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NIO (NYSE:NIO) stock, once a darling of the electric vehicle (EV) boom, has slumped over the past two years. After peaking during the pandemic-era EV frenzy, NIO shares have continued to tumble. Even now, it’s trading towards the lower end of its 52-week average.
So what’s happened? Well, the reasons behind this decline are multifaceted, with both company-specific and sector-wide challenges weighing on sentiment.
Here’s why NIO slumped
The primary factor is persistent losses and a delayed path to profitability. NIO’s not expected to turn a profit until 2028, according to consensus analyst estimates. That’s three years from now. In 2028, the price-to-earnings (P/E) ratio would be 19 times earnings. That’s a little demanding for three years’ time, but this figure can plummet in the early years of profitability.
This prolonged loss-making status is a red flag for many investors, especially as competition in the EV sector intensifies. NIO’s recent earnings reports have disappointed. While sales volumes are rising, average selling prices have fallen, and costs in the sector remain stubbornly high.
The company’s net debt position has also become a concern, as it continues to fund operations and expansion through borrowing. That puts pressure on its balance sheet and raises questions about future dilution or refinancing risks.
Despite the gloom, NIO’s top-line growth remains robust. Consensus estimates call for annual EPS growth of 28% in 2025, accelerating to over 40% by 2027. Yet, with net losses persisting and debt mounting, the market’s patience is wearing thin. Investors should also be wary that NIO has missed targets before.
I’d also argue that NIO’s battery-swapping technology is becoming less valuable. A few years ago, the idea that you could swap your battery in a matter of minutes rather than charging a car for an hour seemed like a great idea. However, building battery-swapping station is a massive logistical cost. Meanwhile, conventional charging times have plummeted.
Self-driving buzz
Another dynamic shaping the sector is the growing focus on autonomous driving. Markets are becoming less enamoured with pure-play EV makers and more interested in companies with credible self-driving technology. In fact, Elon Musk told us years ago that there was no money in cars.
While NIO’s made investments in smart driving features, it faces stiff competition from both domestic rivals and global giants like Tesla, who are pouring billions into autonomous systems. The ability to differentiate on software and self-driving capabilities may ultimately determine who wins in the next phase of automotive disruption.
Worth considering?
For risk-tolerant investors, NIO could be a passable opportunity as average share price targets suggest it could recover. However, with persistent losses, a heavy debt load, and intensifying competition, the risks are substantial.
Until NIO demonstrates a clear path to profitability and stronger financial discipline, its shares may remain under pressure. Personally, I don’t think the stock’s worth considering.
