Should You Buy Nio While It's Below Its IPO Price?

Nio (NYSE: NIO), a leading maker of electric vehicles in China, went public at $6.26 per ADR on Sept. 12, 2018. On Feb. 9, 2021, its stock closed at a record high of $62.84. Its shares surged more than 10-fold as it dazzled investors with its explosive growth rates.

But today, Nio's stock trades at about $4. It tumbled as investors fretted over its slowing deliveries, declining vehicle margins, persistent losses, and the rising tariffs on Chinese EVs. So should investors accumulate the stock while it's languishing far below its IPO price?

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Image source: Nio.

What sets Nio apart from other Chinese EV makers?

Nio sells a wide range of electric sedans and SUVs. It differentiates itself from its Chinese competitors in three ways. First, its vehicles run on removable batteries, which can be quickly swapped out across its own network of battery swapping stations. That makes its vehicles appealing to drivers who hate waiting for their vehicles to charge.

Second, it's expanding into Europe to gradually curb its dependence on the Chinese market. Lastly, it sells both high-end premium vehicles (its ET-series sedans) as well as low-end ones (its Onvo SUV and Firefly compact cars). That mix helps it reach a broader range of drivers.

How fast is Nio growing?

Nio's annual deliveries more than doubled in both 2020 and 2021. However, its deliveries only increased 34% in 2022 and 31% in 2023. It attributed that slowdown to tougher competition, supply chain disruptions, adverse weather conditions, and China's economic slowdown. Its vehicle margin also dropped from a peak of 20.2% in 2021 to 9.5% in 2023.

But in 2024, Nio's deliveries climbed 39% to 221,970 vehicles as its vehicle margin rose to 12.3%. That acceleration was driven by stronger sales of its flagship ET-series sedans and Onvo SUVs in China, market share gains, and ongoing expansion into Europe.

Nio hasn't posted its full first-quarter earnings report or provided any exact guidance for 2025. However, its deliveries grew 44.5% year over year to 65,994 vehicles through the end of April.

That growth was driven by brisk sales of its core Nio vehicles, its new Onvo L60, which closely resembles Tesla's (NASDAQ: TSLA) Model Y; and the initial deliveries of its new Firefly compact cars, which target interest in smaller vehicles like Smart cars and BMW's Mini. Its margins are also improving as it sells more of its higher-margin premium vehicles.

Is Nio undervalued right now?

For the full year, analysts expect Nio's revenue to rise 39% to 91.1 billion yuan ($12.5 billion) as it narrows its net loss from 22.7 billion yuan to 16.4 billion yuan ($2.3 billion). With an enterprise value of 77 billion yuan ($10.6 billion), Nio trades at less than one times this year's sales.

By comparison, Tesla still trades at nearly nine times this year's sales. Therefore, any good news could force investors to revalue Nio and drive its stock higher.

Nio's potential near-term catalysts include a trade deal between the U.S. and China, the EU replacing its tariffs against Chinese EVs with minimum price limits, and its rumored plans to sell a controlling stake in Nio Power (its lower-margin battery division) to the battery giant CATL.

But the bulls probably won't rush back until a few of those green shoots appear. Unless that happens, Nio's steep losses and high debt-to-equity ratio of 15.5 could keep it far below its IPO price. That said, investors who expect Nio to outlast its competitors and successfully scale up its business over the next few years should still consider its deep decline to be a golden buying opportunity.

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

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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 has a disclosure policy.