Should You Buy NIO Stock While It's Below $5?

Many electric vehicle (EV) stocks have declined sharply from their peaks at the start of the decade. Nio (NYSE: NIO) is no exception. In early 2021, the company hit its all-time high of $63 per share, only to fall to about $4.50 today. That's an eye-watering decline of 93% in just five years as investors shifted away from the EV industry because of challenges like rising competition and trade uncertainty, especially in the U.S. market.

As a Chinese company, Nio is largely shielded from the negative affects the Trump administration has had on U.S. automakers. Furthermore, its sales are growing at a rapid clip. Let's dig deeper to decide if these factors will be enough to break the stock's current slump.

Business is booming

China is the world's largest EV market, with battery electric vehicles accounting for roughly 59% of its new car sales compared to a peak of 10.5% in the U.S. The Asian nation has accelerated adoption through favorable government policies designed to support both manufacturers and consumers. However, the downside of this has been an explosion in competition as more companies pile into the market.

The intensifying competition is hurting established industry leaders like Tesla and BYD, both of which saw their vehicle sales in China drop 7.4% and 5.1% respectively in 2025. And while the international market remains a significant long-term opportunity for Chinese automakers, they face near-term challenges from tariffs and other forms of protectionism as countries seek to shield their domestic automakers from foreign competition.

Nio is bucking the trend

Despite the harsh macro conditions, Nio has managed to maintain its expansion through new model releases and its wildly popular sub-brands like Onvo and Firefly, which have gained ground among frugal consumers. Third-quarter deliveries surged 40.8% year over year to 87,071, with Onvo deliveries (totaling 37,656) surpassing the company's flagship Nio brand, which serves a more upscale side of the market.

Management is confident that the positive momentum can continue, with founder William Li expecting the company to expand at a compound annual growth rate (CAGR) of 40% to 50% during the next two years, helped by the release of the ES9 -- a new flagship SUV -- planned for the second quarter.

And despite its increasing reliance on affordable mass-market cars, Nio's third-quarter gross margin widened from 10.7% to 13.9%. This trend is encouraging because it suggests the company continues to improve its manufacturing processes while benefiting from economies of scale that spread fixed costs over a larger number of units. Operating losses narrowed by 33% to $494.7 million, and there seems to be a likely pathway toward profitability if current trends continue.

Image source: Getty Images.

A buying opportunity or a value trap?

Nio looks poised for continued growth and long-term success. The shares remain dirt cheap, despite the improving fundamentals. The current share price of just $4.50 corresponds to a price-to-sales (P/S) multiple of just 1, which is much lower than U.S. alternatives. For context, California-based EV maker Rivian has a P/S multiple of 3, while Tesla boasts a lofty 16.

Nio's discount is likely partially because its shares are American depositary receipts (ADRs), which are foreign stock listings made available for U.S. investors (Nio's primary listing is in Hong Kong).

Foreign markets may simply value stocks differently. And U.S. investors may be less comfortable betting on foreign stocks because of currency differences and an unclear political and regulatory environment. This headwind isn't going away anytime soon. And Nio is currently unprofitable, so it can't offer a dividend or share buybacks that would directly benefit investors.

Despite the rock-bottom price tag, it's hard to get excited about buying Nio stock when considering the long-term challenges. The stock may be worth a closer look if or when it becomes profitable.

Will Ebiefung 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.