NIO Inc. NIO is currently trading at a forward 12-month price/sales (P/S) of 0.46X, down from its five-year average of 1.63X but at par with the Zacks Automotive-Foreign industry. The closest rivals of NIO, XPeng Inc. XPEV and Li Auto Inc. LI, are currently trading at forward P/S of 1.30X and 1.04X, respectively.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
While expanding vehicle line-up and new brand launches make NIO an attractive pick, operational inefficiencies and high leverage raise major concerns over its prospects. Over the past year, shares of NIO have underperformed its peers. While NIO was down 21.3% over the past year, shares of XPeng and Li Auto have gained 153% and 28.5%, respectively.
Image Source: Zacks Investment Research
NIO has expanded beyond its luxury lineup with the launch of a more affordable ONVO brand. It commenced deliveries of L60, ONVO’s first product, late in September. However, the sales performance of the ONVO brand did not meet the company’s expectations in 2024, considering amortizations and other financial factors. Additionally, the company faces significant pressure and challenges in managing the ONVO product and its vehicle margin. The key driver of gross margin for the ONVO brand is not expected to materialize until the third quarter.
NIO has been bearing the brunt of operational inefficiency. In the last reported quarter, SG&A expenses were up 46.8% on a year-over-year basis. The trend is expected to continue amid an increase in personnel costs and an increase in sales and marketing activities. High operating expenses are likely to weigh on margins.
The firm’s long-term debt to capital ratio stands at 0.76, higher than the industry’s 0.28. Elevated leverage restricts the 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 8.1 billion in March 2025 — raises concerns about potential fundraising and shareholder dilution.
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. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. In the first four delivery months, ET9 surpassed BMW7 Series and Audi A8 in China.
In the second quarter, NIO expects to deliver 72,000 to 75,000 vehicles, reflecting a year-over-year growth of 25.5% to 30.7%. Amid volume ramp-up, new launches and cost optimization of components and supply chain, vehicle margins are on an upward trend. The metric grew to 10.2% in the first quarter of 2025 from 9.2% in the first quarter of 2024, due to lower material cost per unit.
In late May, NIO launched and delivered the new ES6, EC6, ET5 and ET5T. ES6 is expected to have a vehicle gross margin of around 20%, with EC6 slightly higher. ET5 and ET5 Touring will also see margin improvements, keeping NIO’s overall vehicle margin on an upward track. The company is likely to achieve its breakeven target in the fourth quarter of 2025.