicle startup prompted at least one analyst to downgrade the company¡¯s stock. Bank of America analyst Ming Hsun Lee lowered his rating on Nio to underperform from neutral, noting lower-than-expected sales growth for the ES8 and a ¡°rich valuation."

Shares of the company dropped as much as 20 percent in New York trading on Wednesday, after rising over 62 percent through Tuesday since Nio¡¯s initial public offering in September.

While rival Tesla Inc. has lowered new-vehicle prices, Lee noted that Nio does not have plans to lower prices, as such an adjustment may damage brand equity. However, the analyst believes the company would have to eventually offer some discounts. ¡°We believe Nio would have to offer some incentives or more features on ES6/ES8, amid peers¡¯ new product launch/price discount, and the electric vehicle purchase subsidy cut later this year,¡± Lee added.

The change in Nio¡¯s sales outlook should not surprise any industry watcher, given Tesla has also repeatedly struggled with meeting delivery targets in the past. The company has recently started delivering the Model 3 sedans in China, the largest auto market in the world and one that many predict will lead the charge in getting buyers to give up gas guzzlers and go electric.

Nio¡¯s lackluster guidance flagged a key issue that has also dogged Tesla in recent months. Bernstein¡¯s Robin Zhu noted that while Nio¡¯s fourth-quarter numbers were on the soft side, its demand concerns may actually prove more damaging for investors¡¯ long-term outlook on the company.

¡°Nio¡¯s fourth-quarter release pointed to February deliveries of just 811 units,¡± Zhu said, adding that lower capacity utilization is expected to weigh on gross margins in the first quarter.

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