NIO (NYSE:NIO) stock is incredibly volatile, with a wide trading range of $3.61 to $9.57 — that’s just over the last 12 months. And in 2021, the stock briefly traded above $60 a share. Sadly for many shareholders, the broader movement has been downwards, with some short-lived surges spurred by improving sentiment.
Many investors and traders will be attracted to the volatility of this electric car stock, as it offers the potential for significant returns. However, there are also significant risks.
Has NIO got potential?
What is a multi-bagger stock? Multi-bagger refers to a share that has the potential to increase significantly in value, often delivering returns several times the original investment. I’m very fortunate to have invested in several over the last two years, including AppLovin — up 900% — Celestica, Modine Manufacturing, Nvidia, and Rolls-Royce, to name a few.
So, could NIO be one too?
Well, NIO hasn’t lived up to its potential and that’s contributed to its volatility. But its fortunes could turn around, driving the share price higher.
One of the core issues with NIO’s stock price is that, as a loss-making company, investors are uncertain about its potential profitability if it turns things around. The key question is whether NIO has what it takes to become a genuine rival to Tesla and BYD, or if it will struggle to compete in an increasingly crowded and competitive market. There’s no guarantee it won’t go bust.
Catalyst watch
The downward trend in the NIO share price reflects investors’ disappointment. Despite recent improvements, the company is delivering a fraction of the number of cars of its peers. It also has poor gross margins compared to competitors like Li Auto even though it focuses on the higher end of the electric vehicle (EV) range — more expensive vehicles typically have higher margins.
In fact, there’s evidence to suggest its original business model is a failure. According to reports, it has 48% market share in the EV segment above RMB300,000 — that’s around £32,000. But that dominant market position has not been enough to stop NIO’s losses.
That’s why the company is introducing two new brands, ONVO and Firefly, which will mean more mass-market vehicles. While this does sound exciting, offering the opportunity to reduce business costs through scale, there’s also a degree of execution risk. For one, the lower end of the EV market is incredibly competitive in China.
My take
NIO is expecting to turn a profit for the first time in 2026, however this will likely be for just one quarter or two rather than the whole year. But this assumes the company’s strategy goes to plan. And it goes without saying that introducing two new brand lines is not easy. ONVO has reportedly been a success so far, but I’m going to need a little more data before I come to that conclusion myself.
So, could NIO be a multi-bagger? Absolutely, but I’m personally wary that the company’s new strategy might not be easy to pull off. I’m not adding NIO to my portfolio any time soon.
The post Down 92.5%, is NIO stock the multi-bagger we’ve all been dreaming of? appeared first on The Motley Fool UK.
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James Fox has positions in AppLovin, Celestica, Li Auto Inc, Modine Manufacturing, Nvidia, and Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia, Tesla, and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
