Should I buy Nio stock now it’s under $5?

Our writer explains some of the things he likes about NIO stock — and whether he is ready to buy in after recent price falls.

| More on:
Futuristic front of NIO car in Norwegian 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.

It has been a difficult year for investors in Nio (NYSE: NIO), with the shares now 41% below where they started 2024. Still, Nio stock is 62% higher than it was five years ago.

The price has recently fallen below $5, a price last seen four years ago – shortly before it soared to over $60.

So, could the current price weakness offer a buying opportunity for my ISA? After all, I can buy US-listed companies in my Stocks and Shares ISA and Nio has piqued my interest for a while.

Decent position in a promising market

Nio is one of a host of electric vehicle producers. That is both good and bad, I reckon. Such a competitive field suggests there is a lot of promise, which is why entrepreneurs have rushed to set up vehicle makers.

Already, electric vehicle demand is high – and it is set to continue rising for a considerable time yet. Nio has some things that help set it apart in this crowded field. For example, its proprietary battery swapping technology is an elegant yet unusual solution to a common hurdle faced by electric vehicle drivers: limited range on a single charge.

But that crowded market could also put pressure on profit margins across the industry.

This is more than a purely theoretical risk. It is one that has already materialised and I think explains some of the negative sentiment towards the sector in recent months.

The stock is hardly alone in having tumbled so far in 2024. Tesla is down, too, though by a more modest 29%.

Lots to prove

I think the falling share price also reflects some company-specific challenges. One of them is scale. It is producing thousands of cars a month. Last month, for example, deliveries hit 15,620 vehicles. That is a 135% increase compared to the same month last year.

But that still leaves Nio far behind Tesla and established manufacturers like Toyota. That means it cannot get the same economies of scale that they can, hurting its potential profitability. Making cars is a capital-intensive industry that soaks up huge sums of cash. Being able to spread those expenditures over high sales volumes is therefore an important part of a successful business model.

Meanwhile, the economics of the business continue to look uncompelling. The company’s net loss grew 44% last year to just under $3bn. That is a lot of red ink to spill.

Wait and see

So although I like the company and think it has real potential, I also think the business model remains to be proven. Not only is the carmaker loss-making, but its bottom line has been heading in the wrong direction as it grows.

That could change, if sales volumes keep growing and Nio can reap more economies of scale.

But for now it remains to be seen whether that will happen. So, even below $5 apiece, the shares do not tempt me, 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.

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

Investing Articles

Approaching £5, is there still growth ahead for the Rolls-Royce share price?

The Rolls-Royce share price has been flying in the last year. But is there more growth ahead or should investors…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

Could Raspberry Pi be a growth share to buy and hold?

Our writer explains why he thinks a newly-listed UK growth share could have a bright future -- and considers whether…

Read more »

A pastel colored growing graph with rising rocket.
Market Movers

The FTSE 100 jumps after the Bank of England meeting. Here’s what’s next

Jon Smith runs over the takeaways from the Bank of England meeting today and flags up which FTSE 100 stocks…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

How I’d start investing in great value UK shares with £10,000 today

Harvey Jones can see a heap of UK shares he'd like to add to an ISA today. Many combine low…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Why did the YouGov share price just crash 37%?

The YouGov share price has been weak for a while. But that's nothing compared to what happened after this profit…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

YouGov shares collapse 37%! What’s going on with this AIM stock?

Our writer takes a look at why YouGov shares fell dramatically today and assesses whether this might be a chance…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Earnings up almost 15%! Is it time to seriously consider this FTSE 250 stock?

Ongoing recovery and growth in this high-performing FTSE 250 business means there may be more to come for investors.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Are there still bargains on the FTSE 100? Here’s what the charts say

The FTSE 100 has been gaining momentum this year. But this Fool still sees plenty of bargains on the index.…

Read more »