NIO's Vehicle Margins Improve But the Stock Still Lags: Here's Why

Chinese EV maker NIO Inc. NIO has made noticeable progress in improving its vehicle margins despite China’s fierce EV price war. In 2024, the company's vehicle margin rose to 12.3%, up from 9.5% in 2023. This was driven by stronger production volumes and cost optimization across its supply chain.

Quarterly results also displayed steady improvement. Margins were 9.2% in Q1 2024, 12.2% in Q2 and 13.1% in Q3 amid lower material costs per unit, which were a key driver. While Q4 vehicle margin was flat compared with Q3, it was still not too bad, given the brutal price war in China. NIO targets a 20% vehicle margin for its namesake brand and 15% for its mass-market ONVO line in 2025.

Yet, NIO is having a rough time on the bourses, with shares down 28% year to date.

Despite margin progress, NIO is still burning cash. It had only $2.6 billion in cash as of 2024 end, with $1.56 billion in long-term debt. Its high debt-to-capitalization ratio of 76% points to financial pressure. And let’s not forget NIO is still unprofitable.

NIO is also spending heavily on its battery-swap network—a costly endeavor—while competitors focus on simpler charging models. Additionally, vehicle deliveries slipped to 42,094 units in Q1 2025 from 72,689 units in Q4 2024.

Investors are seemingly waiting for more than just cost cuts. NIO needs to refresh its lineup, launch new models and boost revenues without relying on price cuts. Its overseas push, especially in Europe, also faces challenges, including tariffs.

Until NIO proves it can grow profitably in this intensely competitive environment, the stock may continue to lag. While it is aiming for breakeven by the fourth quarter of 2025, it wouldn’t be an easy task.

How Are Competitors Faring?

NIO’s closest competitors are LI Auto LI and XPeng Inc. XPEV.

Li Auto’s deliveries are way higher than NIO’s. LI delivered 92,864 units in the first quarter of 2025, up 15.5% year over year. Looking at the vehicle margins, the metric for Li Auto was 19.8% in 2024, down from 21.5% in 2023 but still better than NIO. Last year, Li Auto generated an operating profit of $961 million and a net income of $1.5 billion, underlining its status as a profitable EV maker.

Coming to XPeng, the company delivered 94,008 smart EVs in Q1 2025, which rose 331% from the corresponding quarter of last year. XPeng’s vehicle margin was 8.3% in 2024, compared with negative 1.6% in the prior year. XPeng’s cost reduction efforts resulted in a massive improvement. While the vehicle margins are lower than NIO, the improvement is huge.

So, while NIO is making progress, it has a long road ahead. To stay competitive, it must execute its 2025 targets and find new ways to drive growth — without losing ground in China’s cutthroat EV race.

NIO’s Valuation & Estimates

From a valuation standpoint, NIO trades at a forward price-to-sales ratio of 0.44, slightly above the industry. It carries a Value Score of D.

While the Zacks Consensus Estimate for NIO’s Q1 2025 and Q2 2025 EPS have remained unchanged, the same for full-year 2025 and 2026 have been southbound over the past 60 days.

NIO stock currently carries a Zacks Rank #4 (Sell).

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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