I. Quick Summary of Key Points
NIO just released a financial report that appears to be full of positive figures: quarterly revenue of 32.1 billion yuan, a year-on-year increase of nearly 70%, and over 100,000 vehicles delivered. The company has been profitable for three consecutive quarters, finally breaking through the profitability threshold after 11 years of effort. However, the capital market has not responded positively. On the day the report was released, the stock price in the Hong Kong market fell by more than 10%, hitting a one-year low, and within two days, the stock price in the US market also dropped by 10%. As a result, investment banks downgraded their rating from “buy” to “hold,” and the target price was reduced by nearly 40%.
This contrast between “surprising financial results” and a sharp market drop indicates that NIO’s reported profits are largely inflated. The so-called profits were achieved by cutting future research and development (R&D) budgets. Underlying these figures are significant issues such as soaring costs from upstream suppliers, a heavy debt burden, and a decline in sales for its mid-range models. The market has realized that NIO has only just begun to touch the edge of profitability and is still a long way from being able to generate stable profits without relying on external support.
---
II. Detailed Analysis
1. The Real Value of These “Profit Figures” Is Surprisingly Low
Many people may be confused upon first looking at the financial report: Why hasn’t the stock price increased despite three consecutive quarters of profitability? A simple calculation will make it clear: Out of the total revenue of 32.1 billion yuan, the net profit that actually goes into NIO’s pockets is only 26.1 million yuan. This is equivalent to selling a car for 100 yuan and making less than 10 cents in profit—so thin that any additional expenses of several hundred thousand yuan could immediately turn the profit into a loss.
What’s even more concerning is the way NIO generated these profits: In the first half of this year, the company cut its R&D expenses by 35%, saving 2.1 billion yuan compared to the same period last year. This money was supposed to be invested in the development of next-generation autonomous driving technology and new car models. Instead, NIO spent 4.4 billion yuan on marketing, more than twice the amount it spent on R&D. To put it bluntly, it’s like saving money on a vocational training course in order to earn an extra 2,000 yuan this month, which reduces the possibility of a salary increase in the future.
When NIO was losing money for over a decade, the market’s criterion was “when will it stop losing money?” Once it finally crossed the profitability threshold, the criterion changed to “can it start making more and more money?” However, NIO’s profits in the second quarter were 40% lower than in the first quarter, despite selling more cars. Naturally, the market reacted negatively.
2. A Small Increase in Upstream Costs Can Ruin NIO’s Profits in Half a Quarter
NIO no longer has control over its own destiny. With the AI industry booming this year, a large amount of production capacity has been diverted to the production of AI chips for data centers. The cost of storage for in-vehicle systems, autonomous driving chips, and even lithium mines for battery production has all increased. Compared to the end of last year, the cost of manufacturing a car for NIO has risen by 14,000 yuan.
What does 14,000 yuan mean? NIO’s average car price is 270,000 yuan, so this additional cost of 1.5 billion yuan represents nearly a quarter of its total gross profit for that quarter. In other words, after three months of hard work, a quarter of its revenue goes directly to upstream suppliers and battery manufacturers. NIO’s management previously said it aimed to increase its gross profit margin in the second half of the year but now has adjusted its goal to simply “maintain the current margin,” which is a significant shift from aiming for high performance to just avoiding losses.
Worse still, industry forecasts suggest that this wave of price increases due to the AI chip shortage will continue until at least the second half of 2027. With NIO’s already thin profits, a small increase in upstream costs could quickly push it back into the red.
3. A Surplus of Cash on Paper, but Hidden Burdens
Many people might think that NIO’s 56.7 billion yuan in cash means it is financially stable, but this is not the case. Its total liabilities have reached 121.9 billion yuan, of which 60.4 billion yuan is owed to suppliers. NIO has been relying on a “buy first, pay later” approach to maintain its cash flow. If suppliers demand immediate payment, its cash flow could become strained.
There is also an invisible burden: NIO has built 4,000 charging stations. Although the construction costs were covered by partners, the ongoing expenses for electricity, maintenance, and equipment depreciation are a constant expense. Li Bin has claimed that these charging stations will become profitable in the future, but it’s unclear when that will happen. It’s like owning 4,000 high-power chargers that consume electricity 24/7, with no clear return on investment—a perpetual expense that is daunting for any company.
4. The Strategy of Reducing Costs Through Scale Is Stuck
NIO once believed that increasing sales volume would naturally lower the cost per vehicle and boost profits. Therefore, it launched three different price segments, including a mid-range model called “Lido” aimed at boosting overall sales. However, the sales of Lido have plummeted from 12,000 units in May to less than 9,000 units in August, failing to meet the sales targets. NIO’s target for the third quarter was 108,000 to 111,000 units, but only 71,800 units were sold in July and August. Even if it manages to sell 36,000 units in September, it will still fall short of its goal.
Without increasing sales, the cost per vehicle will not decrease, and profits will remain low. NIO is trapped in a vicious cycle: to sell more cars, it needs to lower prices, which reduces profits; without lowering prices, sales won’t increase, and costs won’t decrease, thus preventing profit growth.
In short, the market’s expectations for NIO have changed. Previously, it was seen as a startup that had made it to the finals, and investors were willing to support its growth. Now, the market wants to see concrete evidence that NIO can generate stable profits without relying on subsidies or cutting into future R&D investments. The current financial report clearly does not meet these expectations.