Nio is the 'heir apparent' in China's EV world, says Nomura, seeing nearly 40% upside ahead

Published Fri, Jan 22 202111:17 AM ESTUpdated Sun, Jan 24 20217:50 PM EST

Shanghai-based electric vehicle company Nio jumped more than 5% on Friday after Nomura became the latest Wall Street firm to issue a positive call on the stock. The firm initiated coverage on Nio with a buy rating, saying it's the "heir apparent in China's EV world" and noting the company's " Tesla -like top-down approach in launching its EV pipeline." Nomura's $80.30 price target on the stock, which is roughly 38% above where shares closed on Thursday, makes the firm one of the Street's biggest bulls. The average Street target on Nio is just north of $60, according to estimates from FactSet. Just like Tesla, Nio has established itself as a premium auto brand, Nomura analyst Martin Heung noted. Looking ahead, the company's strong brand recognition, as well as its proprietary battery-as-a-service technology, should lead to market share gains, he said. Nomura's Heung pointed to several key factors that underpin his bullish stance on Nio, including the Chinese government's efforts to bring electric vehicles to 20% of passenger vehicle sales by 2025. Additionally, he said that Nio should benefit from its first-mover advantage when it comes to battery-as-a-service solutions. Shares of Nio have been on a tear recently, with the company benefiting from the Tesla-induced interest in electric vehicle companies. Over the last year, shares of Nio have gained an eye-popping 1,144% as investors jump in, willing to pay now for expected future growth. Earlier this month, Nio unveiled its first sedan, called the et7 , which includes self-driving technology features that the automaker claims will surpass that of Tesla. Deliveries are set to begin in the first quarter of 2022, company founder and chairman William Li said at a launch event in Chengdu, China. Nomura doesn't expect Nio to turn a profit for the "foreseeable future," and so looked to Tesla's valuation several years ago as an example of how to model the company's trajectory. "We have referenced Tesla's historic price in relation to its total sales, to come up with an estimation of what the market at that time was willing to pay for the long-term future outlook for Tesla," the firm said. Nomura said Nio is "currently at a historical pathway similar to that of Tesla," but noted that there's one key difference this time around: the outlook for electric vehicles is much more certain than it was in 2014 to 2015. Ultimately, the firm forecasts an "explosive growth" period for Nio from 2023 to 2027, when unit sales will see yearly increases between 20% and 50%, thanks to the production ramp. For 2020, Nio said deliveries more than doubled from a year ago to 43,728 vehicles. Looking ahead, Nomura forecasts 90,000 deliveries in 2021, followed by 102,000 in 2022. By 2027, the firm sees Nio delivering 492,075 vehicles. For context, Tesla delivered 499,550 vehicles in 2020. — CNBC's Michael Bloom contributed reporting.

Employees make checks at an inspection line during a media tour of the Nio Inc. production facility in Hefei, Anhui province, China, on Dec. 4, 2020.

Qilai Shen | Bloomberg | Getty Images

Shanghai-based electric vehicle company Nio jumped more than 5% on Friday after Nomura became the latest Wall Street firm to issue a positive call on the stock.

The firm initiated coverage on Nio with a buy rating, saying it's the "heir apparent in China's EV world" and noting the company's "Tesla-like top-down approach in launching its EV pipeline."

Nomura's $80.30 price target on the stock, which is roughly 38% above where shares closed on Thursday, makes the firm one of the Street's biggest bulls. The average Street target on Nio is just north of $60, according to estimates from FactSet.