Will New Launches Drive NIO's Gross Margin Expansion in 2025?

NIO Inc. NIO reported a gross margin of 7.6% in the first quarter of 2025, up from 4.9% in the same period last year. This improvement was driven by increased sales of high-margin segments, such as parts, accessories, after-sales services and technical R&D services, alongside higher vehicle margins and reduced losses in Power Solutions due to a growing user base. Vehicle margin rose to 10.2% compared with 9.2% in the year-ago period due to lower material costs per unit.

Starting in June, NIO began rolling out new models with improved profitability. While NIO ES6 is expected to deliver a vehicle margin of around 20%, the EC6 and ET5 series are projected to achieve even higher vehicle gross margins. As a result, NIO anticipates the vehicle margin for the second quarter to reach approximately 15%, helping the company achieve a double-digit overall gross margin.

The company expects accelerated growth in the third quarter, driven by robust deliveries, lower supply chain costs and improved bill of materials efficiency from new products and technologies. These developments should continue to enhance both vehicle and overall gross margins.

In the fourth quarter, NIO plans to launch the next-generation ES8, a highly competitive model. The company projects monthly deliveries of around 25,000 units, suggesting a 20% year-over-year increase from 2024. With rising sales and improved efficiency, the company expects the NIO brand’s vehicle gross margin to be above 20% in the fourth quarter. Nissan carries a Zacks Rank #3 (Hold) at present.

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How Does NIO’s Margins Compare to Its Competitors?

Li Auto LI reported a gross margin of 20.5% in the first quarter of 2025 compared with 20.6% in the same period last year. Li Auto’s vehicle margin rose to 19.8% from 19.3% year over year, primarily driven by cost reductions and revised pricing strategies implemented during the quarter. Li Auto expects its vehicle margin to stay around 19% in the second quarter.

XPeng XPEV achieved a gross margin of 15.6% in the first quarter of 2025, up from 12.9% in the first quarter of 2024, marking its seventh consecutive quarter of improvement and setting a new record. The vehicle margin also saw significant growth, reaching 10.5% compared with 5.5% a year earlier, supported by XPeng’s continued cost optimization and scale efficiencies. For the second half of the year, XPeng anticipates its gross margin will approach the high teens level, helping it achieve profitability by the end of the year.

NIO’s Price Performance, Valuation and Estimates

NIO has underperformed the Zacks Automotive - Foreign industry year to date. NIO shares have plunged 19.5% compared with the industry’s decline of 5.8%.

YTD Price Performance

From a valuation perspective, NIO appears undervalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.44, slightly lower than its industry’s 0.46.
 

EPS Estimates Revision

The Zacks Consensus Estimate for 2025 and 2026 EPS has moved up 12 cents and 6 cents, respectively, in the past 30 days.

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

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