U.S. depository shares of Chinese electric vehicle maker NIO (NYSE: NIO) are up today, up about 8.6% as of 10:30 am EDT, after a once bearish analyst improved the stock.
In a new note released before the market opened on Tuesday, UBS analyst Paul Gong put NIO at a neutral sell level and raised his price target to $ 16.30 from just $ 1.00. (For reference, NIO shares were trading at $ 16.25 at 10:30 a.m. EDT.)
Gong was bearish on NIO not long ago. While he didn’t go so far as to give it a buy rating, his upgrade represents a significant change of mind, and the reasons for the change seem solid: The fundamentals of the company have improved.
Gong noted that NIO’s sales volumes recovered well in the second quarter and the company has guided continued sales growth in the third quarter. NIO also kept its promise to improve its gross margin, he wrote, and that, in addition to the company’s successful capital increase in June, “allayed” its previous concerns about its balance sheet.
Having said that, Gong still thinks auto investors should be careful here. While admitting that there is strong global interest in NIO’s electric vehicle “history”, he believes the company will need additional cash to fund its growth and may need to raise another fundraiser at at some point.
I agree with Gong that NIO may eventually need to raise more capital. But if CEO William Bin Li and his team continue to perform as they have over the past few months, I don’t think NIO will have much trouble raising additional cash if and when it is needed.