2 Reasons Nio Is a Buy Now

If you listen to the general narrative in the automotive industry, it's a dire one that warns of highly affordable and advanced Chinese electric vehicles (EVs) sweeping the globe in dominating fashion. There's certainly a lot of truth to that narrative, but many promising EV companies in China are busy battling themselves amid a brutal price war.

Nio (NYSE: NIO) is included, and despite the ongoing Chinese price war, the company has a couple of reasons for investors to remain optimistic.

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Profitable battery swaps?

For many investors, it feels like a double edged sword when it comes to Nio's battery swap ambitions. On one hand, it gives the company a unique competitive advantage since it has built out a leading battery-as-a-service network. On the other hand, it's quite an expensive endeavor for a company burning cash as profits remain in the distance.

There are positive signs for the battery-swap strategy. Only recently, Nio saw demand for these services spike to a record high 136,720 swaps in a single day on Feb. 3. The period from Jan 28 to Feb. 4 was China's New Year Holiday, with travel peaking before and after the dates. Between Jan. 22 and Feb. 5, Nio provided over 1.7 million battery swaps, a strong 44% increase compared to the prior year.

There are also signs that its customers prefer the option once they've tried it. During the previously mentioned time frame, 83.2% of the power added by Nio users on the highway came from battery swap stations. The even better news: This chunk of Nio's business and capital expenditures could break even by the end of 2026, according to a team at Chinese brokerage Western Securities.

The problem with Nio's battery swap business currently is that there simply isn't enough volume of swaps to generate enough revenue to cover day-to-day operations. According to Chief Financial Officer Stanley Qu, a battery swap station can break even if it serves 60 to 70 motorists a day. That's exactly what should happen, according to the analyst team. As new brands and new models ramp up in production and deliveries, more Nio users will use the battery swap technology.

A path to doubling sales

Nio has come a long way since launching the first ES8 premium SUV in 2018. The company now sells a list of options under its premium brand Nio, and began deliveries of its second brand, Onvo, late in 2024. Its third brand, Firefly, is set to begin deliveries in 2025 while continuing to accelerate production throughout the year.

Its second and third brands are intended to open the door to a much larger addressable audience with lower price tags. Management said on last November's earnings conference call that it was confident it could double sales in 2025 while still targeting 2026 for profitability.

That means Nio expects to deliver roughly 440,000 vehicles in 2025 on the backs of its newest brands and models. Not only would that do wonders for Nio's revenue, but the additional production capacity being used would also help the company's gross margin -- something that would be greatly appreciated by investors amid a brutal price war in China.

Is Nio a buy?

Nio has always been a compelling and unique option, thanks in part to its leading battery-swap network. The company's premium Nio brand has been well received, and its two newest brands, Onvo and Firefly, are poised to help double deliveries this year.

But the stock has shed 80% of its value over the past three years, the company is burning cash, and it faces a price war in China and tariff uncertainty overseas.

There's a lot of risk that comes with investing in companies such as Nio, but a lot of upside as well. Nio should always remain a small position in any portfolio, but despite a slow start to 2025 the company should begin succeeding on all its plans sooner, rather than later.

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

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.