Here’s why I’m not enticed by the tanking NIO share price

The NIO share price continues sinking as the brand that promised so much keeps failing to deliver. Dr James Fox takes a closer look.

| More on:

Image source: Getty Images

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.

The NIO (NYSENIO) share price is down 49.5% over 12 months. The company just keeps on underdelivering, and this time there’s less optimism that the stock will pop back up. Well, that’s certainly my view.

Underdelivering time after time

The Shanghai-based EV firm delivered 30,053 vehicles in the first quarter of 2024. That translates to a 3% decline versus the same quarter last year. In a fast-growing market like new energy vehicles (NEVs), going backwards isn’t impressive.

However, some of this can be put down to the broader macroeconomic climate. Tesla is among those companies that are struggling at the moment, recently announcing falling deliveries year on year. The big difference is that NIO is a million miles behind Tesla, and it still loses money.

In my view, NIO has proven to be the loser in the highly competitive Chinese EV market. My top pick, Li Auto, recently announced a 53% increase in deliveries year on year for Q1 — and that was still down on where it hoped to be.

Waiting longer on profitability

When I first started covering NIO stock two years ago, it was due to turn its first profit in 2024/25. Of course, there have been issues that were outside of the company’s control. NIO was seemingly harder hit by prolonged Chinese lockdowns before ‘Covid Zero’ was lifted.

However, the business just hasn’t moved forward as quickly as we’d have hoped. In fact, it’s now unlikely to turn a profit until 2027. That means three more years of losses, and maybe more cash raises. NIO ended 2023 with $8.1bn in cash and equivalents, but it lost $600m in the last quarter of the year.

While this run rate doesn’t look overly alarming, the company is planning to open over 1,000 battery-swapping stations over the next year. And it may need to open more to develop its battery-swapping infrastructure fully. At $420,000 per station, it’s going to require plenty more capex.

Great cars, but USP fading

I really like what NIO has done. It has a great range of vehicles, cool tech and unique battery-swapping technology. But while the battery-swapping concept is impressive, I believe it’s less of a selling point than it used to be.

NIO says you can swap your car’s empty battery for a full one in a matter of minutes. And that’s faster than any charging alternative. It could still be a feature that helps it bounce back. The problem is that car charging is getting faster, so building all this battery-swapping infrastructure seems less relevant to me.

For example, Li Auto’s Mega can reach full charge in just 12 minutes. And I imagine it’s only going to get faster. I’m no longer convinced that battery swapping is the way forward.

All in all, I’m not convinced NIO can turn things around. I’d love to be optimistic, but it’s in a tricky situation and has a track record of disappointing me. It’s currently trading at 25.9 times predicted earnings for 2027 — not expensive, but that’s a long way away.

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.

James Fox has positions in Li Auto Inc. 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

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£5,000 in savings? Here is how I would invest in income shares

This Fool has been searching for ways to generate a passive return via income shares.

Read more »

Market Movers

The Keywords Studios share price just jumped 63%. Time to sell?

The Keywords Studios share price has soared on the back of takeover talk. Here, Edward Sheldon explains what he’d do…

Read more »