Nio’s Struggles: A Deep Dive into the EV Manufacturer’s Future

Nio (NYSE: NIO), a prominent electric vehicle (EV) producer in China, is currently valued over 40% below its initial public offering (IPO) price of $6.26 per American depositary receipt (ADR) from September 12, 2018. Furthermore, it has plummeted approximately 90% from its previous peak of $62.84 per ADR on February 9, 2021.

Nio first captured investor interest through its rapid expansion and innovative swappable battery technology, which promised quicker alternatives to traditional charging stations. However, growth has since decelerated due to increased competition, a sluggish economy in China, and higher tariffs that hindered its plans for expansion into Europe. Additionally, Nio has faced challenges with cash flow and persistent losses.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Nio.

Currently, Nio might not appear attractive to investors as uncertainties related to tariffs and the ongoing trade war push many toward safer investments. Nonetheless, can this undervalued EV stock experience a recovery in the coming year?

Review of Nio’s Performance in the Past Year

Nio offers a diverse selection of electric sedans and SUVs. Its deliveries surged over 100% in 2020 and 2021; however, growth slowed to 34% in 2022 and 31% in 2023. This decline was largely due to macroeconomic challenges and increased competition, which alarmed investors.

In a turnaround, Nio’s deliveries jumped 39% to 221,970 vehicles in 2024, driven by sales of its premium ET-series sedans and Onvo midsize SUVs in China. Despite facing rising tariffs, the company continued to expand its presence in Europe. Notably, vehicle margins improved sequentially over the past year, increasing from a low of 9.5% in 2023 to better levels, although they remain below the record high of 20.2% achieved in 2021.

Data source: Nio. YOY = Year over year. *Full Q1 report not posted yet.

While Nio has not yet disclosed full first-quarter earnings or provided guidance for the upcoming year, several factors could enhance its delivery figures: increased sales of the Onvo model to family-oriented consumers, the introduction of the Firefly compact EV in China and Europe, and the recent unveiling of the premium ET9 flagship sedan.

Moreover, discussions between the European Union and China aim to replace existing tariffs on Chinese EVs with minimum market prices, potentially aiding Nio’s competitiveness in Europe and promoting gradual diversification beyond China.

Despite ongoing unprofitability, Nio has made significant cuts, recently reducing its workforce by about 10%. The company is also contemplating the sale of a controlling interest in Nio Power, its lower-margin battery operations, to CATL, a significant Chinese battery manufacturer.

These actions may help stabilize losses while focusing on the core business. Notably, Nio had approximately $5.7 billion in cash and equivalents at the end of 2024. It also proposed a new offering of 118 million shares to support the development of new EV technologies. Local government subsidies in China offer additional financial backing, suggesting Nio is not facing immediate bankruptcy.

Nio’s Value Relative to Growth Opportunities

From 2024 to 2027, analysts project a compound annual growth rate (CAGR) of 27% for Nio’s revenue. In contrast, Tesla (NASDAQ: TSLA) is expected to see a CAGR of only 16% during the same period.

Currently, Nio’s enterprise value stands at 71.35 billion yuan ($9.8 billion), positioning the stock at just 0.8 times this year’s anticipated sales. For perspective, Tesla is trading at 7.3 times its expected sales for this year. Consequently, Nio’s current valuation appears significantly low relative to its growth outlook, though concerns surrounding tariffs and trade tensions may continue to pressurize investor sentiment and valuations. Positive developments, such as a potential trade agreement between the U.S. and China, could boost Nio’s stock value.

While the immediate future for Nio’s stock remains uncertain, its attractive valuation mitigates downside risks. This scenario presents a possible opportunity for investors looking for contrarian plays, willing to overlook near-term fluctuations.

Is Investing $1,000 in Nio Wise Right Now?

Before committing funds to Nio’s stock, investors should take note of the following:

The Motley Fool Stock Advisor analyst team recently pinpointed the 10 best stocks currently available for purchase, and surprisingly, Nio did not make the list. The stocks selected are believed to have significant potential for massive returns in the upcoming years.

Consider Netflix, which earned a spot on this list on December 17, 2004… if you had invested $1,000 at that time, you’d now have $518,599!* Similarly, Nvidia, selected on April 15, 2005… if you had invested $1,000, you’d have $640,429!*

For context, the average return for Stock Advisor is 791%, significantly outperforming the S&P 500’s return of 152%. Don’t miss out on the latest top 10 list, which is available when you join Stock Advisor.