Image source: Sam Robson, The Motley Fool UK
NIO (NYSE: NIO) has fallen a long, long way. In 2021, NIO stock sold for more than $60 apiece. Today, the price is beneath $5.
The share price has halved in the past year, though the five-year decline sits at a more modest 8%.
Still, after the steep fall and with NIO now trading close to prices last seen in 2020, could it be time for me to pile in to the shares and try to make a killing?
Macro concerns, micro concerns
NIO is not the only electric vehicle maker to have seen a sharp comedown in share price lately.
Rivian has more than halved so far in 2024 and is now over 90% lower than it was five years ago. Even Tesla has tumbled 31% this year, although it still sits an impressive 862% higher than it did five years back.
Clearly, there are some problems affecting investor sentiment about the sector generally.
These include increasing competition pushing down selling prices and hurting profit margins (NIO remains loss-making, unlike Tesla). Shipping disruptions are also complicating supply chains, potentially adding costs and delays.
On top of that, NIO stock is likely suffering from some company-specific concerns too. It announced this month that first-quarter deliveries were around 30,000, around 3% below the same level in the comparative quarter last year. Tesla deliveries in the quarter showed a worse year-on-year decline (9%) but it still shifted almost 13 times as many vehicles as NIO.
For a company of NIO’s size and unprofitable economics so far, declining sales are a concern. If that trend continues, it could be bad news for revenues and particularly for profitability.
NIO’s first-quarter net loss of $690m was 166% higher than in the prior-year quarter.
Business model concerns
I think that helps explain why the stock has slumped.
The company remains badly loss-making and is burning cash.
Meanwhile, sales growth may have stalled, for now at least. Investors seem worried that the economics of the business are unattractive. The business model has not yet proven that it can be consistently profitable.
If the company continues to burn cash, it may dilute existing shareholders by issuing new shares to raise money. That could further hurt the NIO price.
Potential fork in the road?
Still, looked at positively, might we now be at an inflection point?
Slower sales growth and profit margin pressure could lead to a shakeout in the industry. That might help the prospects of well-established manufacturers such as Tesla and NIO.
NIO may not be growing sales well, but it is still shifting a couple of thousand cars per week. It has built a premium brand and offers battery-swapping technology I think helps set it apart from rivals whose vehicles are effectively tied to charging stations.
Based on that, NIO stock today could turn out to be a real bargain. Buying now, I might make a killing in years to come if the business grows sales and cuts or eliminates losses.
I would like to see more evidence of that before investing, however. So for now at least, I will not be buying NIO stock.
