Investors can probably best describe Chinese electric vehicle maker Nio (NIO) as “frustrating.” Looking at the company’s stock chart below, it’s easy to see why. The five-year trend for Nio has shifted markedly since the post-pandemic bounce.
Since its peak in early 2021, when shares of NIO stock traded for more than $60 apiece, the stock has lost more than 90% of its value. And zooming in, this trend has actually recently, with Nio investors seeing a sharp selloff of 41% over the past six months. Shares are down 12% over the past five days as Nio announced a share offering around the same time President Donald Trump announced new auto import tariffs.
Let’s dive into what to make of this recent move, and whether the bleeding will ever stop with Nio.
What’s Driving This Underperformance in Nio Stock?
Tariffs are known to raise consumer prices and make global supply chains less efficient. And while certain sectors with higher margins may allow producers to “eat” a greater percentage of these tariffs and still export to the U.S., the 25% tariffs announced on imported automobiles and car parts imay effectively wipe out the possibility of expansion into the U.S. from the likes of Nio.
That’s certainly not great for a company that hasn’t been able to grow into its valuation for years.
The Chinese market remains Nio’s key growth engine, and there are reasons to be bullish on this company from a domestic perspective. Demographic shifts in China remain broadly bullish, and EVs now comprise a huge chunk of the auto market. As far as ubiquity and mainstream appeal are concerned, the Chinese EV market could outperform in the years and decades to come.
The thing is, Nio is up against some formidable rivals. Companies like BYD (BYDDY) and other smaller players like XPeng (XPEV) also continue to grow their share rapidly and have offerings which are very competitive. Nio is also still losing a tremendous amount of money.
This headwind has been brought to the fore with Nio’s recently announced offering of up to 118.79 million Class A shares, with the expectation of raising $500 million.With the current dynamics in place, some investors are considering the reality that the next shoe – another offering – is likely to drop not far into the future as Nio is forced to fund its growth with dilutive equity and debt offerings.
What to Make of the Fundamentals
Nio’s underlying fundamental ratios don’t look fantastic. They don’t look great at all. In fact, some investors are beginning to grow concerned about the company's viability given where it stands in the ultra-competitive landscape of EV manufacturing.
For one, Nio currently has more debt than equity on its balance sheet, and this recent equity offering isn’t going to help. Despite Nio’s massive decline over the past four years, this is still a stock trading right around 1 times sales, and its return on equity is a staggering -165%.
It’s not impossible to believe that Nio could achieve profitability. But with such a hefty negative profit margin, this is a stock that looks ultra-risky in an environment where consumers everywhere look strapped. If the economic downturn in China continues, the underlying thesis around growth stocks like Nio could be blown.
What Do Analysts Think?
Wall Street analysts aren’t as bearish as I am. Their consensus price target of $4.89 implies 27% upside potential over the next 12 months.
That said, until the overall investing picture for the EV sector improves, Nio can show some considerable improvement on its losses per vehicle produced, or some other game-changing announcement is made that could benefit Nio, this stock looks like either a “Hold” or “Sell” to me at current levels.
