Nio (NYSE: NIO), the Chinese electric vehicle (EV) manufacturer, has experienced a rollercoaster journey since its IPO in 2018.
While the stock soared to a record high of $62.84 during the 2021 meme stock rally, it now trades significantly below its IPO price of $6.26.
The decline reflects a host of challenges, including production inefficiencies, rising competition, and geopolitical headwinds.
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As Nio gears up to report its Q3 2024 earnings on November 20, investors are wondering whether the stock offers a promising opportunity or remains a risky bet in today’s volatile market.
At press time, the stock is trading at $4.62, reflecting a year-to-date loss of over 45%.
Operational highlights and growth prospects
Nio has differentiated itself in the competitive EV space with its battery-swapping technology, offering customers a faster alternative to traditional charging.
This has helped Nio build a loyal customer base and scale its operations over the years. Despite a slowdown in 2022, Nio’s delivery growth rebounded in 2024, with vehicle deliveries up 35% year-over-year through October.
The launch of the company’s Onvo brand L60 model, a direct competitor to Tesla’s (NASDAQ: TSLA) Model Y, and near-record delivery numbers in September recently propelled Nio’s stock by 5.78% in a single day.
However, Chinese stocks, including Nio, saw a sharp pullback following a late-September rally when underwhelming measures from Chinese authorities dampened market optimism.
Expanding footprint: European markets and beyond
For 2024, analysts project Nio’s revenue to rise by 26% to $9.7 billion, with a further 39% increase expected in 2025.
This optimistic forecast is underpinned by Nio’s ambitious expansion strategy, which includes the launch of its plug-in hybrid Firefly brand overseas by 2026, alongside sustained demand for its premium EVs in China.
In a notable step forward, the company recently announced a partnership to launch its business in Azerbaijan, marking another milestone in its global expansion efforts.
Furthermore, tariffs pose a risk to the dynamics of EV sales growth in Europe. Potential retaliatory tariff plans could create additional hurdles, complicating the company’s ability to maintain its growth trajectory in the region.
Nevertheless, Europe remains a crucial growth driver for Nio as it strives to scale up production and sales. The company recently reported its sixth consecutive month of exceeding 20,000 deliveries, with October shipments totaling an impressive 20,976 units.
Competitive landscape and strategic challenges
While Nio’s battery-swapping technology is a unique selling point, advancements in fast-charging technology are narrowing its competitive edge.
Rival EVs like the Li Auto (NASDAQ: LI) now support ultra-fast charging, offering an 80% charge in just 10 minutes.
This evolution in charging infrastructure could diminish the long-term relevance of battery swapping, raising concerns about Nio’s strategic positioning.
Further complicating Nio’s outlook are geopolitical headwinds. Higher tariffs on Chinese-made EVs in Europe and potential trade disruptions under U.S. President-Elect Donald Trump could stifle global expansion plans.
Valuation: A deep discount or a value trap
Nio’s valuation presents a puzzling dichotomy. With a Price-to-Sales (P/S) ratio of 1.01, the Chinese EV maker is trading at a steep discount compared to the broader EV sector, where leaders like Tesla boast a P/S ratio of 11 according to StockAnalysis.
This low valuation signals significant market skepticism about Nio’s ability to translate its growing deliveries and revenue into sustainable profitability.
At face value, Nio’s P/S ratio makes it appear undervalued, especially given its strong delivery growth in 2024.
Through October, Nio’s vehicle deliveries increased by 35% year-over-year, with total revenue for the year expected to rise 26% to $9.7 billion.
However, profitability remains a distant goal. The company’s net loss for 2024 is projected at $2.6 billion, narrowing only modestly in 2025 to $1.9 billion.
Optimistically, Nio’s delivery growth in 2024 and the recent $1.9 billion cash infusion from strategic investors provide a foundation for future expansion.
That being said, for cautious investors, waiting for more clarity from Nio’s Q3 earnings report on November 20 is a prudent approach.
For now, Nio may be a speculative buy for those with a high-risk tolerance, but it remains a hold—or even a pass—for more conservative investors.
Featured image via Shutterstock
