Will NIO's Q2 Sales Volume Rebound Stabilize Its Cash Flow?

NIO Inc.’s NIO cash outflow from operating activities rose to RMB 7.8 billion in 2024, up from RMB 1.38 billion reported in 2023. It experienced a further decline in its cash position in the first quarter of 2025, partly due to seasonal fluctuations in vehicle sales. Sales dropped to 42,000 units in the first quarter from 72,000 units in the fourth quarter of the previous year. This decline resulted in a working capital outflow of more than RMB 10 billion. The company also incurred capital expenditures and one-off expenses during the quarter.

However, the company has been actively raising funds. In late March, it completed a fundraising round on the Hong Kong Stock Exchange and raised approximately HKD 4.03 billion. Since the transaction was finalized in early April, the proceeds were not reflected in the first-quarter financial results. Starting in April, the company has observed a recovery in sales volume, which is expected to help normalize operating cash flow.

For the second quarter, the company has provided sales volume guidance of 72,000 to 75,000 units, suggesting year-over-year growth of 25.5% to 30.7%, which should further support improvements in operating cash flow. Higher sales targets have also been set for the third and fourth quarters, which are expected to drive continued growth in cash flow. Overall, the company anticipates achieving positive free cash flow for full-year 2025.

Cash Flow Performance of NIO’s Competitors

Li Auto LI reported net cash used in operating activities of RMB 1.7 billion in the first quarter of 2025, an improvement from the RMB 3.3 billion outflow in the same period a year ago. However, Li Auto reported a reversal from the RMB 8.7 billion cash inflow recorded in the fourth quarter of 2024. Li Auto’s free cash flow stood at negative RMB 2.5 billion, which narrowed from a negative RMB 5.1 billion in the year-ago quarter but was down from a positive RMB 6.1 billion in the previous quarter.

Tesla, Inc. TSLA posted net cash provided by operating activities of $2.16 billion in the first quarter of 2025, up from $242 million in the corresponding quarter of 2024. Tesla reported positive free cash flow of $664 million versus negative free cash flow of $2.5 billion in the first quarter of 2024.

NIO’s Price Performance, Valuation and Estimates

NIO has underperformed the Zacks Automotive-Domestic industry year to date. NIO shares have lost 20.4% compared to the industry’s decline of 7.7 %.

YTD Price Performance

From a valuation perspective, NIO appears slightly undervalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.43, slightly lower than its industry’s 0.45.

EPS Estimates Revision

The Zacks Consensus Estimate for 2025 and 2026 EPS has moved up 16 cents and 5 cents, respectively, in the past 30 days. 
 
NIO carries a Zacks Rank #3 (Hold) at present. 

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

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