Assessing NIO (NIO) Valuation After Major Software Recall And Recent Share Price Weakness

NIO (NYSE:NIO) is under close watch after announcing a large recall of 246,229 vehicles in China due to software faults affecting the instrument cluster and central infotainment displays, raising fresh questions around safety and customer trust.

See our latest analysis for NIO.

The recall lands after a volatile stretch for NIO’s stock, with a nearly 40% share price decline from late 2025 to early 2026. This reflects shifting risk perceptions despite the company’s first adjusted operating profit and strong recent delivery updates.

For context, NIO’s recent results have included its first quarterly adjusted operating profit, record quarterly deliveries of 124,800 vehicles in the fourth quarter of 2025, and a 96.1% year over year jump in January 2026 deliveries across its NIO, ONVO and FIREFLY brands. The current 1 year total shareholder return of 16.2% contrasts with a 51.4% total shareholder return decline over three years, suggesting short term momentum has picked up after a difficult longer spell.

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So with NIO shares down nearly 40% from late 2025, yet supported by its first adjusted operating profit, record deliveries and a large recall overhang, is there real upside here, or is the market already pricing in future growth?

Preferred Price-to-Sales of 1.2x: Is It Justified?

NIO closed at $4.95, and on a P/S of 1.2x it screens as expensive relative to both its own fair ratio and the wider US auto group.

The price to sales multiple compares the company’s market value to its revenue, which can be useful when earnings are still negative, as is the case for NIO. At 1.2x sales, investors are paying more for each dollar of revenue than the estimated fair P/S of 1.1x that our regression based fair ratio suggests, which points to a modest premium.

Against the broader US auto industry average P/S of 0.6x, NIO’s 1.2x stands out as double the sector level. That signals the market is currently assigning a higher revenue multiple than peers, while the fair ratio points to a level that is slightly lower than where the stock trades today and one that the market could potentially move toward if expectations cool.

Explore the SWS fair ratio for NIO

Result: Price-to-Sales of 1.2x (OVERVALUED)

However, recall-related reputation setbacks and ongoing net losses of CN¥22,824.89 million could both pressure sentiment and challenge the case for a premium P/S multiple.

Find out about the key risks to this NIO narrative.

Another View: SWS DCF Model Points To A Similar Answer

Our DCF model also suggests NIO is slightly overvalued, with the current $4.95 share price sitting just above an estimated future cash flow value of $4.91. That tiny gap leaves little margin for error, so the real question is whether you think the story justifies paying this price at all.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out NIO for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 55 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own NIO Narrative

If you see the numbers differently or prefer to base decisions on your own work, you can test assumptions, adjust inputs and Do it your way in just a few minutes.

A great starting point for your NIO research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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