NIO’s (NIO) latest delivery figures highlighted another uptick in sales, but the Chinese electric vehicle (EV) maker has fallen behind its peers in recent years. I’m bearish on the company, noting its continued losses despite a strong position in the premium EV market and execution risk as it enters the mass market segment, which is more competitive and potentially overcrowded. I’m also unconvinced by the stock’s valuation metrics, which suggest it could be overvalued based on current forecasts.
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NIO’s Deliveries Grow, but Performance Lags
The first reason I’m bearish on NIO is its long-term delivery performance, which I think is currently masked by some near-term optimism. NIO’s November 2024 deliveries show promising short-term growth, with 20,575 vehicles delivered, representing a 28.9% year-over-year increase. The company’s year-to-date deliveries of 190,832 vehicles, up 34.4% from the previous year, further demonstrate this positive trend in the near term.
However, NIO’s long-term growth has been lackluster compared to its peers. Despite reaching cumulative deliveries of 640,426 vehicles over its 10-year history, NIO’s growth rate pales compared to other electric vehicle manufacturers — not only Tesla (TSLA) but domestic peers like Li Auto (LI).
Why is that? The company’s focus on premium vehicles and its relatively slow expansion into mass-market segments have limited its overall market penetration. There were also supply chain constraints during the pandemic and extended lockdowns. Moreover, while NIO has invested heavily in technology and infrastructure, including its battery-swapping network, these initiatives have not translated into the exponential growth some competitors see.
NIO’s Premium Market Share Is not Enough
I’m also bearish on NIO because its original business model hasn’t proven profitable. Despite a reported 48% market share for vehicles priced above RMB300,000, around $41,300, this strong position has not translated into profitability for the company.
Despite the continued commitment to the premium business segment, NIO struggles with its financial performance. In Q3 2024, the company reported a net loss of RMB5.1 billion, an 11% increase year-over-year, and a vehicle margin of 13.1%. This persistent lack of profitability suggests NIO faces significant challenges in efficiently scaling its operations within its core market segment. In fact, with almost half of the market, it may not be able to scale further without moving into export markets — the issue is that NIO’s battery-swapping infrastructure requires investment in new markets.
Moreover, the company’s high research and development expenses, which increased by 9.2% year-over-year, and rising selling, general, and administrative costs, up 13.8%, have contributed to these ongoing losses. As a result, NIO’s expansion into a lower-priced segment of the EV market, such as the introduction of the ONVO brand and its L60 model, appears to be a strategic necessity to diversify revenue streams and potentially achieve economies of scale.
NIO’s New Business Model Introduces Execution Risk
The introduction of new business lines, ONVO and Firefly, reflect this need to expand from its core premium market. However, I’m also concerned about execution risk as the company moves into significantly more competitive parts of the market. Even chief executive Li Bin accepts the challenges faced by companies in this overcrowded space. “Only a few automakers will survive the most vicious phase of competition in the domestic EV sector,” he warned.
While the company aims to achieve profitability by the end of 2026, this goal heavily depends on NIO’s ability to scale production effectively. However, NIO’s recent struggles in ramping up production for its core premium segment raise concerns about its capacity to manage the complexities of mass-market production.
Entering the lower-priced segments exposes NIO to intense competition and thinner profit margins, requiring flawless execution to succeed. The slower-than-anticipated production ramp-up of the ONVO L60 model illustrates the challenges NIO faces in new market segments. With this in mind, investors should be prepared for volatility as the company grapples with executing its new business ventures.
My Valuation Concerns for NIO
My bearishness is compounded by the company’s valuation, especially when we compare it to my sector pick, Li Auto. NIO’s gross profit margin is 8.7%, significantly lower than Li Auto’s 21.5%. This highlights that Li Auto is more efficient in converting sales into actual profit — the company is actually profitable and sits on a mountain of cash.
Furthermore, NIO’s price-to-earnings (P/E) ratios are negative, reflecting its ongoing losses and lack of profitability. In contrast, Li Auto presents a more favorable investment profile with a P/E ratio of 19x for the next fiscal year. Moreover, NIO’s EV-to-sales (P/S) ratio of 1.21x is more than double that of Li Auto.
Is NIO Stock a Buy According to Analysts?
On TipRanks, NIO comes in as a Moderate Buy based on eight Buys, five Holds, and two Sell ratings assigned by analysts in the past three months. The average NIO stock price target is $6.01, implying a 30.65% upside potential.
The Bottom Line on NIO Stock
I’m bearish on NIO for several reasons, including its persistent unprofitability despite strong market share in the premium EV segment. Moreover, the company’s expansion into mass-market vehicles introduces significant execution risks in an already competitive landscape. While recent delivery growth is encouraging, long-term performance lags behind competitors, raising concerns about NIO’s ability to reach breakeven in the next couple of years. Moreover, NIO’s valuation metrics appear unfavorable compared to those of peers like Li Auto.
