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The last time I looked at NIO (NYSE:NIO) stock it was flying, up more than 60% for the year. So I’m quite surprised to now see it all the way back down at $5, putting its year-to-date gain at a much more modest 17%.
Over five years, the share price has plummeted by 89%!
But the Chinese EV maker’s sales have been accelerating in recent quarters, with three separate brands under its belt and narrowing losses. So, is now a good time for me to add NIO shares to my portfolio?
A strong quarter
Despite operating in a tough Chinese market with cut-throat competition, NIO has been growing nicely. In Q3, it delivered 87,071 cars, a 40.8% increase year on year.
Its NIO, ONVO, and Firefly brands continue “to resonate with users across their respective market segments“. The ONVO L90 has remained the top-selling large electric SUV for three consecutive months in China, according to the firm. The L90 is a massive three-row SUV kitted out with loads of advanced technology.
Q3 revenue jumped 16.7% to RMB21.8bn ($3.1bn), while the vehicle gross margin improved from 13.1% to 14.7%, helping the company achieve its highest overall gross margin in three years (13.9%).
However, NIO posted an adjusted net loss of $384m for the quarter. While this was a 38% improvement from the year before, it’s nevertheless substantial. After more than a decade of existence, NIO still isn’t making cars profitably.
Management reckons profitability is just around the corner. But having followed the company for many years now, this is something I’ve heard before. This perennial issue continues to act like a handbrake on the share price, holding it back and dragging it down.
More concerns
As well as this lack of profitability, I have three other concerns. The first relates to European Union (EU) vehicle tariffs, which are complicating NIO’s expansion across Europe.
With BYD and others currently enjoying strong EV sales in the EU, this is disappointing for shareholders.
Then again, the firm’s affordable compact Firefly brand is now available in the Netherlands, Norway, and Belgium. And it’s set to enter the UK in 2026. Therefore, Europe could still prove to be a very large growth market for the company. But high tariffs do make the vehicles less competitive on price than they otherwise would be.
Another potential headache is that China is phasing out tax breaks on EVs, starting in 2026. So this has the potential to dampen sales in the company’s main market.
Finally, the global EV market is incredibly competitive these days. As well as Tesla and BYD, there’s XPeng and Li Auto, as well as the dozens of legacy carmakers that are all electrifying their line-ups.
My decision
If NIO can finally start eking out a profit, then I think the stock would prove to be a very savvy buy today at $5. The price-to-sales ratio is just 1.1, which in theory is very low for a company posting 30%+ revenue growth.
However, given the ongoing losses and fierce competition, I’m still not keen to invest. In my eyes, there are safer growth stocks for me to buy for my portfolio right now.
