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 shares?

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Blue NIO sports car in Oslo showroom

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2024 has proven to be challenging for NIO (NYSE: NIO), with its share price down by 36% since the beginning of the year. As the company navigates an evolving electric vehicle (EV) market environment, many investors are closely monitoring the situation to understand the future. So can NIO shares go much lower, or is there a recovery on the cards?

One-way traffic

NIO has been in a severe decline since peaking in 2021 as speculation and excitement around EVs reached frenzy. Although there have been periods of positivity, investors haven’t generally had a great few years.

Like many companies in the sector, supply chains were a constant issue during the pandemic, with lockdowns in China severely impacting vehicle production. This severely dented investor confidence, sparking major sell-offs.

The firm’s major differentiator from others in the sector is the ability to swap out batteries. Owners can simply pull up, exchange an empty battery at a swap station for a full one, and then drive off. With many competitors now advancing rapid charging technology, many now suggest the swapping technology used in these vehicles could become redundant.

The business has pledged to build thousands of these swap stations over the coming years, but with demand uncertain for EV’s, an unprofitable company such as this begins to look like a risky investment to me.

The numbers

Let’s take a look at the numbers. I like to consider the price-to-sales (P/S) ratio, since the company’s unprofitable. The ratio of 1.4 is lower than competitors in the space, with an average of 2.7 times. With sales growth expectations of 19% over the coming years, many might see the share price at a decent value. However, there’s one major red flag for me, namely the share dilution.

Even as earnings have grown at a very healthy 44% over previous years, the number of shares have soared in the last year. With 24% growth in the shares outstanding, investors have seen a major decline in the value of the holdings, even in addition to the volatile share price.

Some positives

Clearly, the global EV market’s expected to grow significantly in the coming years, driven by increasing environmental concerns, government incentives, and technological advancements. NIO, as a leading player in the Chinese market, is well-positioned to capitalise on this growth.

The firm’s also been making headlines in 2024 with several more positive developments. The company’s been expanding its product line-up, with the introduction of new models targeting different market segments. For instance, the launch of the Onvo brand, offering more affordable EVs to compete with Tesla‘s Model Y.

In addition, NIO has been actively seeking partnerships and investments to strengthen its balance sheet. In 2023, the company announced a $2.2bn investment from an Abu Dhabi-based investment firm CYVN Holdings. This investment not only provides much needed additional capital but also helps to build a strategic position in the Middle East.

Am I buying?

For me, NIO shares present an interesting opportunity, but there are far too many red flags to be investing at this time. With significant losses reported, the ability to achieve profitability in the near future remains uncertain. If the company continues on this path, it remains difficult not to expect further declines.

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.

Gordon Best 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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