Investing.com -- J.P. Morgan downgraded NIO to Neutral from Overweight and cut its price target to $4.50 from $7.00, citing sluggish demand in China's passenger-vehicle market, intensifying price competition and limited overseas exposure that could constrain the electric-vehicle maker's earnings upside.

The brokerage said NIO's second-quarter results were moderately ahead of its estimates and highlighted the company's sustained profitability, resilient vehicle margins and improving free cash flow. Vehicle gross margin reached 18.5% in the second quarter, despite about 4 billion yuan ($550 million) of cost inflation per vehicle compared with late 2025.

J.P. Morgan expects the company's margin resilience to face further pressure in the second half as management forecasts another 2,000-3,000 yuan per vehicle increase in costs, mainly from batteries, memory chips and other materials. A weak pricing environment could make it harder for NIO to pass those costs on to customers or respond aggressively to rivals, the brokerage said.

The brokerage also expects NIO's vehicle-volume growth to moderate as competition intensifies. It forecasts 430,000 deliveries in 2026 and 480,000 in 2027, representing growth of 32% and 12%, respectively. While new NIO and ONVO models could broaden its addressable market, J.P. Morgan said they will enter an increasingly crowded premium segment, with rivals including BYD, Li Auto, Xiaomi, XPeng, Zeekr and Huawei-backed brands offering similarly priced vehicles.

J.P. Morgan expects China's passenger-vehicle demand to be flat to down 5% in 2027, making market-share gains increasingly dependent on incentives or pricing support. That could make NIO's long-term target of 40%-50% volume growth difficult to achieve, it said.

The brokerage cut its 2026 and 2027 revenue estimates by 5% and 9%, respectively, while reducing its adjusted earnings forecasts by 13% and 52%. It now expects adjusted net income of a 2.34 billion yuan loss in 2026 and a 975 million yuan loss in 2027, compared with its previous forecasts for losses of 512 million yuan and profit of 2.52 billion yuan, respectively.

J.P. Morgan said it continues to prefer BYD and Geely among Chinese automakers because of their stronger earnings resilience, broader product portfolios and greater overseas growth potential.