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While the Chinese market saw a relief rally last year amid optimism over an economic stimulus package, electric vehicle (EV) startup Nio (NIO) closed deep in the red. The stock has closed in the red for four consecutive years after peaking in early 2021 when its market capitalization surpassed $100 billion.
To be fair, 2021 was practically a different world for EV stocks. There was general euphoria toward green energy, which coupled with the abundant supply of cheap money, meant that investors bid up shares to ludicrous valuations.
The EV Industry Is Facing Trouble
Flash forward to 2024. The EV industry was in the news for mostly unpleasant reasons. President-elect Donald Trump has vowed to end the “EV mandate” – policies designed to disincentivize driving gas-powered cars – on the very first day of his presidency. Trump’s stance toward China is no secret either, pressuring U.S.-listed Chinese stocks since November.
The EV industry’s woes are much deeper than Trump’s return to the White House. The industry is battling massive overcapacity and slower adoption which is leading to a price war. As for China, the country’s EV pivot has been a success story, and sales of new energy vehicles (NEV) – a category that includes both hybrids and battery electric vehicles – have soared, with adoption rates topping 50%. However, it is also witnessing a brutal price war as competition heats up.
Nio’s Deliveries Rose to a Record High in 2024
Nio’s annual deliveries rose 38.7% year-over-year to 221,970 last year. Its deliveries gained traction in the back half of 2024, rising to a record monthly high of 31,138 in December. But Nio’s impressive delivery growth failed to cheer investors.
It is a penny stock and trades below the $5 price level. However, it is not a small or financially vulnerable company. Nio still commands a market capitalization of around $9 billion and held $6 billion of cash and cash equivalents on its balance sheet at the end of Q3.
Nio Expects Its Deliveries to Double in 2025
During its third-quarter earnings call, Nio said that it expects deliveries to double in 2025 which implies shipments of roughly 440,000 this year. The company expects its Onvo and Firefly brands to drive volumes. Nio has already started selling cars under its lower-cost Onvo brand, which has helped propel volumes in recent months, and expects to start Firefly deliveries this year.
Notably, fellow Chinese EV company Xpeng Motors (XPEV) also reported an impressive rise in Q4 deliveries led by higher sales of its budget model Mona M03. A pivot to budget brands should help propel Nio’s volumes in 2025. Deutsche Bank also believes Nio’s 2025 forecast and expects the Chinese EV company to deliver 450,000 vehicles this year.
However, not all see Nio’s deliveries rising that much in 2025. Goldman Sachs expects it to ship 337,000 vehicles, way below the company’s guidance. I would be inclined to be in the bullish camp and expect Nio’s deliveries to improve significantly in 2025.
Also, while China’s economic stimulus wasn’t to the scale that markets expected, the country should announce more measures in 2025. While there is no quick-fix solution to the structural slowdown in the Chinese economy, the country has shown a willingness to address the situation.
Why Nio Is a Penny Stock Worth Considering
Nio is currently posting losses like most other fellow EV companies, but expects its losses to narrow in 2025. It expects 2025 gross margins of 15% and 10%, respectively, for the Nio and Onvo brands. Over the long term, the company set a gross margin target of 20% for its namesake brand and 15% for Onvo.
CEO William Li believes that Nio will achieve breakeven in 2026, which would be a key milestone for the company. While it remains to be seen if the company meets that goal, a combination of higher deliveries, better economies of scale, and a focus on efficiencies should help Nio’s earnings over the next couple of years.
The company also has a strong balance sheet to absorb its cash burn and does not have any pressing need to raise further capital for the next few quarters. In fact, last month Nio announced the repurchase right for its convertible notes which are due in 2027.
All said, even Tesla (TSLA) failed to grow its deliveries last year, making it the first instance when the company reported a yearly fall in deliveries. There is also a lot of uncertainty over the Chinese economy in light of Trump’s tariff threat. However, I see a lot of valuation comfort in Nio as the stock now trades at a next 12-month (NTM) price-to-earnings (P/E) multiple of a mere 0.75x which is quite close to the lowest that it has ever been. For context, even during Q1 2020 when Nio was battling for survival, the multiple was above 1x.
While the macroeconomic outlook is far from perfect for Nio in 2025 I find it a penny stock worth betting on given the tepid valuations and strong growth outlook.
