Down 88%, could Nio stock be poised for a massive comeback that delivers huge returns for long-term investors?
Nio (NIO 9.53%) stock has seen some incredible swings since going public. After its initial public offering (IPO) in 2018, the company's stock rocketed to a price of nearly $63 per share. But a combination of macroeconomic and industry-specific factors spurred a dramatic pullback.
The company's share price is now down roughly 88% from its high. Despite the electric vehicle (EV) specialist's stock being down massively, the company has been serving up some impressive growth. Is Nio stock a smart buy for 2024 and beyond?
Nio is posting substantial growth in sales and vehicle deliveries
Nio recorded revenue of roughly $2.61 billion in the third quarter, good for a 46.6% year-over-year increase. Vehicle deliveries in Q3 came in at 55,432 -- up 75% year over year. The company also reported that its net loss expanded roughly 11% year over year to total $624.6 million in the period.
While Nio has seen some uneven performance over the last year, the EV specialist's most recent update shows that deliveries growth continued in the fourth quarter. The company delivered 18,012 vehicles in December, representing a 13.9% increase year over year. This performance brought total deliveries for the quarter to 50,045 and deliveries for the year to 160,038 -- good for growth of 25% and 30.7%, respectively.
Some exciting opportunities on the horizon
Nio's ET9 luxury sedan is scheduled to launch in 2025's first quarter. Starting at a price of roughly $112,000, it will be the EV specialist's most expensive vehicle to date and could help bridge the automaker into new markets.
Sales volume for the ET9 vehicle may start relatively low, but the new car could play a meaningful role in strengthening the Nio brand in China and abroad. Sales margins on the vehicle are also likely to be relatively high compared to the company's lineup and could help the EV specialist get closer to profitability.
Perhaps more importantly, the company's new 5-nanometer chip for autonomous driving applications will debut with the ET9 and could wind up delivering a meaningful competitive advantage. Self-driving tech will likely wind up being a major differentiator in the overall auto market, and indications that Nio is scoring wins in the category could be a major bullish signal.
Along with being a potential catalyst for vehicle sales, advances for Nio's autonomous driving technologies could create opportunities to score wins in potentially massive robotaxi and autonomous shipping markets in the future.
Nio could also be making some significant moves to bolster its profitability in the near term. For starters, the company announced plans to cut approximately 10% of its workforce in November.
Subsequent reports emerged suggesting that the company could wind up laying off between 20% and 30% of its workforce. While that might raise some red flags, the potential headcount reduction was said to be focused in non-core businesses for the company. If Nio can efficiently trim its workforce, that should create a substantial positive earnings catalyst and increase the stock's chances of a breakout recovery.
What are the big risks with Nio?
As it stands, Nio continues to post large and expanding losses. The EV specialist closed out the period with cash and equivalents totaling roughly $6.2 billion, but its path to operational profitability remains speculative. The EV market is intensely competitive and could become even tougher down the line.
Investors also have to consider some unique risk factors that come with backing Chinese companies. For starters, China has seen relatively weak recovery as it has opened back up after pandemic-driven lockdowns, and moves from its government are difficult to predict. Perhaps more importantly, there are significant geopolitical risk factors to consider. Tensions between China and the U.S. continue to escalate, and that's made many institutional investors shy away from buying Chinese stocks. In turn, that's dampened bullish momentum even for companies that post strong sales and earnings growth.
If the situation between the two competing world powers continues to worsen, it's possible that new regulations, tariffs, or other conditions could be introduced that dramatically limit the return potential of Nio and other China-based companies.
Is now the right time to buy Nio stock?
If Nio can shift into profitability and deliver earnings growth, the EV specialist's stock will likely skyrocket above current levels.
NIO PS Ratio (Forward) data by YCharts
With Nio currently valued at just 1.15 times this year's expected sales, the potential is there for the stock to deliver massive performance for patient investors. Of course, it's important to keep in mind that the business is still posting substantial losses, and there's plenty of uncertainty about the company's long-term trajectory.
At today's beaten-down prices, Nio stock looks like a worthwhile gamble -- but only growth-oriented investors with high risk tolerance should consider it as a portfolio addition.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio. The Motley Fool has a disclosure policy.
