Nio(NYSE: NIO), a Chinese maker of electric vehicles (EVs), went public at $6.26 per American depositary share just over six years ago. Its stock soared tenfold to a record high of $62.84 during the apex of the meme stock rally on Feb. 9, 2021, but it now trades at less than $5.
Like many other smaller EV companies, Nio struggled to ramp up its production, maintain its pricing power, and narrow its losses. China's cooling economy and rising tariffs on its exported EVs exacerbated that pressure. But should contrarian investors buy Nio's stock as it languishes below its IPO price?
Image source: Nio.
Nio's business is stabilizing
Nio produces a wide range of electric sedans and SUVs. Instead of relying on traditional chargers, Nio differentiates itself from its competitors with removable batteries that can be quickly swapped out at its battery swapping stations. Nio started delivering its first vehicles in 2018, and its annual deliveries soared 81% in 2019, 113% in 2020, and 109% to 91,429 vehicles in 2021. Its annual vehicle margin rose from negative 9.9% in 2019 to positive 20.1% in 2021 as it scaled up its business. Those robust growth rates propelled Nio's stock to its all-time highs.
However, Nio's annual deliveries only rose 34% in 2022 and 31% to 160,038 vehicles in 2023. It mainly blamed that slowdown on supply chain issues, weather-related disruptions, macro challenges, and a protracted price war in China's EV market. Its vehicle margin sank to 9.5% in 2023 as it struggled to control its costs and retain its pricing power.
But in the first 10 months of 2024, Nio's deliveries grew 35% year over year to 170,257 vehicles. That acceleration was driven by its robust sales of premium ET-series sedans, the rollout of its cheaper Onvo smart vehicles in China, and its gradual expansion in Europe.
What's next for Nio?
For the full year, analysts expect Nio's revenue to increase 26% to 70.3 billion yuan ($9.7 billion) as it narrows its net loss from 21.15 billion yuan to 19 billion yuan ($2.6 billion). For 2025, they expect Nio's revenue to grow 39% to 97.4 billion yuan ($13.5 billion) as it narrows its net loss to 14 billion yuan ($1.9 billion).
Nio expects its near-term growth to be driven by steady demand for its premium vehicles (ET5T, ES6, EC6, ET7, ES7, and ES8) in China, the recent launch of Onvo's L60 to challenge Tesla's Model Y in the domestic midsize crossover SUV market, and the rollout of its plug-in hybrid electric vehicle Firefly brand in select overseas markets in 2026.
Nio plans to keep expanding in Europe even as it faces higher tariffs on Chinese-made EVs, and a $3 billion investment from Abu Dhabi's sovereign wealth fund last year should support its expansion into the UAE and give it a foothold in the Middle East.
Nio won't break even anytime soon, but it still held 41.6 billion yuan ($5.7 billion) in cash and equivalents at the end of the second quarter. However, its high debt-to-equity ratio of 4.9 could make it tough for the company to raise more funds at reasonable rates.
Nio looks undervalued relative to its growth potential
Nio still has a lot to prove over the next few years. But with an enterprise value of 67.3 billion yuan ($9.3 billion), it looks like a screaming bargain at less than 1 times this year's sales. Tesla, which is much larger and consistently profitable, trades at 10 times this year's sales.
It's doubtful Nio will become as big as Tesla, which delivered 1.81 million vehicles in 2023. But if Nio's growth accelerates again, its stock could soar a lot higher. So for now, it might be smart to accumulate this unloved Chinese EV stock while it trades below its IPO price.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
