Is NIO (NYSE:NIO) a good investment as the shares are nearly 50% down this year?

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The battle to reshape the global car market is heating up. Over the past decade, Tesla (NASDAQ:TSLA) spearheaded this movement into electric vehicles. Following Elon Musk is a group of startups trying to emulate his success. NIO (NYSE:NIO) is one of these smaller competitors.  NIO is a relatively young Chinese EV company. It was established only in 2014. Soon after, the car company delivered its first mass-market vehicle in 2018. And this year, the company produced and handed over 106,000 vehicles.  In comparison, Tesla delivered about 900,000 cars in the first nine months of the year, while VW delivered 6.7 million!

Is NIO (NYSE:NIO) a good investment in the long term?

NIO is ‘small fry’ in the global auto market, which is what makes it an attractive stock to buy. So small is the company that there is only one way it can go – up. There is plenty of growth potential in the global EV market (see below). Every car company – old and new – is trying to grab market share. It’s like the old twenties again, when Ford, Chrysler, Buick, Cadillac, Chevrolet, General Motors battled it out in the new and exciting automobile market. The most important EV markets in the world in 2020s are the US, China and Europe.

Recently some Chinese EV automakers are moving into European markets – companies like BYD, which is building new plants there.

NIO and electric car growth


But a growing market means nothing if the company cannot benefit from it. Will NIO survive in the long run? I’m not sure. There are many car companies with deeper resources and better brand recognition. Traditional auto companies are all chasing the same customers by converting their combustion cars to electric ones. In the UK, the best-selling EV cars after Tesla are Kia (Niro) and VW (ID.3).

Moreover, competition in China is intense. Many startups there are trying to break out too, including Li Auto (NASQ: LI), XPEV (XPEV) and BYD (BYDDF). Is the pie big enough to support all these new companies (and European ones) profitably? Maybe, maybe not.

The last point worth noting that NIO just had a huge boom-bust cycle in recent years. In 2021, the post-pandemic boom propelled its share price 10x from its IPO price ($6 to $60). And in the last 18 months it lost 80% of its value. In other words, there is a lot of ‘stale bulls’ trapped in the stock. To resuscitate a bull run now means buyers need to clear away these old buyers first. This is a tall order. Even Tesla is struggling these days.

Therefore, there may be a trade to be had in NIO. But position sizing is critical – since you do not want to be caught out in a long drawn-out base in NIO.

When is the best time to buy NIO shares?

The time to buy NIO is when they are down significantly, like now.

In 2019, for example, NIO’s share price collapsed 71% to just $1.40 (from $6). But the subsequent EV boom saw its share price surge to $60 (see below).

NIO (NYSE:NIO) Share Price Chart

However, the market has changed significantly over the past few years. A crude historical comparison like this is unhelpful because the sector now is markedly different. Many factors had changed, particularly macro conditions.

Plus, the EV industry just had one of the biggest booms in history. We would be careful about buying the sector after a massive boom and bust.

Is the NIO share price overvalued or undervalued at the moment?

In its latest quarterly report, NIO (NYSE:NIO) reported revenue of $1.8 billion in the 3Q. Gross profit was $244 million (margin at 13%).

What caught my attention is that NIO’s net loss was US$577.9 million for the quarter, “representing an increase of 392.1% from the third quarter of 2021 and an increase of 49.1% from the second quarter of 2022.”

In other words, the company’s revenue stream can not cover its base costs. It is using its cash resources ($7 billion) to fund its operations.

NIO (NYSE:NIO) Financials

Source: NIO Inc

Is the $22 billion company overvalued? Perhaps. But the wild swings in share prices mean NIO’s valuation is highly uncertain. Should losses balloon, investors may mark down the stock further.

Why has NIO’s share price dropped recently?

NIO’s share price was haemorrhaging badly during September-October. Prices slumped from $22 to $8, a steep drop of 63%. Three reasons for this decline:

  • A sector slump – particularly the Chinese EV stocks such as NIO and LI.
  • Unfavourable macro conditions – as interest rate soared and stocks retreat
  • Lockdowns in China – this means less movement and hence lower car sales.

However, with the general opening up in China, consumers may be looking at buying more automobiles in the months ahead. But this is partly reflected in NIO’s rebound.

What is NIO’s share price prediction?

Wall Street is surprisingly bullish on NIO. Not sure why this should be the case given NIO’s share price had just slumped by 80 percent in the last 18 months.

Out of 31 analysts, nearly all are on ‘Buy/Outperform’ camp. Only 5 say ‘Hold’. This is about as bullish as you can get on a stock.

Will all this bullishness manifest itself in the share price? There’s always hope that it will. But the jury is still out. A reaffirmation of the $10 floor is needed to confirm a new leg up.

What is the live NIO (NYSE:NIO) share price?

The current NYSE:NIO share price is $4.71 which is a change of 0.07 or 1.51% from the last closing price of 4.71 with 887,567 shares traded giving NYSE:NIO a market capitalisation of $9,809,693,901. The most recent daily high has been 4.72 and daily low 4.63. The NYSE:NIO share price 52 week high has been 16.18 and the 52 week low 3.61. Based on the most recent NYSE:NIO share price opening of 4.71, the current NYSE:NIO EPS (earnings per share) are -1.68 and the PE (price earnings ratio) is n/a.

Pricing data automatically updates every 15 minutes

How do you buy shares in NIO (NYSE:NIO) from the UK?

To buy shares in NIO (NYSE:NIO), you need a US stock trading or share dealing account that will let you buy US-listed stocks. Follow these three steps if you want to buy shares in NIO from the UK:

  1. Decide if you want to buy NIO shares in the short-term or invest in the long-term
  2. Compare share dealing and trading fees in our comparison tables
  3. Choose which broker is right for you and open an account

How much does it cost to buy NIO shares (NYSE:NIO)?

Buying one NYSE:NIO share costs $4.71. However, as well as the $4.71 cost of buying each share you will also have to pay any relevant tax, commission when you buy and sell shares, custody fees for holding your shares on your account and foreign exchange fees for converting GBP into USD. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker.  You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.

Compare trading accounts for trading and shorting NIO shares (NYSE:NIO) in the UK:

You can use our table to compare the best brokers for trading NIO shares. All brokers in this list are authorised and regulated by the FCA. CFDs & spread betting carry a high level of risk and losses can exceed your deposits.

Compare investing accounts for buying NIO shares (NYSE:NIO) from the UK:

If you want to buy shares in NIO from the UK, you need an FCA-regulated stock broker that provides access to US stocks. You can use our comparison of UK-based share dealing platforms that offer access to international markets and see what they charge for buying and selling US stocks, plus what the foreign exchange conversion costs are for converting GBP into USD.

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