Should You Buy, Sell or Hold NIO Stock Post Mixed Q3 Results?

China-based electric vehicle (EV) company NIO Inc. NIO released mixed third-quarter results yesterday. Quarterly losses were wider than expected and revenues missed estimates. However, vehicle margins continued its upward trajectory amid cost optimization efforts. NIO’s delivery targets along with new model plans also sparked optimism.

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NIO delivered 61,855 vehicles in the third quarter, up 11.5% year over year, including 832 vehicles from the newly launched ONVO brand. Revenues generated from vehicle sales amounted to $2.38 billion, down 4.1% year over year owing to lower average selling price despite higher deliveries.

Although revenues were down year over year, gross profit rose 31.8% to $286 million thanks to decreased cost of sales. Vehicle margin in the reported quarter increased to 13.1% (up 2.1 percentage points yearly and 0.9 percentage points sequentially) due to lower material cost per unit.

R&D and SG&A expenses during the quarter flared up 9.2% and 13.8%, respectively, on a year-over-year basis. Loss from operations widened to $746.3 million due to higher operating costs.

NIO Inc. Price, Consensus and EPS Surprise

NIO Inc. price-consensus-eps-surprise-chart | NIO Inc. Quote

For fourth-quarter 2024, NIO projects deliveries in the range of 72,000-75,000 vehicles, implying a rise of 43.9-49.9% year over year. Revenues are estimated between $2.8 billion and $2.9 billion, suggesting a rise of 15-19.2% year over year. While the delivery forecast implies a considerable yearly and sequential growth, it seems that competitive pricing pressures will somewhat weigh on the revenue growth rate.

NIO expects to double its delivery volumes in 2025, buoyed by the introduction of new models. The company also expects its losses to narrow gradually in 2025 amid sales growth and cost savings. By 2026, the company aims to achieve breakeven.

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, EL7, ET5, ET7 and EC7 models, are aiding the company’s deliveries growth. Additionally, NIO’s Executive flagship ET9 is in the final testing stage, with deliveries set to begin March next year.

Given the high price point of these EVs, NIO made a smart move by expanding beyond its luxury lineup with the launch of a more affordable ONVO brand. The ONVO brand commenced deliveries of its first model, L60, in September. By year-end, NIO aims to have around 300 ONVO stores (with 190 already opened). ONVO’s monthly production capacity is expected to hit 10,000 units in December and reach 20,000 units by March. ONVO brand will roll out two new models in 2025. The second model will be the large SUV and is expected to be released in the first quarter of 2025, with deliveries starting around May next year. NIO aims to achieve a 10% gross margin for ONVO in 2024, improving to 15% in 2025.

And that’s not all. To enhance its global footprint, NIO is preparing to launch its third brand, Firefly, targeting the boutique compact car segment. More details on that will be revealed during NIO Day 2024 on Dec. 21, with the first Firefly model scheduled for deliveries in the first half of 2025.

Both ONVO and Firefly will play pivotal roles in NIO’s overseas expansion strategy. As part of its global ambitions, NIO will accelerate market entry in regions worldwide, leveraging these two brands.

With new product deliveries, expanded production capacity and a diversified portfolio, NIO’s entry into a new product cycle in 2025 positions the company for faster growth and increased global competitiveness.

At NIO IN 2024, the company unveiled major AI advancements, including its SkyOS vehicle operating system, Banyan 3 smart system, Shenji NX9031 driving chip and NAD Arch 2.0 autonomous driving system. It also introduced the NIO World Model (NWM) smart driving architecture.

Through its “Power Up Counties” initiative, NIO aims to install battery swap stations in 2,300 Chinese counties by 2025, adding to its existing 2,561 stations and 23,000 chargers. A new Wuhan facility will produce 1,000 stations annually. These innovations solidify NIO’s leadership in smart driving and sustainable mobility.

The company’s price-to-sales (P/S) ratio, currently at 0.51, is well below its 5-year median values. It is also lower than the industry’s 0.56, suggesting the stock is undervalued now.

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Even compared to its closest peers, XPeng XPEV and Li Auto LI, NIO is trading at a discount. While LI has at a forward P/S ratio of 0.91, XPeng’s forward sales multiple is 1.25.

While NIO’s long-term growth prospects appear strong, driven by its expanding vehicle lineup, new brands like ONVO and Firefly, AI advancements and a growing charging infrastructure, near-term challenges persist. The company faces operational losses, competitive pressures and profitability hurdles that are unlikely to be resolved before 2027.

Despite trading at a discount compared to peers and the broader industry, the stock’s recovery remains tied to its ability to achieve consistent margin improvements and revenue growth. Thus, while NIO might not be a buy just yet, it holds promise for patient investors and is worth retaining for its long-term potential.

The Zacks Consensus Estimate for NIO’s 2024 and 2025 revenues implies year over year growth of 26% and 68%, respectively. The bottom-line estimates for current and next year also suggests an improvement of 21% and 30%.

NIO currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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