NIO (NYSE:NIO) is often touted as China’s answer to Tesla. The electric vehicle (EV) manufacturer has been a public company for less than five years and during that time, NIO stock has been on a spectacular ride.
At one point, the company traded at astronomic highs of $62.84 per share. Since then however, it’s come crashing down to earth and it’s performed poorly in 2023, posting a -20% return.
So, how much would I have made from a $1k investment in the stock at the initial public offering (IPO)? Let’s crunch the numbers.
Highs and lows
NIO initially floated its stock at a price of $6.26, selling a total of around $1bn in shares. According to reports at the time, the company hoped its valuation would soar as high as $20bn.
Just a few years later, by early 2021, it had smashed through this target by a considerable margin. Back then, traders valued the company at around $100bn.
However, for long-term holders, that boom proved to be short-lived. Today, the NIO share price stands at $7.72 and the company’s market cap has sunk to $13bn.
So, if I’d invested $1,001.60 at the IPO, I’d have been able to scoop up 160 shares. I’d have needed to buy quickly as the share price soared 76% on its second day of trading. Today, my shareholding would be worth $1,235.20.
That’s certainly not a disastrous return over nearly five years, but it’s not hugely exciting either. And needless to say, it would have been rather painful to watch my shares skyrocket in value only to plummet over a relatively short period.
A speculative growth stock
There’s no denying NIO operates in a sector with huge potential. Many analysts understandably predict that EVs will be the future of transport, given the legislation being introduced worldwide. But this is a competitive industry. The company faces a battle for market share not only with Tesla, but domestic rivals like XPeng and Li Auto too.
On the positive news front, NIO increased its vehicle deliveries by 34% in FY22 to 122,486. In Q4, the company recorded $2.14bn in sales, representing 60.2% growth from Q4 2021.
However, the vehicle margin slumped to 6.8% in Q4 from 20.9% a year before. In addition, gross profit collapsed 63.4% to $90.1m.
It seems it’s a case of cherry-picking statistics when it comes to the prospects of NIO stock rebounding. Both optimists and pessimists can cite numbers to support their respective cases, but personally I’m sceptical about the company’s future.
Should I buy?
NIO’s main market is China, which is very saturated. Plus, there’s an ongoing price war that has contributed to the compression in the firm’s margins.
The company is currently undertaking an ambitious expansion across Europe, but it has raised protectionism as a concern.
Indeed, aggressive expansion of Chinese companies into Europe’s automotive sector could prompt government intervention and I view this as a key risk to the stock’s potential recovery.
Overall, I’m not tempted by the risk/reward profile of NIO shares. I could be wrong and they might return to their previous highs one day, but as things stand, I think that will take a very long time — if it ever happens.
