Should You Buy Nio Stock While It's Below $5 a Share?​

The Chinese auto market is enormous. It comprised 30% of all global auto sales in 2025 and it positively dwarfs the next four largest markets -- the U.S. at 18% of all sales, India and Japan at 5.1% each, and Germany at 3.2%, according to one set of data.

In the first half of 2025, electric vehicles (EVs) and hybrids, which China classifies together as "new energy vehicles," reportedly became the majority of new cars sold in the Chinese market at 50.1%.

So it follows that Chinese electric car manufacturers like Nio (NYSE: NIO) would be good investments, right? After all, you can scoop up shares of Nio for less than $5 right now.

The answer, surprisingly, is no. The Chinese auto market is going through a period of consolidation and change, which makes smaller Chinese EV manufacturers less attractive, even with low share prices. Price is not value, after all.

Small fish; enormous pond

Let me start by saying that I like Nio. Its cars look cool, especially the EP9 supercar from 2019. It also has a battery-swap network that allows owners of Nio vehicles to exchange a spent battery for a new one within 5 minutes, alleviating some of the range issues EVs are known for. But I don't like Nio's chances in China's market.

Image source: Getty Images.

The first problem with Nio is its size. The company has delivered just shy of 1 million cars since its founding in 2019, and 326,028 of them were delivered in 2025, up 46.9% over 2024. That's great growth. However, BYD Company Ltd., one of Nio's main competitors, sold 4.6 million cars last year, more than four times Nio's total cumulative sales.

Nio, despite solid growth figures, has yet to turn a profit, while BYD managed a net profit of $2.9 billion for the first nine months of 2025.

Why is that a problem? The Chinese market is huge. Surely there's a spot for Nio in it?

That may have been true in the past couple of years, but the Chinese EV market is set for a rough 2026.

In late January, Fitch Ratings issued a report saying that it expects China's passenger vehicle deliveries to decline at a single-digit rate through 2026. This is due to the cancellation of government subsidies specifically for EVs starting in 2026 and an increase in lithium prices driving up battery costs. However, it must be noted that the Chinese government's latest stimulus package has $9 billion allocated to new vehicle trade-ins, which includes EVs.

This comes at the same time that EV sales growth in China is slowing. For December 2025, EV sales in China only grew by 2%, which is the slowest growth in almost two years.

Nio and other small EV manufacturers in China failed to make it into the top 10 manufacturers for sales in December 2025. The market is also consolidating immensely. The top 10 auto manufacturers in China account for 95% of all EV and hybrid sales in China. That list does not include Nio.

Without government subsidies incentivizing sales, increases in the price of lithium, and the fact that it isn't profitable, it's looking like Nio is in for a rough 2026. If the Chinese market is consolidating, Nio is likely too small to become one of China's Big Three. Right now, those Big Three are BYD, Changan, and Geely, all of which have annual sales of over 1 million or 2 million units.

James Hires has no position in any of the stocks mentioned. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.