Image source: Sam Robson, The Motley Fool UK
The electric vehicle space is not all about Tesla and BYD, although it can sometimes feel a bit like it. BYD’s Chinese rival NIO (NYSE: NIO) is a former stock market darling, but has fallen 89% since early 2021. Yet things have lately taken a marked turn for the better, with NIO stock moving up 49% so far in 2025.
Could this be a sign of better days ahead? With the company’s latest quarterly earnings report due on Tuesday (2 September), now seems like a pertinent time to mull that question.
Sales are growing strongly
While we will have to wait until next week to get the detailed financial information, we already know some of NIO’s numbers for the second quarter.
It delivered over 72k vehicles in the quarter, representing 26% year-on-year growth. For context, Tesla’s deliveries during the quarter were 384k. That was a 13% decline.
Tesla’s deliveries were more than five times NIO’s. However, Tesla’s $1.1trn market capitalisation is around 75 times NIO’s!
Elon Musk’s company has businesses like power generation that prevent a direct comparison. Unlike NIO, it has a track record of profitability in recent years. But NIO has a fast-growing business and, while its volumes remain far smaller than Tesla’s, they are substantial.
Strong momentum, but lots to prove
July saw NIO’s year-on-year sales volume growth slip to 3%. It remains to be seen whether that was a blip or a symptom of a slowing sales growth rate.
At this point I feel quite confident about the long-term sales trend for NIO though.
It has already established a sizeable presence in the Chinese market and is pushing its expansion globally. New product models like a roomy family SUV could help further grow sales volumes.
Tesla’s problems this year have been well-publicised but the wider electric vehicle market continues to grow. I expect that to continue to be the case. Like Tesla though, NIO faces risks including US tariff uncertainty and pricing pressure in the competitive electric vehicle market pushing down selling prices.
NIO has sleekly designed cars and attractive pricing. It has also developed innovative battery-swapping technology that I thought could be a competitive advantage, although that could be made obsolete if fast-charging batteries with long journey range take off.
The challenge I see from an investment perspective is profitability. As the saying goes, revenues are vanity but profits are sanity.
Profitability is a big question mark
In the first quarter, NIO’s net loss was close to around £700m. It has been consistently loss-making. I expect next week will see it report a net loss for the second quarter.
Scaling up an electric vehicle maker is a costly business. Tesla was loss-making for years before moving into the black.
NIO ended the first quarter with cash and cash equivalents roughly equivalent to one year’s net loss, based on that quarter’s loss. I believe it could raise more cash if it needs to: the surging NIO stock price could indeed present a good opportunity for it to do so.
The question remains whether it can break even and then start making money. Any serious sign it is getting closer to that could see the NIO stock price surge, I reckon.
Personally, though, I will not invest until it has proved that its business model can be profitable.
