NIO (NYSE: NIO) stock has experienced a major decline recently. Back in early 2021, shares in the Chinese electric vehicle (EV) maker were trading above $60. Today however, they can be picked up for around $10.
Is this a great investment opportunity? Let’s discuss.
Attractive growth story
The growth story here still appears to be intact. In its recent full-year results, NIO told investors it delivered 122,486 vehicles in 2022, an increase of 34% on 2021.
Boosted by this increase in EV deliveries, revenue climbed 36.3% to RMB 49,268.6m (USD $7,143.3m) for the full year.
Looking ahead, NIO is well-positioned for further growth. In China, the market for EVs is projected to grow by around 30% a year between now and 2028, according to Mordor Intelligence. This should provide powerful tailwinds for the company.
It’s worth noting that NIO’s goal is to double its sales to 250,000 EVs this year. And CFO Steven Feng recently told Bloomberg that the company is “very confident” of meeting this target.
Feng said that the sales growth will be achieved with new models, an expansion of the company’s charging and battery-swapping network, and by unlocking new autonomous driving technologies.
This is all very encouraging.
Huge losses
One thing that concerns me from an investment perspective however, is that the company is losing a ton of money at the moment.
Last year, NIO posted a loss from operations of RMB 15,640.7m ($2,267.7m) and a net loss of RMB 14,559.4m ($2,110.9m). And analysts expect the company to post another huge loss this year.
These losses could limit share price gains as investors don’t have a lot of time for companies that are losing money hand over first right now.
Intense competition
Another issue that concerns me is competition. In China, there are a number of EV manufacturers that have momentum, including the likes of Xpeng, Li Auto, and Warren Buffett-backed BYD.
NIO is going to have its work cut out to compete against these companies, as well as other, such as Tesla, Porsche, Volkswagen, and Ford.
Now NIO differentiates through technological innovation, such as its battery-swapping technology.
However, the competition is still a major threat. Recently, an EV price war broke out in China and NIO has had to lower its prices to be more competitive. Further discounts could reduce its margins and spook investors further.
A good investment?
Putting this all together, it’s hard to know if NIO is a great investment at the $10 level.
Yes, the company has growth potential. But the big losses and the high level of competition within the EV industry are major risks. Given the risks, NIO isn’t a stock I’d buy for my own investment portfolio.
All things considered, I think there are better growth stocks to buy today.
