NIO Q2 Vehicle Margin Dips Despite Delivery Gains: Is Recovery Ahead?

NIO Inc. NIO reported a vehicle margin of 10.3% in the second quarter down from 12.2% a year ago, highlighting ongoing pressure on vehicle-level profitability despite a recovery in delivery volumes.

NIO delivered 72,056 vehicles during the quarter, which represents a 25.6% increase over the same period last year. Vehicle sales revenue reached RMB 16.14 billion (approximately $2.25 billion), growing by 2.9% year over year. However, the margin decrease from the prior-year quarter suggests that rising delivery volumes haven’t helped much.

NIO attributed the year-over-year decline in vehicle margin to a shift in product mix, with lower-trim and lower-priced models reducing the average selling price and pressuring margins. Although material costs per vehicle declined, partially offsetting the impact, the improvement wasn’t enough to recover margins to prior-year levels, suggesting that higher volumes are being achieved at the expense of per-unit profitability.

In addition to vehicle sales, NIO saw growth in other sales, including used vehicle transactions, after-sales services, parts and technical research and development (R&D) service revenues. While these don’t directly contribute to vehicle margin, they helped improve overall gross margin and reflect NIO’s strategy to diversify its revenue streams.

Looking ahead, NIO’s vehicle margin recovery will depend on selling more higher-margin models, lowering battery and component costs, and managing pricing pressure in China’s competitive EV market. As NIO expands into wider market segments, sustaining margins will require balancing volume growth with tighter cost control.

The fourth quarter will represent the first full quarter of deliveries for both ONVO L90 and the ES8 models and the company expects the vehicle margin to be around 16-17% for the entire group.

Competitor Check

Li Auto Inc. LI reported a vehicle margin of 19.4% in the second quarter of 2025, slightly up from 18.7% a year ago, but down from 19.8% in the first quarter of 2025. The company attributed the year-over-year improvement to cost reductions across its supply chain. However, Li Auto’s margin slipped sequentially due to changes in product mix, more aggressive pricing and increased promotional efforts. Despite the minor dip, Li Auto continues to lead peers in vehicle margin performance, maintaining strong unit-level profitability in a competitive market.

XPeng Inc. XPEV reported a vehicle margin of 14.3% in the second quarter of 2025, a strong improvement from 6.4% a year ago and 10.5% in the first quarter of 2025. The margin expansion was driven by improved cost control, a more favourable product mix and operational efficiencies from higher delivery volumes. XPeng’s continued focus on scaling production and optimizing pricing strategies has supported this turnaround. With these gains, XPeng is showing clear progress in narrowing the profitability gap with its peers in China’s competitive EV sector.

The Zacks Rundown for NIO

Year to date, the shares of NIO have gained 72% compared to the industry’s growth of 5.7%.

From a valuation perspective, NIO has a price-to-sales ratio of 0.87, compared to the industry’s average of 0.5X. It carries a Value Score of D.

The Zacks Consensus Estimate for NIO’s 2025 and 2026 bottom line implies a year-over-year improvement of 34.44% and 71.46%, respectively. 

See how the EPS estimates have been revised over the past 90 days.

NIO currently carries a Zacks Rank of #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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