Nio (NIO -3.34%) was one of the market's hottest electric vehicle (EV) stocks just over four years ago. The Chinese EV maker's stock closed at its record high of $62.84 on Feb. 9, 2021, marking a 10-fold gain from its IPO price of $6.26 on Sept. 12, 2018.

At the time, Nio's investors were dazzled by its soaring deliveries, its unique battery-swapping vehicles, and the expansion of its battery-swapping network. The buying frenzy in meme and growth stocks amplified those gains.

Image source: Nio.

But today, Nio's stock trades at about $5. It lost its luster as its deliveries slowed down, its vehicle margins declined, and it racked up steep losses. Rising interest rates squeezed its valuations, while the geopolitical and trade tensions between the U.S. and China further drove investors away from Chinese growth stocks. So is it the right time to buy, sell, or hold Nio's stock?

What happened to Nio over the past few years?

Nio sells electric sedans and SUVs, but its vehicles use swappable batteries instead of traditional chargers. For a fee, its batteries can be swapped out at its own swapping stations as a faster alternative to EV charging stalls.

Nio delivered its first vehicles in 2018, and its deliveries soared through 2021. But in 2022 and 2023, its deliveries slowed down as it grappled with supply chain constraints, adverse weather conditions, China's economic slowdown, and tougher competition.

Data source: Nio.

In 2024, Nio's deliveries accelerated again as it sold more ET-series sedans and Onvo smart vehicles in China. It continued to expand in Europe, even though higher tariffs on Chinese EVs are making it tougher to undercut its overseas competitors.

Nio's vehicle margins, which had plummeted from a record high of 20.2% in 2021 to 9.5% in 2023, also stabilized in 2024. That metric rose sequentially from 9.2% in the first quarter to 12.2% in the second quarter, then grew to 13.1% in the third quarter. Nio won't report its fourth-quarter earnings until early March, but it expects its vehicle margin to rise to 15% during the quarter, as it sold a higher mix of premium vehicles -- and that figure would represent its "baseline" vehicle margin in 2025. That confident outlook counters the bearish notion that it will lose its pricing power in China's crowded EV market.

What are Nio's near-term catalysts?

Nio expects its near-term growth to be driven by its market share gains in the EV market, its robust sales of higher-end vehicles like its ET7 Executive Edition sedan, and rising sales of its cheaper Onvo smart vehicles and new Firefly compact EV in China.

Nio also plans to launch the Firefly in Europe in the first half of this year to challenge makers of smaller vehicles like BMW's (OTC: BAMXF) Mini and Smart, a joint venture between Mercedes-Benz (OTC: MBGY.Y) and Geely (OTC: GELYY). Nio expects to sell its Firefly at competitive prices against those automakers, even as its margins get squeezed by higher tariffs.

Nio's deliveries rose another 38% year over year this January, which indicates it can maintain its momentum from 2024. For now, analysts expect its revenue to rise 23% in 2024, 43% in 2025, and 24% in 2026. Those are impressive growth rates for a stock which trades at less than 1 times its 2025 sales. In comparison, Tesla (NASDAQ: TSLA) trades at 8 times its 2025 sales. Therefore, any positive news regarding Nio or the Chinese EV market could easily drive its stock higher.

Nio is still deeply unprofitable, but it's still heavily subsidized by the Chinese government. That support should prevent it from going bankrupt anytime soon, even though it had a high debt-to-equity ratio of 7.6 at the end of the third quarter of 2024.

Is it time to buy, sell, or hold Nio's stock?

If you already own Nio's stock, it makes more sense to hold it than to sell it as it trades at these historically low valuations. If you don't own any shares, it might be smart to nibble on this unloved EV stock in this volatile market. It's too early to go all-in on Nio as a turnaround play, but gradually accumulating it over the next few months might pay off in the future.