Here's Why You Should Retain NIO Stock in Your Portfolio Now

NIO Inc. NIO, often touted as the ‘Tesla of China’, is poised for a robust growth phase underpinned by a strong vehicle lineup. Its efforts to expand beyond its luxury lineup also bode well. However, the phaseout of trade-in and replacement subsidies and rising operating costs are likely to act as headwinds.

Let’s see why you should retain this Zacks Rank #3 (Hold) stock in your portfolio.

Expanding Vehicle Lineup, Improving Margin to Aid NIO

NIO appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, is aiding the company’s deliveries growth. It expects the ES8 to see strong sales and delivery growth in the fourth quarter of 2025, with margins exceeding 20%. For the full year, NIO projects ES8 sales of roughly 40,000 units, with the majority of those deliveries concentrated in the fourth quarter. This fourth-quarter weighted volume is also expected to contribute to an increase in the average selling price from the third to the fourth quarter.

NIO's efforts to expand beyond its luxury lineup with the launch of a more affordable ONVO brand and high-end and small car brand, Firefly, bode well. L60, ONVO’s first product, commenced deliveries late in September 2024. The second product, a flagship large family SUV, L90, was unveiled in July 2025. In the first three months since launch, it delivered 33,000 units. The Firefly brand, introduced in December 2024, commenced delivery in April. In the first six months of launch, more than 26,000 FIREFLY units have been delivered. 

Due to volume ramp-up, new launches and component and supply chain cost optimization, NIO’s vehicle margins are improving. The metric increased to 14.7% in the third quarter of 2025 from 13.1% in the third quarter of 2024. The company plans to introduce three new large SUV models next year, all positioned at the high end of their segments. NIO expects these models to deliver strong margin contributions. They will also benefit from cost synergies with the current All-New ES8 and L90. Collectively, these vehicles are expected to help the company achieve a 20% vehicle margin overall.

NIO’s battery swap technology — part of NIO’s battery as a service (BaaS) strategy — is a game changer and provides an edge to the firm over its peers. NIO currently has more than 3,641 swap stations and has installed over 27,000 power and destination chargers.

Rising Operating Expenses, High Debt to Hurt NIO

The mid-October phaseout of trade-in and replacement subsidies has weighed on demand across the entire industry, likely reducing the typical year-end sales surge. With purchase-tax exemptions set to decline next year, automakers — including NIO — are guaranteeing current tax benefits for customers with backlogged orders, though no company is covering the discontinued trade-in subsidy. This has dampened overall market demand, with NIO’s lower-priced ONVO L60 and L90 models particularly affected due to their higher sensitivity to subsidy changes.

NIO has been bearing the brunt of operational inefficiency. In the last reported quarter, SG&A expenses were up 1.8% on a year-over-year basis. The trend is expected to continue amid an increase in sales and marketing activities associated with new product launches. High operating expenses are likely to weigh on margins.

The firm's long-term debt to capital ratio is 0.82, higher than the industry's 0.27.  Elevated leverage restricts firm’s financial flexibility to tap into growth opportunities. The company's declining cash position—from RMB 19.3 billion in December 2024 to RMB 9.3 billion in September 2025—raises concerns about potential fundraising and shareholder dilution.

Stocks to Consider

Some better-ranked stocks in the auto space are General Motors Company GM, OPENLANE, Inc. KAR and Garrett Motion Inc. GTX, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 21 cents and 38 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for KAR’s 2025 sales and earnings implies year-over-year growth of 9.4% and 48.2%, respectively. EPS estimates for 2025 and 2026 have improved 9 cents and 11 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for GTX’s 2025 sales and earnings implies year-over-year growth of 2.6% and 16.7%, respectively. EPS estimates for 2025 and 2026 have improved 13 cents and 27 cents, respectively, in the past 60 days. 

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

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