Is Nio Stock a Millionaire Maker?

Some retail investors tend to love penny stocks (shares in companies trading under $5 per share) because of their explosive volatility and multi-bagger, millionaire-maker potential. However, a low stock price doesn't always mean a good deal because these companies are often cheap for a reason.

Let's explore the pros and cons of investing in Chinese electric vehicle (EV) maker Nio (NYSE: NIO) -- currently trading at around $4 per share -- as it struggles to differentiate itself in the increasingly competitive automotive industry.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

A fallen star

Like many penny stocks, Nio is a falling star. The company launched its initial public offering (IPO) in 2018 at $6.26 per share before soaring roughly tenfold to an all-time high of $64.84 amid EV industry optimism in 2021. However, the good times didn't last. Nio's shares have now fallen by 94% to $4.04 at the time of this writing as challenges like competition, margin pressure, and lackluster growth weigh on investor sentiment.

China is the world's largest EV market, with electric and hybrid options representing more than half of new car sales in the country (compared to 18% in the U.S.). But this potential opportunity has slowly been eroded by excess competition. According to CNN, the country boasts more than 200 EV makers, leading to a massive oversupply of cars and a race to the bottom in pricing as different companies struggle for market share.

It's hard to see this situation ending well. Even industry leaders like Tesla are struggling, with March sales in China down 11.5% year over year. A highly competitive environment will likely be even more challenging for smaller automakers like Nio because they have lower economies of scale advantages and are less able to absorb losses during a price war.

Operational results are a mixed bag

Nio's earnings highlight the complexities of the EV industry in China. Fourth-quarter revenue jumped 15.2% year over year to RMB 19.7 billion ($2.7 billion), but profitability remains out of reach with an operating loss of $826.5 million. While this is down 8.9% from the prior-year period, it still looks like an unsustainable rate of quarterly cash burn, especially for a company with a market cap of just $9.1 billion.

The only way out of this situation is scale. Nio will have to sell more cars to take advantage of economies of scale and reduce its fixed costs per unit. Management could pull this off by trying to expand outside of China through new brands and an aggressive export strategy.

Image source: Getty Images.

In late 2024, Nio launched its Firefly marque, designed to offer small, higher-end cars and gain a foothold in the European market. It will compete with rivals like Stellantis' Fiat and BMW Group's Mini when it becomes available on the continent in the third quarter of this year. Firefly's sole model starts at just $16,800 in China. However, continued trade uncertainty makes it unclear what pricing will look like in the European Union.

But Firefly isn't NIO's only growth engine. According to CEO William Li, the company plans to launch nine new and refreshed models across three brands this year, which will enjoy higher gross margins and potentially help it financially break even in 2025. That said, investors shouldn't take these optimistic projections at face value due to global macroeconomic uncertainties related to trade and even a global recession.

The China discount?

When it comes to EV stocks, Chinese players are cheap compared to their U.S. counterparts. With a price-to-sales (P/S) ratio of 0.9, Nio shares are dramatically more affordable than unprofitable American EV-makers like Rivian Automotive and Lucid Group, which trade for 2.8 and 7.7 times their 12-month sales, respectively. This dynamic makes Nio look like an excellent deal, especially if management manages to break even this year.

That said, a company's stock is only worth what other people are willing to pay for it. And without any profits or dividends, there is no way for investors to benefit from Nio's "China discount" directly. The Chinese EV market also looks risky right now because of excess competition and potential trade uncertainties in international markets. Investors looking for massive stock market returns may want to skip over Nio for now.

Should you invest $1,000 in Nio right now?

Before you buy stock in Nio, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nio wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $611,589!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $697,613!*

Now, it’s worth noting Stock Advisor’s total average return is 894% — a market-crushing outperformance compared to 163% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 5, 2025

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and Stellantis. The Motley Fool has a disclosure policy.