Image source: Sam Robson, The Motley Fool UK
NIO (NYSE: NIO) stock’s been a total dog for ages now. It’s down 12% in 12 months, 76% over three years, and 83% since listing in 2018.
Yet the Chinse electric vehicle (EV) still has potential. Just look at Tesla, whose share price is up 500% over five years, despite all the recent problems. Meanwhile, Chinese rival BYD is on fire, with its stock surging by a similar amount in the same time frame.
Let’s take a closer look at NIO to assess its prospects.
Things to like
To start, I want to outline a few basics I look for in a growth stock to see whether the EV pioneer is a suitable candidate for my ISA. The most obvious is the market in which the firm operates. I don’t want to invest in one that isn’t growing. Fortunately, there are no worries here, as EV ownership in China and elsewhere is soaring.
Last year, global EV sales reached a record 17.1m, marking a 25% increase from the previous year. China accounted for a whopping 11m of these sales, reflecting 40% growth. According to a BloombergNEF report, EV sales are expected to exceed 30m in 2027, then grow to 73m a year by 2040.
However, just because a market’s growing, it doesn’t mean all firms therein are. Take online shopping, which is still booming globally. Yet e-commerce firms like eBay and Etsy have stopped growing their revenues, suggesting they’re failing to capture that overall growth.
Again though, NIO’s doing a good job here. It grew vehicle deliveries 39% to 221,970 last year, while growing revenue 18% to roughly $9bn. In 2025, revenue’s expected to rise around 38% as it benefits from the launch of two additional brands (Onvo and Firefly).
Other things I look for include founders running the firm, innovation, and strong branding. We have that here through founder-CEO William Li, innovative battery-swap technology, and the growing NIO premium brand in China.
Lastly, I don’t want to invest at an extreme valuation. Right now, NIO stock’s price-to-sales ratio is 0.9. That isn’t high for a growth company.
Concerns
On the other side of the ledger, there are a few things I find worrying. One is intense competition and the related EV price war. Legacy automakers are rapidly moving into the EV arena, while leaders like BYD and Tesla have the wherewithal to keep investing for future growth.
The reason this worries me is because NIO remains deeply unprofitable. It reported an adjusted net loss of $2.8bn last year. Looking ahead, the bottom line is expected to improve, but I’m seeing negative earnings per share forecasts through to at least 2029.
Another concern I have is NIO’s lower-priced sub-brands. Onvo launched in 2024 and Firefly is doing so this year. While these can boost top-line growth, it’s also notoriously difficult to successfully scale multiple brands. Focus might get diluted, while marketing costs will need to remain high to increase brand awareness.
Finally, the company’s focus on battery-swap stations is a risky gamble, in my opinion. Granted, customers seem to love these for now, but improvements in battery charging technology could make them redundant long term.
For me, the risks outweigh the positives here. I have no plans to invest.
