Nio Stock: 3 Reasons to Buy, 3 Reasons to Sell

Nio (NYSE: NIO), a leading producer of electric vehicles (EVs) in China, was once a hot growth stock. Its American depositary receipts (ADRs) closed at a record high of $62.84 on Feb. 9, 2021, a 10-bagger gain from its initial public offering (IPO) price of $6.26 on Sept. 12, 2018. At the time, investors were impressed by its explosive growth, expanding vehicle margins, and unique battery swapping technology.

But today, Nio's stock trades at less than $4. It ran out of juice as its deliveries slowed down, its vehicle margins declined, and it racked up more losses. Rising interest rates, tariffs, and the escalating trade war between the U.S. and China exacerbated that pressure.

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So, should value-seeking investors consider buying Nio's stock today? To find out, let's review the three reasons to buy and the three reasons to sell.

Image source: Nio's EVE concept car.

The three reasons to buy Nio's stock

The bulls think Nio is primed for a recovery for three reasons: Its deliveries are accelerating, its margins are stabilizing, and it looks dirt cheap relative to its growth potential.

Deliveries more than doubled in both 2020 and 2021, but only increased 34% in 2022 and 31% in 2023. It attributed that deceleration to its supply chain constraints, tougher competition, and China's economic slowdown. But in 2024, its deliveries rose 39% to 221,970 vehicles. In the first four months of 2025, they increased 44.5% year over year to 65,994 vehicles.

That acceleration was fueled by its gains in market share in China through its flagship ET-series sedans and new Onvo SUVs -- which were buoyed by its subsidies for repeat customers and discounts on older vehicles -- along with its gradual expansion into Europe. It also started delivering its first Firefly compact cars and premium ET9 sedans in April.

Nio's annual vehicle margin dropped from its peak of 20.2% in 2021 to 9.5% in 2023. That decline, which was caused by a pricing war across the cooling EV market, convinced many investors that its days were numbered.

But in 2024, its vehicle margin expanded to 12.1% as it reduced its material costs, used more in-house components (including its own smart-driving chips), streamlined its production, restructured some of its businesses, and sold more higher-margin sedans and SUVs. Those improvements offset a lot of the pressure from its subsidies, discounts, and European tariffs.

Nio expects its namesake brand's vehicle margins to expand from 13.1% in the fourth quarter of 2024 to 20% in 2025, while its Onvo and Firefly sub-brands will initially operate at lower margins. It's also considering spinning off a majority stake in Nio Power, which handles its batteries and swapping stations, to further reduce its expenses and streamline its business.

From 2024 to 2027, analysts expect Nio's revenue to have a compound annual growth rate of 28% as it more than halves its net losses. Those are some incredible improvements for a stock trading at less than 1 times next year's sales.

The three reasons to sell Nio's stock

The bears believe three challenges will prevent its stock from bouncing back: It faces lots of competition from bigger companies, it's still racking up steep losses, and it's shouldering a lot of debt.

Nio might be gradually expanding its low single-digit share of China's new-energy vehicle market, but it's still a tiny underdog compared to market leaders like BYD, which grew its deliveries by 41% to 4.27 million vehicles in 2024, or Tesla, which boosted its deliveries in China by 9% to a record 657,102 in 2024.

Even if Nio continues to expand, those bigger competitors could strike back hard with steep price cuts and aggressive promotions. That would make it even harder for Nio (which is expected to stay unprofitable for the foreseeable future) to prove its business model is sustainable.

That's a bit worrisome when we consider that Nio's year-end debt-to-equity ratio (when dividing its total liabilities by its shareholder equity) surged from 2.4 in 2021 to 15.8 in 2024 as it took out more loans and raised more cash through convertible debt offerings. That debt could prevent Nio from achieving its ambitious expansion plans over the next few years.

So, which thesis regarding Nio makes more sense?

Nio faces a lot of near-term challenges, but its accelerating deliveries, rising vehicle margins, and expanding lineup suggest it can keep pace with its larger competitors. Its low valuation should also limit its downside potential, while any positive developments could drive its stock a lot higher.

So for now, I believe the bull case makes more sense than the bear case, and investors who accumulate the stock today might be pleasantly surprised over the next few years.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.