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Nio's (NYSE: NIO) stock has declined nearly 60% over the past 12 months and trades almost 30% below its IPO price. The Chinese electric vehicle (EV) maker ran out of juice as its deliveries slowed down and its vehicle margins shriveled.

Like many of its industry peers, Nio struggled with supply chain constraints, tough competition, and persistent macro headwinds. But it also differentiated itself from its competitors with its swappable batteries, which could be quickly changed out across its network of battery-swapping stations, as well as its expansion into Europe.

Image source: Nio.

Unfortunately, Nio's overseas growth recently hit a big roadblock after higher tariffs against Chinese EVs went into effect in Europe on July 5. Those tariffs -- which range from 17.4% to 37.6% -- were set on a case-by-case basis according to each automaker's subsidies, pricing strategies, and compliance with E.U. regulators. Nio and its rival Xpeng were both hit with 20.8% tariffs, which will now be charged on top of the existing 10% import duty for E.U.-bound Chinese EVs.

Nio said it would maintain current prices for its cars sold in Europe, but warned that it couldn't rule out raising its prices at a "later stage" in response to the new tariffs. Let's see how these headwinds might affect Nio's long-term plans.

What were Nio's plans for Europe?

Nio has gradually expanded into Europe over the past three years with six vehicles: the ES8, ET7, EL7 (ES7 in China), ET5, ET5T, and EL6 (ES6 in China). It's also built 43 battery-swap stations and 46 charging stations across Europe, and provides its drivers with access to more than 500,000 third-party chargers. The company constructed its first overseas battery-swap station production plant in Hungary in 2022, and it opened its first overseas smart driving technology center in Germany this April.

To showcase and service its vehicles, it built seven Nio Houses, eight Nio Spaces, and 55 Nio Service Centers across Europe. Its Houses have already hosted 1,450 community events for its drivers since 2021. That's why it wasn't surprising when CEO William Li said it will continue expanding across Europe even as it faces higher tariffs.

Nio won't be subject to the new tariffs if it manufactures its vehicles in Europe, but the higher production costs would likely offset those benefits. So for now, Li plans to deepen its ties with European partners and scale up its business to the point that it can manufacture its vehicles at acceptable margins in Europe.

But Europe is still a tiny market for Nio. It only delivered 100 vehicles in the region in 2021 and another 1,296 vehicles in 2022, which was minuscule compared to its 91,429 total deliveries in 2021 and 122,486 in 2022.

Nio delivered 160,038 vehicles in 2023. It hasn't disclosed its total shipments in Europe yet. However, an update from the German Federal Motor Transport Authority revealed the company had only registered 48 vehicles in the country this March.

So what should investors focus on instead?

Nio's delivery growth of 34% in 2022 and 31% in 2023 represented a significant deceleration from its triple-digit delivery increases in 2020 and 2021. Its vehicle margin also dropped from its record high of 20.2% in 2021 to just 9.5% in 2023.

That slowdown was mainly caused by its macro and competitive challenges in China instead of its growing pains in Europe. China's economic slowdown is throttling consumer spending, while Tesla's big price cuts are driving an ongoing price war between the major Chinese EV makers. As Nio's vehicle margins shrink, its operating expenses are climbing as it builds more battery-swapping stations.

On the bright side, analysts forecast Nio's revenue to rise 23% to 68.6 billion yuan ($9.4 billion) for the full year as it stabilizes its business with a focus on higher-end vehicles like its new ET7 executive sedan, the expansion of its battery-swapping systems, and the introduction of its lower-end Onvo smart vehicle brand to counter Xpeng. Based on those expectations, Nio's stock looks dirt cheap at less than 1 times this year's sales.

But analysts only expect Nio to slightly narrow its net loss from 21.1 billion yuan to 17.5 billion yuan ($2.4 billion) as it continues to expand its capital-intensive battery-swapping network across China and Europe. The higher E.U. tariffs could exacerbate that pressure if Nio insists on absorbing those costs to expand its presence in the region.

Is Nio a contrarian play right now?

Nio's stock could be a deep value play right now if you believe it can overcome its challenges in China and scale up its business across Europe. Speculative investors can nibble on the shares right now, but it could stay in the penalty box until it stabilizes its vehicle margins, narrows its losses, and proves its European expansion is sustainable. Trade and geopolitical tensions could also keep its valuation compressed for the foreseeable future.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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