NIO stock is down 31% this year: is now the time to buy?

NIO stock has continued to fall so far in 2024, trading at less than a tenth of its all time high of $60. This Fool assesses if now is the time to buy.

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Futuristic front of NIO car in Norwegian showroom

Image source: Sam Robson, The Motley Fool UK

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China-based electric vehicle manufacturer NIO (NYSE: NIO) has continued to struggle in 2024 — at the time of writing, the stock is trading just under $6.

This bearish trajectory is part of a longer-term trend NIO has faced over the past few years. Since its all-time high of over $60 in early 2021, the stock has tumbled a whopping 90%.

However, with a market cap of over $12bn, it still has a sizable presence. Considering the 2024 share price performance so far, coupled with the wider decline, could now be the time to add this EV manufacturer to my portfolio? Let’s investigate.

Encouraging results

One thing that has always driven me to NIO is its high growth. While the company is loss-making, its sales figures have continued to expand throughout the last few quarters. In its Q3 2023 results, revenues surpassed $2.3bn, marking a 46% increase from the year prior. For 2022, the story was the same, with full-year figures rising 37% year on year.

While NIO is not yet profitable, it’s certainly moving in that direction, with margins increasing 24% year on year for Q3 2023. The strategy employed by NIO is not unusual for high-growth tech companies. The focus initially is not on delivering profit, but on using debt to scale the business. Therefore, when the coin flips and the business does turn profitable, it can deliver big. This happened with Tesla in 2020.

NIO will release its Q4 and full-year results next week. I will be eagerly waiting to see if they can top these figures. If they can deliver solid results, I think it could help reverse some of the bearish sentiment towards the stock.

Why I’m not convinced

There are a few main reasons why I think NIO stock could continue to struggle this year. Firstly, global interest rates have risen significantly in the past 18 months. NIO holds over $4bn in debt, and with high-interest rates expected to continue through much of 2024, the company could face some substantial interest payments. This kind of burden is the last thing NIO needs as it navigates its way to profitability.

That being said, in its Q3 results the company announced the completion of the sale of $1.15bn of senior notes, “further strengthening our balance sheet and powering our continuous endeavors to navigate the intense competition” added Steven Wei Feng, NIO’s CFO.

Furthermore, with Trump leading in election polls in there US, there’s a possibility of a more aggressive stance toward Chinese trade from the US in the future. This could impede NIO’s expansion into the American EV market, which is crucial for its growth.

The verdict

Overall, I think NIO will continue to face hurdles, at least in the short term. I will be eagerly awaiting the 2023 full-year results next week before deciding whether to make my move at the current share price. At present, however, I won’t be buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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