It has been a troublesome 12 months for buyers in Nio (NYSE: NIO), with the shares now 41% beneath the place they began 2024. Nonetheless, Nio inventory is 62% greater than it was 5 years in the past.

The price has lately fallen beneath $5, a price final seen 4 years in the past – shortly earlier than it soared to over $60.

So, might the present price weak spot supply a shopping for alternative for my ISA? In any case, I should purchase US-listed corporations in my Shares and Shares ISA and Nio has piqued my curiosity for some time.

Respectable place in a promising market

Nio is one in every of a number of electrical car producers. That’s each good and dangerous, I reckon. Such a aggressive subject suggests there’s a number of promise, which is why entrepreneurs have rushed to set up car makers.

Already, electrical car demand is excessive – and it’s set to proceed rising for a substantial time but. Nio has some issues that assist set it aside on this crowded subject. For instance, its proprietary battery swapping expertise is a chic but uncommon resolution to a standard hurdle confronted by electrical car drivers: restricted vary on a single cost.

However that crowded market might additionally put stress on revenue margins throughout the trade.

That is greater than a purely theoretical threat. It’s one which has already materialised and I believe explains among the adverse sentiment in direction of the sector in latest months.

The inventory is hardly alone in having tumbled to this point in 2024. Tesla is down, too, although by a extra modest 29%.

Heaps to show

I believe the falling share price additionally displays some company-specific challenges. One among them is scale. It’s producing hundreds of automobiles a month. Final month, for instance, deliveries hit 15,620 automobiles. That may be a 135% improve in comparison with the identical month final 12 months.

However that also leaves Nio far behind Tesla and established producers like Toyota. Which means it can not get the identical economies of scale that they’ll, hurting its potential profitability. Making automobiles is a capital-intensive trade that soaks up enormous sums of money. With the ability to unfold these expenditures over excessive gross sales volumes is subsequently an vital a part of a profitable enterprise mannequin.

In the meantime, the economics of the enterprise proceed to look uncompelling. The corporate’s internet loss grew 44% final 12 months to simply underneath $3bn. That’s a number of pink ink to spill.

Wait and see

So though I like the corporate and suppose it has actual potential, I additionally suppose the enterprise mannequin stays to be confirmed. Not solely is the carmaker loss-making, however its backside line has been heading within the flawed course because it grows.

That would change, if gross sales volumes continue to grow and Nio can reap extra economies of scale.

However for now it stays to be seen whether or not that may occur. So, even beneath $5 apiece, the shares don’t tempt me, for now.