Can Nio Make a Comeback? Exploring the Future of the EV Stock

Electric vehicle (EV) stocks surged in 2021, driven by meme stock excitement, low interest rates, and social media hype, often overshadowing their financial struggles. Among these was Nio (NYSE: NIO), whose stock skyrocketed tenfold from its IPO price of $6.26 in 2018 to a peak of $62.84 on February 9, 2021. Today, however, its shares are trading for less than $5, hindered by a slowdown in growth, persistent losses, and rising interest rates that deflated its hefty valuations.

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Image source: Nio.

Nio’s enterprise value stands at 67.6 billion yuan ($9.3 billion), marking its stock as undervalued at less than 1 times this year’s sales. While it remains a speculative play, a small $500 investment could potentially transform into substantial returns. Here are four reasons Nio could be set for a revaluation as a high-growth stock.

1. Nio’s Battery-Swapping Innovation

Nio distinguishes itself in the crowded EV market with its battery-swapping technology, allowing drivers to quickly replace depleted batteries at dedicated stations. Instead of waiting to charge, users can opt for a single-use or subscription service for swaps. Although most sales occur in China, Nio is gradually expanding into Europe, increasing its battery-swapping stations from 36 at the end of 2019 to 2,737 by Q3 2024.

Currently, these stations operate at a loss; however, as they grow, efficiency may increase. With an average of 30-40 swaps per station daily, the company believes breaking even could occur at 60-70 swaps. Achieving this target may provide Nio with a significant competitive edge over traditional charging methods.

2. Rising Vehicle Deliveries

Nio’s delivery figures more than doubled in 2020 and 2021; however, growth slowed in 2022 and 2023 due to market challenges. Nevertheless, 2024 appears brighter as deliveries are accelerating with the launch of high-end ET-series sedans and Onvo smart vehicles. The company is also expanding its presence in Europe.

Data source: Nio. YOY = Year-over-year.

Nio anticipates delivery growth of 51%-53% for the full year, countering fears of being outpaced by both domestic and international rivals. The upcoming 2025 introduction of the less expensive Firefly in Europe should further bolster sales, despite potential impacts from recent tariffs on Chinese EVs.

3. Improving Vehicle Margins

Nio’s vehicle margin fell sharply from a peak of 20.2% in 2021 to just 9.5% in 2023, primarily due to a fierce price war among EV manufacturers. Notably, rising competition, including price cuts by Tesla (NASDAQ: TSLA), intensified these challenges.

Despite a slight dip to 9.2% in early 2024, margins rebounded to 12.2% in Q2 and 13.1% in Q3, fueled by increased market share and higher sales of premium models. This resilience undermines concerns that rising production costs will undermine Nio’s viability. Furthermore, ongoing government support offers Nio a crucial buffer as it navigates current losses.

4. Significant Growth Prospects Ahead

Analysts predict that Nio’s revenue will grow at a compound annual growth rate (CAGR) of 29% from 2023 to 2026, along with expectations to cut annual net losses in half by 2026. While these forecasts should be taken cautiously, they are particularly striking for a stock trading at under 1 times this year’s sales. For comparison, Tesla trades at 13 times this year’s sales after achieving profitability in 2020. Thus, if the market reassesses Nio as a high-growth EV player, the stock could yield substantial gains.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.