Chinese electric vehicle (EV) company NIO (NIO) has been making headlines with a remarkable surge in its stock price, climbing over 21% in the past five trading days. This spike follows a robust second-quarter (Q2) performance characterized by record deliveries and improved vehicle margins.
Even with its latest gains, NIO stock has eroded investors’ wealth over the past year. NIO is down more than 51% in the last 52 weeks, significantly underperforming the S&P 500 Index ($SPX), which has gained more than 22% over the same period. However, improving deliveries, cost reductions, and new product launches have given NIO investors some fresh hope.
So, is now the time to buy, sell, or hold NIO stock? Let’s dive into the details, starting with a review of its latest quarterly performance to gain a clearer perspective.
NIO's Strong Q2 Performance
NIO’s second quarter was impressive. The company’s total revenue soared nearly 99% year-over-year and 76% quarter-over-quarter. Revenue from vehicle sales alone jumped by 118% compared to the prior year, and were up 87% from the previous quarter. These gains were driven by higher deliveries, though they were partially offset by lower average selling prices of vehicles due to the shift in product mix.
NIO also reported strong growth in other areas, like parts, accessories, after-sales services, and power solutions, benefiting from the company's growing user base. Notably, NIO’s vehicle margin improved significantly, reaching 12.2%, up from 6.2% in the same period last year. This boost was largely due to lower material costs, though the lower average selling price put some pressure on the margins.
The company managed to cut losses, with operating losses declining by 14.2% year over year and 3.4% sequentially.
NIO’s Bull Case
Several factors support the bullish outlook for NIO. In Q2, the company set a new delivery record, reaching 57,373 units, an impressive 144% increase. This surge highlights NIO’s increasing dominance in the Chinese EV market, where it holds over 40% of the market share for battery electric vehicles (BEVs) priced above RMB 300,000. NIO is expected to keep this momentum going, with third-quarter deliveries projected to hit between 61,000 and 63,000 units.
Another key factor supporting its bull case is the company’s cost optimization efforts, especially around core components and supply chain management, which contribute to better margins. Moreover, with a rapidly expanding user base, its after-sales services and power solutions will likely boost its margins. The company’s after-sales services are becoming efficient and more profitable. Further, new users have to pay for the power swap services. This will help expand the revenues and margins on the power swap-related services.
As NIO gears up for even higher deliveries in the coming quarters, all eyes are on the upcoming launch of the L60, the first model from its new mass-market brand, ONVO. Deliveries for this vehicle are expected to start later this month, and NIO is pulling out all the stops to ramp up production to meet growing demand.
Beyond vehicles, NIO is also expanding its infrastructure to support this growth. The company is actively rolling out more service centers, delivery hubs, and power swap stations, ensuring that its network can keep pace with its rising customer base. The expansion of its infrastructure and deployment of the charging and swapping network will drive the market reach of its brands and bolster sales growth. This expansion isn’t limited to China, as NIO plans to begin deliveries in the UAE by the fourth quarter, further extending its global reach.
The Bear Case for NIO
While NIO’s growth story is promising, there are challenges to consider. The launch of its ONVO brand could create short-term issues, especially with lower-cost vehicles that could squeeze margins. The company is also spending heavily on new technologies, like autonomous driving, which could increase cash burn and impact profitability in the near term.
Another risk is that NIO is still reporting losses, and it may continue to do so for some time as competition in the EV space remains elevated, putting pressure on average selling prices. All these factors could limit the upside in NIO stock.
Bottom Line: Buy, Sell, or Hold?
NIO remains a promising company with several growth initiatives in play. The company’s focus on increasing vehicle deliveries, introducing new products, improving its cost structure, and refining its supply chain demonstrates its commitment to expanding market share. These positive efforts give investors reasons to be hopeful about NIO’s long-term potential.
However, in the short term, the company faces margin pressures and stiff competition, which could affect its profitability. These challenges have kept many analysts cautious, and as a result, the stock carries a consensus “Hold” rating.
Given the notable drop in NIO's share price over the past year, analysts’ average price target of $6.40 now represents a potential 24.5% upside from current price levels.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
