Chinese automaker Nio Inc. (NIO) is facing tough competition, especially from big players like Tesla (TSLA) and BYD. The stock is down 21% year-to-date. While the company has shown revenue growth, it continues to operate at a loss, raising questions about its long-term path to profitability. However, in a fresh update, Goldman Sachs analyst Tina Hou upgraded the stock to Neutral from Sell and slightly raised the 12-month price target to $3.80 (HK$29.50) from $3.70 (HK$29.00), suggesting a modest 9% upside from current levels.
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Why Goldman Sees Some Upside Now
One key reason behind Hou’s upgrade was the company’s recent focus on cutting costs. In March, Nio’s management took several steps to cut costs, such as canceling projects, reducing staff, and streamlining operations across teams. These moves are aimed at cutting operating expenses by 20% to 25%.
According to Hou, these efforts could begin easing pressure on profit margins. Over the next three years, she expects Nio’s profitability to improve by 4% to 10%, marking a positive shift after several quarters of widening losses.
Another factor is the stock’s sharp decline over the past several months. Since Goldman Sachs placed Nio on its Sell list in November 2024, the company’s U.S.-listed shares have dropped 25%, while its Hong Kong shares are down 28%. Hou believes that much of the negative news is now reflected in Nio’s share price.
With lower costs and new profit targets, the analyst believes that Nio could be in a better position to stabilize cash flow and improve overall performance.
Risks Remain: Weak Demand, High Debt
Despite the upgrade, Goldman Sachs remains cautious about Nio’s volume growth, keeping its delivery estimates below the company’s own projections. This is mainly due to weaker-than-expected demand and increasing competition across the EV industry.
The firm also flagged concerns about Nio’s financial position, citing continued cash flow pressure and a high debt burden. Notably, during its Q1 2025 earnings call earlier this month, the company reported that its cash and investments had declined from $5.7 billion to $3.6 billion, underscoring ongoing strain on its balance sheet.
Is Nio a Buy, Sell, or Hold?
Overall, Wall Street has a Hold consensus rating on NIO stock based two Buys, seven Holds, and one Sell assigned in the last three months. The average NIO stock price target of $4.58 implies 33.14% upside potential from current levels.
