Should You Buy Nio Stock While It's Below $5 a Share?

The share price of Chinese electric vehicle (EV) maker Nio (NYSE: NIO) has fallen to $4.95, more than 35% off its 2025 high and less than $2 away from its all-time lows.

Given how quickly the automaker has been growing its sales, it might seem like a no-brainer buy at the current stock price. But there are three big risks ahead for Nio. Investors should consider them carefully before buying the stock, even at this discounted price.

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Risk No. 1: Profitability remains elusive for Nio

Nio's revenue has been soaring as its sales have grown by impressive double-digit percentages. In November, the company made 36,275 vehicle deliveries, a year-over-year increase of 76.3%. That's not far off from its record-setting October deliveries of 40,397 vehicles, a 92.6% year-over-year increase.

Despite these record delivery numbers and impressive year-over-year growth, Nio isn't profitable. In fact, the more vehicles it sells, the worse its profitability numbers seem to get. After posting a net loss of $813.6 million in 2021, its net losses grew to $1.6 billion in 2022, $2.2 billion in 2023, and $3 billion in 2024, all while its revenue soared from $5.6 billion to $9.1 billion.

However, the company might be turning things around. Its quarterly net losses shrank sequentially over the last three periods, and management reportedly aims to make the fourth quarter the first-ever profitable quarter. If it succeeds, shares will likely rise; if not, they are likely to fall further.

Even if Nio manages to eke out a single profitable quarter, competition in the Chinese EV market is continuing to heat up, so maintaining that profitability may get even more difficult as time goes on.

Risk No. 2: Vanishing incentives

The Chinese government pulled out all the stops to help jump-start the country's electric car industry, offering substantial purchase subsidies for EVs through 2022 and currently offering full tax exemptions for purchasing a vehicle. However, those exemptions are gradually being phased out, starting next month.

Instead of offering a tax exemption on the full purchase price of an EV up to RMB 30,000 (about $4,260), the government will only offer a 50% exemption worth up to about $2,130 in 2026 and 2027. After that, the exemptions are set to expire.

Here in the U.S., we saw the impact that the removal of tax incentives could have on EV sales when the $7,500 tax credits were phased out at the end of September, and EV sales plummeted in October and November. The same thing could easily happen to Nio's sales in 2026, which could have a big impact on its revenue and its share price.

That said, Nio has deliberately targeted the lower-end EV market by offering several less-expensive vehicles and its signature battery swap program, which reduces the purchase price of a vehicle even further. Thus, the reduced tax incentives are likely to go further when buying a Nio, which might improve its competitive standing relative to other Chinese automakers. But there's no guarantee that even an improved competitive standing will be enough to offset a likely drop in overall purchases.

Risk No. 3: Trade barriers

Part of the growth thesis for Nio is its aggressive international expansion efforts. While the vast majority of its cars are sold in China, it has already launched sales and service networks in five European countries and is planning to expand into seven more.

However, in late 2024, the E.U. implemented stiff tariffs on Chinese EVs, calling them "unfairly subsidized." These tariffs, which range from 17% to 35.3%, are a huge barrier for all Chinese EV makers that sell in Europe, but are especially problematic for a carmaker like Nio, which leans heavily on affordability. The tariffs aren't set to expire for five years, which throws the EV maker's European strategy into doubt.

Is Nio stock worth a look?

Given how risky Nio looks right now, it's no wonder it's trading at less than $5, which translates to just 1.1 times trailing sales.

While it's possible that Nio will manage to turn in a profitable fourth quarter and then navigate the competitive landscape and the vanishing tax incentives in the Chinese EV market to maintain that profitability, there's a lot that could go wrong. Investors should be aware of the risks and should only put money they can afford to lose into this speculative stock.

John Bromels has positions in Nio. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.