Despite its early-mover advantage, Nio's growth momentum could remain soft on relatively fewer new model launches given its mature product portfolio vs. peers, Goldman Sachs said.

Goldman Sachs initiated coverage of Nio (NYSE: NIO) with a Neutral rating, saying the Chinese electric vehicle (EV) maker's growth momentum is likely to remain soft.

Goldman Sachs has a 12-month price target of $8.4 on Nio, implying 7 percent downside, in a research note sent to investors on January 3.

Nio has been losing market share in China's new energy vehicle (NEV) market and in the RMB 300,000 ($41,900) or more NEV segment, analyst Tina Hou's team noted.

Despite Nio's early-mover advantage, growth momentum could remain soft on relatively fewer new model launches given its mature product portfolio vs. peers, the team said.

The team expects Nio's revenue to grow at a compound annual growth rate (CAGR) of 31 percent from 2023 to 2025, driven primarily by 40 percent volume growth.

Goldman Sachs' sales forecast for Nio from 2024 to 2025 is 11 percent-14 percent below consensus expectations, as the consensus implied monthly sales volume for its Alps brand, at 7,800 per model in 2025, is too high vs. 1,800 for its existing models, according to the note.

Nio has a more comprehensive portfolio compared to its peers, so Goldman Sachs expects the EV maker to have a relatively softer stock of new model pipeline over the next 2 years, with 1 model under the Nio main brand, the ET9, and 2 under the Alps sub-brand.

The recent issuance of a $1 billion convertible bond and a $2.2 billion equity investment have eased financing pressures, but Nio's free cash flow will remain negative before 2026, Goldman Sachs said.

After closing a $2.2 billion equity financing from CYVN in December, Nio is estimated to have RMB 17 billion in net cash at the end of 2023, enough to support its operations, ongoing research and development, and brand development, Goldman Sachs said.

Starting in 2026, positive free cash flow will gradually help ease Nio's financing pressure, Goldman said.

Nio performed weakly in early US stock market trading on Thursday, falling 0.85 percent to $8.428 at press time.

($1 = RMB 7.1595)

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