Is Investing in Nio Stock Today a Smart Move for Your Future?

Nio (NIO) has experienced significant fluctuations since its debut in 2018. Initially priced at $6.26 per share, Nio's stock surged to a peak of $62.84 during the height of the meme stock phenomenon in February 2021.

Currently, the stock is trading around $5 per share. Investor enthusiasm has waned as the company faced challenges, including declining vehicle deliveries, shrinking profit margins, and mounting losses. This raises the question: could purchasing shares of this overlooked company, trading below its IPO price, be a path to future financial success?

How Did Nio Return to Its IPO Price?

Nio specializes in the production of electric sedans and SUVs, setting itself apart from competitors through its innovative battery-swapping technology, which allows for quick battery replacements at dedicated stations.

The company saw a remarkable increase in deliveries, which rose nearly 11 times between 2019 and 2024. However, after experiencing more than a twofold increase in 2020 and 2021, its growth slowed significantly in 2022 and 2023. This downturn was attributed to various factors, including supply chain issues, increased competition, and a slowdown in China's economy.

Metric	2019	2020	2021	2022	2023	2024
Deliveries	20,565	43,728	91,429	122,486	160,038	221,970
Growth (YOY)	81%	113%	109%	34%	31%	39%

Data source: Nio. YOY = Year over year.

The annual profit margin for Nio vehicles peaked at 20.2% in 2021 but fell to 13.7% in 2022 and further down to 9.5% in 2023 due to decreased pricing power. Moreover, the company's net loss surged by over four times from 2021 to 2023. These challenges, along with rising interest rates and trade tensions, have driven investors away.

What Lies Ahead for Nio?

After two years of declining growth, Nio has begun to see an uptick in deliveries again in 2024. The company has stabilized its operations, increased its market share in China, and expanded into European markets.

The improvement in performance was largely due to the sustained sales of its ET sedans, ES SUVs, and EC crossovers, as well as the introduction of the more affordable Onvo L60 model, which aims to compete with Tesla’s (NASDAQ: TSLA) Model Y but has a lower starting price of 149,900 yuan ($20,646). Additionally, Nio is continuing its footprint across Europe even with higher tariffs on Chinese EVs.

Despite these challenges, Nio has seen quarterly vehicle margins stabilize in 2024, increasing from 9.2% in the first quarter to 12.2% in the second quarter and 13.1% in the third quarter. The company expects margins to rise further, possibly reaching 15% when it releases its fourth-quarter earnings on March 21. This recovery is credited to lower material costs and increased sales of premium models in China.

In December, Nio introduced the Firefly, a compact electric hatchback targeted at those looking for smaller vehicles, such as BMW's (OTC: BAMXF) Mini, with a starting price of 148,800 yuan ($20,495). Plans are also in place to launch the Firefly in Europe this year, along with potential plans to localize some production to mitigate tariff impacts.

Is a Recovery in Nio's Stock Possible?

If Nio's delivery numbers and profit margins continue to rise, analysts predict that its revenue could grow at a compound annual growth rate (CAGR) of 30% from 2023 to 2026, while reducing its annual net loss by approximately half. Although Nio may not be profitable in the near future, it benefits from government subsidies and had $6 billion in cash and equivalents at the end of its latest quarter.

With an enterprise value of 76.9 billion yuan ($10.9 billion), Nio is currently valued at less than one times its projected sales of 97.6 billion yuan ($13.5 billion) for 2025, while Tesla trades at six times its projected sales for the same year.

Nio’s current valuation may be hindered by ongoing geopolitical tensions, potential tariff hikes, and worries over a cooling electric vehicle market. However, if these issues are resolved and Nio successfully scales its operations, investors could see the stock revalued and witness substantial gains from its current levels.

While it may still be premature to determine whether investing in Nio could truly "set you up for life" — a tall order for any single stock — it certainly poses a high-risk, high-reward opportunity for adventurous investors. Nio has yet to demonstrate the sustainability of its business model or its ability to generate consistent profits. However, it remains an appealing option for those who believe that trade tensions will ease and the EV market will improve.

Note: The author has no positions in any of the mentioned stocks, and general viewpoints about the market are provided purely for informational purposes.

Nio, Investing, EV