Nio Stock: Buy, Sell, or Hold?

Nio (NYSE: NIO), one of the leading electric vehicle (EV) makers in China, posted a messy third-quarter earnings report on Nov. 20. Its revenue dipped 2% year over year to 18.67 billion yuan ($2.66 billion) and missed analysts' estimates by 0.47 billion yuan. Its net loss widened from 3.95 billion yuan to 5.06 billion yuan ($721 million), or 2.14 yuan ($0.31) per American depositary receipt (ADR) -- which also missed the consensus forecast by 0.22 yuan.

Those headline numbers were disappointing, but Nio's stock barely budged after the report. That might be because its stock already sank nearly 50% this year and remains more than 25% below its initial public offering (IPO) price. So should you buy, sell, or hold Nio's stock today?

Image source: Nio.

What sets Nio apart from its competitors?

Nio sells a wide range of electric sedans and SUVs. It sells most of its vehicles in China, but it's been gradually expanding into Europe. It stands out from the competition because its batteries can be quickly swapped out at its battery-swapping stations.

Nio's namesake ET, ES, and EC-series vehicles target the premium market. Its Onvo sub-brand sells cheaper smart vehicles, and its new Firefly sub-brand will roll out its first plug-in hybrid electric vehicles (PHEVs) for overseas markets in 2026.

How fast is Nio growing?

Nio started delivering its first vehicles in 2018. It attracted a lot of attention when its deliveries more than doubled in 2020 and 2021, but it lost its momentum in 2021 and 2022 as China's EV market cooled off. Macro headwinds, weather-related disruptions, and intense competition exacerbated its slowdown.

Data source: Nio. YOY = Year over year.

But in the first nine months of 2024, Nio's deliveries accelerated again. That acceleration was driven by its strong sales of ET-series sedans and Onvo smart vehicles in China, as well as its expansion into Europe. By the end of October, its year-to-date deliveries had risen 35% year over year to 170,257 vehicles.

Nio expects to deliver 72,000 to 75,000 vehicles in the fourth quarter of 2024, which implies its full-year deliveries will grow 51% to 53% from 2023. Analysts expect its revenue to grow 25% for the full year and rise 42% in 2024. Based on those expectations, Nio's stock looks dirt cheap at a price-to-sales ratio of less than 1. By comparison, Tesla trades at 9 times next year's sales.

Will Nio ever turn a profit?

Nio's vehicle margin jumped from negative 9.9% in 2019 to positive 20.2% in 2021. However, that figure dropped to 9.5% in 2023 and 9.2% in the first quarter of 2024 as the persistent price war in China's softening EV market throttled its pricing power.

That pressure drove a lot of investors away from Nio, but its vehicle margin actually rose to 12.2% in the second quarter of 2024 and 13.1% in the third quarter. During the conference call, CFO Stanley Qu set a target vehicle margin for 15% in the fourth quarter and said that would represent its "baseline" for 2025 as it sold a higher mix of premium vehicles.

Qu also expects Nio's gross margin to rise from 9% in the first nine months of 2024 to 20% over the long term as it optimizes its marketing strategies and supply chain. But some of those gains could potentially be offset by the rising tariffs on Chinese EVs in Europe and other overseas markets.

Even if Nio's vehicle and gross margins expand, its operating margin will likely stay in the red as it builds more loss-leading battery swapping stations. Analysts expect the company to gradually narrow its net losses through 2026, but it won't come close to breaking even anytime soon.

Is it the right time to buy, sell, or hold Nio's stock?

I think it's smarter to buy or hold Nio's stock than to sell it. Its deliveries are accelerating, its vehicle margins are rising, and its stock is undervalued. The threat of higher tariffs and the EV price war in China could squeeze its near-term valuations, but its stock could soar if it successfully scales up its business.

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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.