NIO (9866 HK, HK$51.05, HK$115bn) Budget models drove volume growth

Total revenues stood at RMB19.01bn in 2Q25, up 8.9% YoY and 58% QoQ.  Net loss amounted to RMB 5bn, down 1% YoY and 26% QoQ. Notably, both total revenue and net income came in slightly below market expectations.

Surging sales but lower ASP: Auto revenue reached RMB16.1bn, up 2.9% YoY and 62.3% QoQ.  Sales volume reached 72K units, 25.6% more YoY and 71.2% higher QoQ. The vehicle margin stayed at a low level of 10.3% due to ASP pressure.  Despite higher volume, the growth was primarily driven by budget models, namely the ONVO L60 and Firefly. As a result, the ASP during the period declined further by RMB12k QoQ to RMB 224k. It is also noted that the price drop exceeded the discount being offered during the inventory clearance promotions in 1Q25.

Optimizing costs and stabilizing cash flow: R&D expenses were lowered by RMB170mn QoQ to RMB3bn, mainly from lower R&D costs for new products/technologies across development stages.  Meanwhile, SG&A dropped RMB440mn QoQ to RMB3.96 bn, driven by ONVO-NIO channel integration and marketing staff optimization. Leveraging these cost reduction and efficiency enhancement initiatives, the company’s overall operating cost ratio dropped significantly to 36.7% from 63%, with operating losses narrowing to RMB4.91bn. Supported by rising sales, the company’s cash position stabilized at around RMB27.2bn.

Business Outlook: Orders for ONVO L90 beat expectations, with first-month deliveries hitting 15,075 units.  Nio is ramping up the production capacity for ES8 to 15K units in December. For Q4, the company expects delivery volume to reach 150K units, with overall vehicle GPM projected at 16-17%, and 20% GPM both for the L90 and ES8.  It aims to turn profitable in the fourth quarter.
Our views: NIO’s volume and sales are gaining momentum, but per-unit GPM remains under pressure. Its diversification strategy is progressing well, with strong numbers going for Firefly and ONVO models, while L90 and ES8 have gained consumer traction on competitive pricing and product specifications.  Full-year target of 300k units seems achievable.  Looking ahead, the Mgt is confident about positive profitability in Q4 on the back of higher GPM over 16% and cost optimization. The counter is trading at 1.4X FY25 P/S. (Research Department)