NIO stock has fallen 40%! Should I buy the shares?

NIO (NYSE: NIO) stock has fallen a staggering 40% from its all-time high of around $63, reached at the beginning of February.

This decline appears worrying at first, but I should put it into perspective. Over the past year, shares in the company have increased in value by 950%.

So, despite recent declines, shareholders who have been with the business since May of last year have seen attractive returns. 

NIO stock: attractive qualities 

Investors have been rushing to buy NIO stock over the past year as the company’s outlook has dramatically improved. The electric vehicle producer reported a surge in vehicle deliveries for the first quarter of the year. Deliveries were up from 3,838 to 20,060. Meanwhile, gross profit jumped 36.2%. 

In my opinion, there are two reasons why this company stands out as an electric vehicle producer. 

First of all, NIO is targeting the rapidly growing Chinese market. China accounted for 41% of global electric vehicle sales in 2020. An estimated 1.9m electric vehicles will be sold in the country this year, approximately 9% of total vehicle sales. By 2025, the percentage is expected to rise to 35%. Nio should be able to capitalise on this tailwind.

Secondly, the group operates a battery-as-a-service (BAAS) model whereby consumers can purchase electric vehicles without batteries at a lower cost. Consumers can then pay for batteries through monthly subscriptions.

What’s more, all subscribers can swap uncharged batteries for fully charged batteries at 193 swapping stations throughout China. The number of these stations could grow to 500 by the end of the year. 

As the price of electric vehicles is one of the main reasons why consumers are put off from buying, NIO’s model makes a lot of sense. Especially in China, where average incomes are much lower than in the West. The BAAS model also removes consumers’ need to find a charging station. 

A better buy

These qualities attract me to NIO stock. But, as I’ve mentioned in the past, I’d rather own the firm’s competitor, Tesla. The reason is simple. Companies and organisations worldwide are spending hundreds of billions of dollars developing electric vehicles and other green technologies.

At this point, there’s no telling which companies will succeed and which will fail. Over the past 100 years, hundreds of car manufacturers around the world have come and gone. It’s just the nature of the industry. Based on these odds, I’d rather own the sector’s largest and most recognisable enterprise. 

Furthermore, as the China-based electric vehicle manufacturer is still loss-making, it is hard for me to value NIO stock right now. As such, I wouldn’t buy the stock after its recent declines.

Plenty of other companies are following the same path, and there’s no telling at this stage which will prosper and which will fail. NIO has attractive qualities, but its competitors do as well.