NIO stock is down 90%. Will it recover?

NIO stock has fallen significantly from its 2021 all-time high. But could now be a chance for this Fool to snap up some cheap shares?

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Blue NIO sports car in Oslo showroom

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I remember the hype around NIO (NYSE: NIO) stock back in 2020.

During that year, we saw trillions wiped off the stock market. On the other hand, the Chinese electric vehicle (EV) manufacturer,rose a staggering 1,172.6%!

The growth stock certainly has potential. It’s a market disrupter in an industry that continues to grow. But a rise of that magnitude was never going to be sustainable.

It carried that form into the opening months of 2021. Since then, however, it has lost 90.4% of its value.

As I write, I could pick up a share for $5.78. Will we see it hit the heights again any time soon?

The pros

Well, there’s a lot to like about the business.

It has posted impressive growth in recent years. And while it’s yet to turn a profit, there are some signs that it’s heading in the right direction. For example, in Q3 vehicle sales jumped 45.9% year on year to just shy of $2.4bn. Vehicle deliveries also rose by 75.4% to 55,432.

Looking forward, it’s also set to release a sports utility vehicle, known as DOM, later this year, the first model from its new entry-level Alps brand.

With it being reported that the model will be priced at $34,000, which is $9,000 less than its current cheapest model, this should allow the business to target the mass market. That could provide it with a major boost.

The cons

In years gone by, NIO’s growth has really excited investors. However, I do have my concerns.

One issue is the firm’s debt. Growth stocks such as NIO tend to use debt to fuel expansion, so to have some debt on its books isn’t too big an issue. However, what does worry me is the idea of paying this off with interest rates at their current level.

With higher rates comes higher interest payments. For a company in NIO’s position, this could prove to be a stumbling block. More widely, the business has also implemented cost-cutting measures, but these haven’t yet proved to be effective.

There are other issues too. Ongoing political tensions between the US and China have impacted the firm in the past. The EV maker plans to sell its first car in the US by 2025. Whether this will be feasible we’re yet to see. To add to that, NIO also faces large competition as the EV market continues to grow.

An intriguing case

The investment case of NIO is an intriguing one. On the one hand, the business excites me. It produces solid growth, and the EV sector will continue to expand in the years and decades to come. With that in mind, surely the stock is a smart buy at its current price.

But on the other hand, there’s a lot of uncertainty surrounding the stock, which for me as an investor is concerning.

The firm is set to release its full-year results tomorrow (5 March). I’ll be interested to see how it performed in a challenging macroeconomic environment. That said, I’ll be holding off from buying any NIO shares for now.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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