Executive Summary / Key Takeaways

• NIO is executing a multi-brand strategy (NIO, ONVO, Firefly) to capture diverse electric vehicle (EV) market segments, from premium to mass-market and high-end small cars.
• Recent product launches, including the all-new ES8 and ONVO L90, are driving strong demand and accelerating delivery growth, with Q3 2025 deliveries projected to reach 87,000-91,000 units.
• Technological differentiation, such as battery swapping, in-house smart driving chips, and 900V architecture, underpins product competitiveness and cost optimization.
• The company is intensely focused on profitability, targeting non-GAAP breakeven in Q4 2025 and full-year breakeven in 2026, supported by rigorous cost control and improving gross margins.
• Despite fierce competition and supply chain challenges, NIO's expanding service network and strategic global partnerships are crucial for long-term market share gains and sustainable growth.

The Road Ahead: NIO's Strategic Vision and Market Position

NIO Inc., founded in November 2014 with the ambitious mission of "Blue Sky Coming," has evolved into a pivotal player in the global smart electric vehicle market. The company, initially known as NextEV Inc., established its premium NIO brand, which has consistently led the high-end battery electric vehicle (BEV) segment in China. NIO's strategic journey has been marked by continuous innovation and a user-centric approach, culminating in a multi-brand strategy designed to address a broader spectrum of the EV market. This strategic pivot, alongside significant investments in technology and infrastructure, positions NIO for a critical phase of growth and profitability.

The broader EV industry is experiencing rapid evolution, with 2025 identified as a market-shaping year. A notable trend is the accelerated growth in the mid-to-large and large BEV SUV segments. In the first half of 2025, the Battery Electric SUV (BAF) segment grew by 39% year-over-year, significantly outpacing the 14% growth of Range Extended Electric SUVs (RIBS). This shift, driven by technological advancements and decreasing battery costs, signals a "golden era" for large three-row battery electric SUVs, a segment NIO is actively targeting.

Technological Edge: Engineering the Future of Electric Mobility

NIO's core investment thesis is deeply rooted in its differentiated technological capabilities, which serve as a significant competitive moat. The company's full-stack technological prowess spans 12 key areas, with several innovations providing tangible benefits.

Central to NIO's strategy is its Power Swap technology. This service allows for rapid battery exchanges, eliminating range anxiety and offering unparalleled convenience. The company operates 3,542 power swap stations worldwide, including over 1,000 on highways in China, having facilitated over 84 million swaps. This extensive network, which now covers major highways and 550 cities in China, is becoming a powerful network effect, increasingly recognized and embraced by users. The Power Swap system also enables a "chargeable, swappable, and upgradable" battery roadmap, allowing users to select optimal battery packs and facilitating future upgrades. For instance, the ONVO L90's 85 kWh battery pack weighs approximately 400 kg, and the ES8's 102 kWh pack is around 500 kg, making them about 200 kg lighter than many peers' solutions for similar driving ranges. This mass and cost optimization is a direct benefit of the swappable architecture.

NIO has also made significant strides in smart driving technology. It was the first to deploy its in-house developed smart driving chip and full-domain vehicle operating system on production models like the ET9 and the 2025 ET5, ET5T, ES6, and EC6. The proprietary NX9031 smart driving chip offers performance on par with four flagship chips in the industry, providing a cost advantage compared to external solutions. In late June, NIO rolled out its new world model (NWM) across vehicles equipped with this chip, enabling mass release of functions and seamless migration across five models within five months—an industry first in China. This NWM provides full upgrades in active safety, urban and highway driving, and parking, with a stated goal for next year that smart driving assistance should achieve a safety level 10 times higher than human driving.

Furthermore, NIO's third-generation products, including the all-new ES8 and ONVO L90, benefit from a 900-volt high-voltage architecture. This platform allows for more integrated and lightweight designs, improving both cost structure and performance. The innovative digital architecture, featuring a central computing cluster and zonal controllers, incorporates eFuse technology, which integrates physical fuse boxes (previously 10 kg and 8 liters of space) into master boards, contributing to mass reduction and cost improvement while managing power supplies precisely. These technological advancements are not merely features; they are fundamental to NIO's competitive moat, enhancing financial performance through lower costs, better margins, and a stronger market position.

Competitive Arena: Outmaneuvering Rivals in a Dynamic Market

NIO operates in a fiercely competitive global EV landscape, particularly in China. The company's multi-brand strategy is a direct response to this dynamic environment, allowing it to target distinct market segments.

In the premium segment, the NIO brand competes with global giants like Tesla (TSLA) and traditional luxury automakers. While Tesla boasts a broader global presence and superior financial scale, NIO differentiates itself with its unique battery swapping service and a strong user-centric ecosystem. NIO's focus on service innovation, including Power Home, Power Charger, and Power Mobile, aims to build deeper customer loyalty. The NIO ET5 and ET5T ranked first in J.D. Power's NEV IQF study in June, and the EC6 and ES6 ranked top two in the premium segment in J.D. Power's NEV appeal study, underscoring its product quality leadership for seven consecutive years since 2019.

For the mainstream family market, the ONVO brand directly challenges competitors like Li Auto (LI) and even Tesla's Model 3. The ONVO L60 has already emerged as a top three best-selling product in China's RMB200,000-RMB300,000 BEV segment. Future ONVO SUVs are benchmarked against Li Auto's L8 and L7, indicating a highly competitive pricing strategy. While Li Auto's extended-range vehicles offer a different value proposition, ONVO leverages NIO's charging and swapping network, which is a significant advantage for family users. BYD (BYDDF), a vertically integrated powerhouse, excels in cost efficiency and mass-market penetration. NIO's strategy with ONVO is to offer compelling products with competitive cost structures, enabled by its technological innovations, to gain market share against BYD's pricing power.

The Firefly brand, targeting the high-end small car market, further diversifies NIO's portfolio. This brand leverages NIO's existing sales network and technological expertise, aiming for rapid market expansion.

Despite these strengths, NIO faces vulnerabilities. The intense competition in China has led to price wars and negative public opinions, impacting NIO's sales volume by an estimated 30% to 40%. Supply chain capacity for new models like the ONVO L90 and all-new ES8 has also been a challenge due to stronger-than-expected demand, leading to order backlogs. Internationally, tariffs on Chinese BEVs have made NIO's pricing in Europe less competitive, with NIO brand vehicles priced on par with Porsche (P911) in some markets, limiting its reach. To counter this, NIO is prioritizing global expansion with the ONVO and Firefly brands, leveraging their broader market appeal and faster volume ramp-up to establish charging and swapping infrastructure that the NIO brand can then utilize.

Financial Trajectory: From Investment to Impending Harvest

NIO's financial performance in Q2 2025 reflects a company transitioning from a period of heavy investment to one focused on operational efficiency and profitability. Total revenues reached RMB19 billion, marking a 9% year-over-year and 57.9% quarter-over-quarter increase. Vehicle sales, the primary revenue driver, grew to RMB16.1 billion, up 2.9% year-over-year and 62.3% quarter-over-quarter, primarily due to higher deliveries. Other sales, including used cars, technical R&D services, parts, and power solutions, saw significant growth, reaching RMB2.9 billion, up 62.6% year-over-year.

Gross margin showed positive trends, with the overall gross margin improving to 10% in Q2 2025, up from 7.6% in Q1 2025. Vehicle margin remained stable quarter-over-quarter at 10.3%. The improvement in other sales gross margin to 8.2% was attributed to revenues from existing users and technological services provided to partners.

Crucially, NIO's non-GAAP operating loss narrowed by over 30% quarter-over-quarter in Q2 2025 to RMB4 billion, and the adjusted net loss decreased by 34.3% quarter-over-quarter to RMB4.1 billion. This narrowing of losses is a direct result of the company's "CBU mechanism" (sales business unit mechanism) and "cost mining" initiatives, which focus on enhancing operational efficiency and execution across R&D, supply chain, sales, and service functions. R&D expenses decreased 6.6% year-over-year and 5.5% quarter-over-quarter to RMB3 billion, driven by lower design and development costs and reduced depreciation. SG&A expenses also saw a 9.9% quarter-over-quarter decrease to RMB4 billion, reflecting organizational optimization efforts.

Liquidity remains a key focus. While Q1 2025 saw a decrease in cash due to seasonality and working capital outflow, a HK$4.03 billion share offering completed in April 2025 and a US$1 billion equity offering priced on September 10, 2025, are bolstering the balance sheet.

Management anticipates achieving positive free cash flow for the full year 2025.

Growth Catalysts: Product Offensive and Infrastructure Expansion

NIO's strategic initiatives are centered on a robust product offensive and the continuous expansion of its unique power infrastructure. The company's multi-brand strategy is now yielding tangible results.

The NIO brand is solidifying its premium position with the ET9, which has performed strongly in the executive flagship sedan market. The 2025 model year upgrades for the ET5, ET5T, ES6, and EC6, launched in late May, further enhance their competitiveness. The all-new ES8, a third-generation tech flagship SUV, launched in late August, has garnered significant attention, with pre-orders and test drives commencing in September.

The ONVO brand is gaining significant momentum in the mainstream family market. The ONVO L90, a large three-row family SUV launched in late July, exceeded expectations, delivering 10,575 units in its first full month. Its success has also boosted demand for the ONVO L60, which saw its order intake hit a new high in August. Production capacity for the ONVO L90 is targeted to reach 15,000 units a month by October, with the ONVO brand's overall monthly capacity aiming for 25,000 units in Q4.

The Firefly brand, targeting the high-end small car market, has delivered over 10,000 units within three months, becoming the best-selling model in its segment. Its novel design and flagship-level safety, including achieving the highest safety rating ever alongside the ONVO L60 in recent tests, resonate well with its target audience.

Beyond products, NIO's charging and swapping infrastructure is a critical growth catalyst. With 3,542 power swap stations and over 27,000 superchargers and destination chargers, NIO boasts the most extensive charging network in China. The "PowerUp County Plan" aims to expand power swap coverage to more counties, leveraging partnerships like CATL (300750), which is expected to significantly boost sales, particularly for the ONVO brand in lower-tier cities. NIO is also piloting the use of power swap stations as cost-effective points of sale in these regions.

Outlook and Targets: Charting a Path to Sustainable Profitability

NIO's management has articulated clear and ambitious targets, signaling a period of accelerated growth and a determined path to profitability. For Q3 2025, total deliveries are projected to be between 87,000 and 91,000 units, representing a substantial 40.7% to 47.1% year-over-year growth. The Q4 2025 target for average monthly deliveries across all three brands is 50,000 units, aiming for a quarterly total of 150,000 units.

The company is targeting a Q4 2025 vehicle gross margin of 16% to 17% for the entire group, with the ONVO L90 and all-new ES8 specifically aiming for a 20% gross margin. This is expected to enable non-GAAP breakeven in Q4 2025. Looking further ahead, NIO aims to achieve full-year breakeven in 2026. Long-term, the company envisions an annual volume of 2 million units with a 20% group-level gross margin and 7-8% net margin to maintain a competitive edge.

Cost control remains paramount. Non-GAAP R&D expenses are targeted at RMB2 billion per quarter for Q3 and Q4 2025, and between RMB2 billion to RMB2.5 billion per quarter for 2026, without compromising core R&D activities. Non-GAAP SG&A expenses are targeted to be within 10% of sales revenue by Q4 2025, driven by improved efficiency and rising sales volume. CapEx for 2026 is expected to be similar to or better than 2025 levels, with a focus on leveraging partner resources for infrastructure development.

The product pipeline for 2026 includes two new large SUV models under the NIO brand (ES9 and a large five-seater ES7) and two new family SUVs for the ONVO brand (a mid-large 6/7-seater and a large 5-seater). The Firefly brand's first product, also named Firefly, will be delivered in 2026. These new models, coupled with continuous cost optimization and the expanding power swap network, are expected to drive NIO's sales volume to double in 2026 compared to 2025.

Key Risks: Industry Headwinds and Strategic Responses

Despite NIO's ambitious plans and technological strengths, several risks and challenges warrant investor attention. The highly competitive nature of the Chinese EV market means that new models seldom maintain stable market share or popularity for extended periods, necessitating continuous innovation and aggressive marketing.

Supply chain constraints, particularly for critical components like the 102 kWh battery for the all-new ES8, pose a risk to production ramp-up and delivery targets. While management is actively working with partners to address these, unexpected disruptions could impact sales volume and profitability.

Geopolitical factors, such as tariffs on Chinese BEVs in Europe, have already impacted NIO's international pricing strategy and sales. This could limit the growth potential of the premium NIO brand in these markets, requiring a strategic shift to prioritize ONVO and Firefly for global expansion.

Furthermore, the expiration of some vehicle subsidies starting in 2026 could affect short-term demand, although NIO anticipates that its competitive products and established infrastructure will mitigate this impact as the playing field levels for all competitors. The company's significant R&D and infrastructure investments, while crucial for long-term competitiveness, continue to exert pressure on its financial results, requiring sustained sales growth and cost control to achieve profitability targets.

Conclusion

NIO Inc. stands at a pivotal juncture, transforming from an ambitious EV startup into a multi-brand powerhouse poised for sustainable growth and profitability. The company's core investment thesis is anchored in its relentless technological innovation, particularly its unique battery swapping ecosystem and advanced smart driving capabilities, which provide a distinct competitive advantage in a crowded market. The strategic expansion into diverse market segments through its NIO, ONVO, and Firefly brands is generating significant sales momentum, as evidenced by strong delivery figures and robust demand for new models like the all-new ES8 and ONVO L90.

Management's clear guidance towards non-GAAP breakeven in Q4 2025 and full-year breakeven in 2026, supported by stringent cost control initiatives and improving gross margins, underscores a disciplined approach to financial health. While the company faces intense competition and supply chain challenges, its strategic responses—including expanding its charging infrastructure, leveraging partnerships, and adapting its global expansion strategy—are designed to solidify its market position. NIO's commitment to technological leadership and its comprehensive product roadmap position it to capitalize on the "golden era" of electric SUVs and achieve its long-term vision of substantial annual volume and healthy margins. For discerning investors, NIO represents a compelling opportunity in the evolving smart EV landscape, driven by innovation and a clear path to profitability.