Potentially, Nio Could Captivate Investors with Growth by 2025
If you've listened to this tale countless times, you're likely familiar with it: A fierce competition in the electric vehicle (EV) market is taking place in China, leading to a significant reduction in profits for numerous carmakers. Many have hinted that the situation is likely to worsen in 2025.
This isn't ideal news for Nio (NIO 1.76%) shareholders. However, there are indications that despite the price war and robust competition, Nio's delivery growth could captivate investors in 2025.
Shifting into a more rapid pace
December presents Nio investors with a lot to contemplate, starting with the recent three-hour-long media event, followed by Nio Day 2024 on Dec. 21, during which they are expected to unveil the ET9 and the Firefly brand. Although investors have applauded the consistent delivery of over 20,000 vehicles in recent months, some may still be pondering whether the company can surpass this threshold in 2025 against the backdrop of the price war and growing competition.
Initially, some investors might have been dismayed by the company's prediction of a relatively steady growth for its primary Nio brand in 2025. However, that's not the entire story. Thanks to its sub-brands, Onvo and Firefly, not only will the company boost deliveries but it could even double them in 2025. Remarkably, its Onvo brand is projected to deliver approximately 20,000 vehicles per month alone in 2025.
If Nio manages to double sales in 2025, that would result in a target of approximately 440,000 vehicles, a fact that should certainly impress investors. However, there's a catch to this robust growth; its Onvo brand is cheaper than its Nio brand, which could impact the company's profit margins.
What to focus on next
If Nio piques your interest as an investment prospect, you should zero in on three key areas: profit margins, revenue growth, and the break-even timeline.
Let's kick things off with margins, a positive aspect of the company's third quarter. Many had anticipated that the company's margins would be impacted by the ongoing price war in China, but instead, Nio's gross margin rose to 10.7% during the third quarter, up from the previous year's 8%. Critically, vehicle margins climbed from 11% to 13.1% over the same period. While one quarter does not make a trend, it does offer investors hope that management can effectively manage costs even as lower-priced brands grow in popularity.
Revenue growth will be inextricably linked to production and delivery growth, and if deliveries double, revenue growth will likely follow suit in 2025. The question will be how much revenue growth can be achieved amid the price war. Another significant revelation is management's disclosure that they aim to achieve profitability by 2026. Not only is this a quarterly goal, but it's a full-year target, a feat that would be impressive given the current state of the Chinese market.
A behind-the-scenes glimpse
The fourth quarter could potentially offer a sneak peek into the future. With Onvo production ramping up, the company would need to deliver slightly over 30,000 vehicles in December to meet its fourth-quarter delivery forecast. This would necessitate a near 50% increase over the previous year.
Investors should bear in mind that Nio is still a novice company, retains a high degree of speculation, and should be allocated a minor position in your portfolio. Moreover, despite Nio's ambition to achieve profitability in 2026, don't be surprised if Nio's net loss continues to expand before it starts to shrink. But, as the company prepares to launch Firefly shortly and ramps up Onvo production, it sets the stage for Nio to finally impress investors with delivery and revenue growth in 2025.
Despite the challenging market conditions and price war in the EV industry, there's an opportunity for Nio to boost its delivery growth in 2025, potentially doubling its sales. However, this expansion could impact Nio's profit margins due to the lower prices of its Onvo brand vehicles.
Investors considering Nio as an investment prospect should focus on three key areas: maintaining profitable margins, promoting revenue growth, and estimating the break-even timeline. The company's margin growth in the third quarter offers hope that management can effectively control costs during the price war, while the aim to achieve profitability by 2026 suggests a promising future for the company.
