NIO (NIO) Narrows Its Losses, But Can It Keep This Up?

On September 1, NIO Inc. (NYSE: NIO ) reported second-quarter results that read like a company finally growing into its ambitions. Deliveries jumped 49.4% year over year to 107,658 vehicles across its NIO, ONVO, and FIREFLY brands, while the net loss shrank 89.4% to RMB 0.5 billion. The company even posted its third consecutive quarter of adjusted profitability, a milestone that would have seemed distant a year ago. But a fresh cost problem is emerging just as the old ones fade.

The growth is now showing up on the bottom line rather than just the top line. Vehicle gross margin climbed to 18.5% from 10.3% a year earlier, and overall gross margin followed the same path, rising to 18.4% from 10%, driven largely by a richer product mix. That mix is the real story: the NIO brand's average selling price hit RMB 430,000 in July, higher than the going rate for Mercedes and BMW over the same stretch, and the flagship ES8 crossed 140,000 units delivered in just 335 days, the fastest pace in China's RMB 400,000 price bracket. The newer ES9 is pulling in fresh buyers too, with 75% of its owners new to the NIO ecosystem altogether. The ONVO brand backed that up with 60,000 L90 deliveries in its first year on sale, enough to lead the roughly RMB 300,000 electric SUV segment.

Behind the vehicles, NIO is also leaning on its charging network as a durable edge. The fifth-generation power swap station now costs RMB 1.4 million to build, RMB 100,000 less than the prior generation, and the company runs more than 4,100 of these stations worldwide. A software upgrade rolled out on June 18 pushed urban smart-driving mileage up 92.8%, evidence that its self-developed WorldModel system keeps improving well past any one-time launch bump.

None of that came cheap. CFO Stanley Qu warned that "the cost structure of the automotive industry has been under pressure," pointing to a roughly RMB 14,000 per-vehicle cost increase driven by rising chip, battery, and raw material prices during the quarter. Selling and marketing spending is climbing too: SG&A expenses rose 11.6% year over year to RMB 4.4 billion as the company promoted its new launches, even as R&D spending fell 28.7% to RMB 2.1 billion on lower headcount. On top of that, the company still plans to spend RMB 6 billion to RMB 7 billion on capital expenditures for the full year, mostly on product development and its service network.

Set against all of that spending, the actual profit is still razor-thin. Adjusted net profit came in at just RMB 26.1 million, a figure that looks like a rounding error next to RMB 32.1 billion in quarterly revenue. Third-quarter delivery guidance of 108,000 to 111,000 units is barely above the June quarter's actual 107,658, and management's fourth-quarter target of 40,000 vehicles a month depends on a recovery in the broader passenger vehicle market that it has not yet seen materialize.