NIO stock has halved. Time to make a killing?

NIO stock has more than halved in the past year. The carmaker faces challenges but has the price fall gone too far? Our writer weighs the investment case.

| More on:
Blue NIO sports car in Oslo showroom

Image source: Sam Robson, The Motley Fool UK

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

NIO (NYSE: NIO) has fallen a long, long way. In 2021, NIO stock sold for more than $60 apiece. Today, the price is beneath $5.

The share price has halved in the past year, though the five-year decline sits at a more modest 8%.

Still, after the steep fall and with NIO now trading close to prices last seen in 2020, could it be time for me to pile in to the shares and try to make a killing?

Macro concerns, micro concerns

NIO is not the only electric vehicle maker to have seen a sharp comedown in share price lately.

Rivian has more than halved so far in 2024 and is now over 90% lower than it was five years ago. Even Tesla has tumbled 31% this year, although it still sits an impressive 862% higher than it did five years back.

Clearly, there are some problems affecting investor sentiment about the sector generally.

These include increasing competition pushing down selling prices and hurting profit margins (NIO remains loss-making, unlike Tesla). Shipping disruptions are also complicating supply chains, potentially adding costs and delays.

On top of that, NIO stock is likely suffering from some company-specific concerns too. It announced this month that first-quarter deliveries were around 30,000, around 3% below the same level in the comparative quarter last year. Tesla deliveries in the quarter showed a worse year-on-year decline (9%) but it still shifted almost 13 times as many vehicles as NIO.

For a company of NIO’s size and unprofitable economics so far, declining sales are a concern. If that trend continues, it could be bad news for revenues and particularly for profitability.

NIO’s first-quarter net loss of $690m was 166% higher than in the prior-year quarter.

Business model concerns

I think that helps explain why the stock has slumped.

The company remains badly loss-making and is burning cash.

Meanwhile, sales growth may have stalled, for now at least. Investors seem worried that the economics of the business are unattractive. The business model has not yet proven that it can be consistently profitable.

If the company continues to burn cash, it may dilute existing shareholders by issuing new shares to raise money. That could further hurt the NIO price.

Potential fork in the road?

Still, looked at positively, might we now be at an inflection point?

Slower sales growth and profit margin pressure could lead to a shakeout in the industry. That might help the prospects of well-established manufacturers such as Tesla and NIO.

NIO may not be growing sales well, but it is still shifting a couple of thousand cars per week. It has built a premium brand and offers battery-swapping technology I think helps set it apart from rivals whose vehicles are effectively tied to charging stations.

Based on that, NIO stock today could turn out to be a real bargain. Buying now, I might make a killing in years to come if the business grows sales and cuts or eliminates losses.

I would like to see more evidence of that before investing, however. So for now at least, I will not be buying NIO stock.

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.

C Ruane 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.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »