Chinese EV maker NIO Inc. (NIO) has been on fire over the past couple of months. Shares have nearly doubled from the $3.40 levels reached in July, fueled by a mix of factors, including the perception of an expanding global footprint, strong market reception of the new ES8 model, and an aggressive pricing strategy with its more affordable sub-brands, Onvo and Firefly. These elements have contributed to higher deliveries and a more positive financial outlook for the company.
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The Q2 results, published last month, may have paused NIO’s rally, but were far from disappointing. The company managed to grow sales despite a lower average selling price (ASP) from deliveries of the new, cheaper models, without seeing margins deteriorate in the quarter. Management’s projections, with the ES8 now ramping up, aim for a substantial margin increase through Q4, ultimately targeting a breakeven point.
Of course, achieving this path requires a very high level of execution. Given the speculation surrounding these projections and the fact that NIO is still in a pre-profit stage, valuations remain somewhat murky—especially after the recent massive rally. For now, caution is warranted, and a Hold rating appears to be the most appropriate.
NIO’s Strategic Sub-Brand Expansion
NIO is a pre-profit company, meaning it is still in heavy investment mode, which naturally implies negative earnings and cash flows. As a result, the Chinese EV maker tends to trade less on deep fundamentals and more on a mix of macro conditions, sector dynamics, market sentiment, and balance sheet sustainability.
Operating in China, NIO has benefited from government EV subsidies in recent years, giving it a competitive edge over global EV players due to its all-encompassing market penetration in China. That said, demand growth has slowed—China’s passenger EV retail sales have seen year-over-year growth decelerate for six consecutive months, rising just 3% in August.
Despite the slowdown, leading Chinese EV makers have performed impressively this year, supported by strong delivery growth, new model launches, flexible pricing, narrow losses, and improved margins—especially when compared to their U.S. peers.
Specifically for NIO, in Q2 2025, the company delivered 72,056 vehicles—hitting the bottom of its guidance and marking a 25.6% year-over-year increase. The growth was driven by sub-brands: Onvo delivered 17,081 units, and Firefly delivered 7,843, totaling 24,924 vehicles combined.
While impressive, these figures still fall short of the target of 20,000 units per month for Onvo. By August 2025, 75,033 Onvo units had been delivered—including a record 16,434 in August—and 14,555 Firefly units, with 4,346 in August.
Scaling Without Sacrificing Margins
Another key point when analyzing EV makers in pre-profit stages is how their average selling price (ASP) evolves, as it determines how much each vehicle contributes to revenue and margins, while also providing insight into brand strategy and the feasibility of scaling profitably in the foreseeable future.
In NIO’s case, ASP declined in Q2 2025 to ¥224,000 (about $30,685), a ¥12,000 ($1,644) drop from the previous quarter, reflecting a strategic shift toward more affordable segments (Onvo and Firefly), while still trying to balance premium EVs (ET7/ES7) to sustain profitability.
Even with the lower ASP, NIO’s management deserves credit for maintaining a vehicle sales gross margin of 10.3% in Q2, essentially unchanged from 10.2% in the previous quarter, though below the 12.2% seen in Q2 2024. This stability was supported by successful cost-cutting measures, particularly the adoption of NIO’s in-house NX9031 chip—primarily designed for autonomous driving and Full Self-Driving—which replaced the NVIDIA (NVDA) Orin-X chip and helped lower per-vehicle costs.
In Q2, Onvo and Firefly contributed to a roughly 2.9% yearly increase in total vehicle sales, at the cost of a 190-basis-point reduction in margins. In other words, even with these new sub-brands, net vehicle growth was not explosive, as the decline in the legacy premium brand offset part of the gains.
The encouraging takeaway, however, is that NIO has demonstrated its ability to grow volumes without completely eroding margins. To turn this trade-off into substantial profits, the company will need to continue scaling production and optimizing its mix, ensuring that volume growth increasingly translates into meaningful, sustainable earnings.
NIO’s Ambitious Breakeven Plan
Established at the end of last year, NIO aims to achieve adjusted operating breakeven in Q4 2025. To reach this goal, the company projects that delivering 150,000 vehicles in Q4 and achieving per-vehicle gross margins of 16% to 17% will be sufficient.
Given its high-volume strategy, expanding margins is becoming increasingly challenging, especially in China’s fiercely competitive EV market, which could create further pricing pressure. In Q2, for example, NIO reported a loss from operations of $685 million—a 5.8% decline from the same period last year and a 23.5% drop from Q1 2025.
NIO’s ambitious margin expansion relies on a combination of strategies: scaling production to leverage operational efficiency, further reducing per-vehicle costs through technological improvements, and, perhaps most importantly, optimizing the vehicle mix toward higher-margin models.
To achieve the roughly $450–500 million gross profit increase needed to raise vehicle gross margin from ~10% to 16–17% in just two quarters, NIO would need to: (1) double deliveries to spread fixed costs across more units, contributing around $150–200 million; (2) shift a significant portion of sales toward premium models (ES8, deliveries of which will start in late September), adding approximately $100–150 million; and (3) realize per-vehicle cost reductions through chip, battery, and manufacturing efficiencies, contributing another $200–300 million.
Supporting this plan, market projections estimate revenue of $3.14 billion in Q3 (YoY +21.7%) and $4.72 billion in Q4 (YoY +73.5%). Achieving a 6–7 percentage point margin increase over two quarters is ambitious, but not impossible—provided NIO executes nearly flawlessly across production, supply chain, and, most importantly, market acceptance.
Is NIO a Buy, Hold, or Sell?
The consensus for NIO shares among Wall Street analysts is currently moderately Bullish. Of the 11 analysts covering the ADR over the past three months, six recommend Buy, five recommend Hold, and one recommends Sell. Even with several price increases following the Q2 results, the average stock price target stands at $5.95, implying a potential downside of less than 1% from the latest share price.
NIO Gains Ground as Execution Decides the Bullish Pace
The figures NIO reported in Q2 show, on the positive side, an ability to grow sales—even with a drop in ASP—without drastically eroding margins. On the negative side, they highlight a business that is extremely sensitive to near-flawless execution if it hopes to achieve breakeven within the deadlines set by management.
Given NIO’s history of overpromising and underdelivering, I believe the likelihood of this pattern repeating in the near term is higher than the likelihood of it not repeating. As it stands, pivoting the brand toward more affordable models and focusing on scaling volumes to eventually improve margins places much of the thesis outside the company’s direct control, especially given the EV industry’s highly volatile demand in recent months and its extremely competitive, price-sensitive environment.
Because it’s difficult to derive realistic valuation metrics for a pre-profit company that could accurately reflect how much of NIO’s thesis is already priced in—and considering the stock has experienced a robust rally since August—I see a lot of speculation in the current price. For now, the most prudent stance is Hold.