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Nio (NIO) investors are bound to be disappointed with its price action, as the stock has lost nearly half of its market capitalization so far in 2024. What adds insult to injury is that the S&P 500 Index ($SPX) has delivered double-digit returns over the same period, and so have Chinese markets.
Nio’s dismal price action is not limited to 2024. The stock has closed in the red in each of the previous three years after having peaked in early 2021 when its valuation surged past $100 billion. The Chinese electric vehicle (EV) company’s market cap is now below $10 billion and what once looked like a potential “Tesla killer” is now fighting for relevance in an overcrowded EV market.
In this article, we’ll look at NIO stock’s 2025 prediction and examine the various factors that could drive the stock next year.
Nio Expects Deliveries to Double in 2025
During its third quarter earnings call last month, Nio said that it expects deliveries to double next year. At the top end, that would imply 2025 deliveries of nearly 450,000. The company expects its Onvo and Firefly brands to drive volumes. Nio has already started selling cars under its lower-cost Onvo brand, and expects to start Firefly deliveries next year.
New models will also support its forecast delivery growth. Nio plans to start delivering the ET9 and launch two new models under the Onvo brand. It will also launch one Firefly model next year, targeting the mass market.
Importantly, the company does not see any immediate need to raise capital and expects its operating cash flows to suffice. Frequent capital raises have been an overhang for many companies in the green energy ecosystem and have capped their share prices. Nikola (NKLA) is a perfect example, as the company seems to be in the business of selling its shares instead of hydrogen trucks.
Nio Targets Breakeven in 2026
In terms of its financials, Nio expects its losses to narrow next year amid rising shipments and continued cost cuts. It expects 2025 gross margins of 15% and 10%, respectively, for the Nio and Onvo brands. Over the long term, the company set a gross margin target of 20% for its namesake brand and 15% for Onvo.
CEO William Li believes that Nio will achieve breakeven in 2026, which would be a key milestone for the company -- if it were to happen. But it would be prudent to take the optimism with a pinch of salt as EV companies have often been a bit too aggressive with their forecasts. Tesla (TSLA), for instance, has all but given up on the long-term delivery compound annual growth rate (CAGR) of 50% that its CEO Elon Musk touted in 2021.
Sell-side analysts, too, have been questioning the rosy guidance that EV companies sometimes provide. Consensus estimates for Tesla’s Q4 and 2025 deliveries are much lower than what Musk predicted during the Q3 earnings call, and Goldman Sachs expects the EV giant’s deliveries to fall year-over-year in 2024.
NIO Stock Forecast
Goldman Sachs is similarly pessimistic on NIO’s 2025 delivery guidance and expects the Chinese EV company to ship 337,000 vehicles, way below the implied guidance of between 443,000 and 449,000 vehicles.
The brokerage incidentally downgraded NIO stock to “Sell” while cutting the target price to a Street-low of $3.90. Analyst Tina Hou cited “limited” new models among the reasons for her stance. “We are Sell-rated and expect lukewarm order momentum, slow production ramp-up and delivery volume, and intensifying price competition to be downside stock price catalysts,” added Hou in her note.
Goldman is not the only brokerage that has recently turned bearish on NIO. Macquarie also downgraded the stock to “Neutral” while cutting its target price to $4.80. Overall, NIO has a consensus rating of “Hold” from the 15 analysts actively covering the stock. Its mean target price of $5.82 is however 26% higher than Thursday’s closing prices.
Is NIO Stock a Buy for 2025?
Nio has arguably failed to live up to the high expectations that markets once had from the company, which is evident in its price action. However, the pessimism looks more than baked into NIO’s valuation as the stock trades at just 0.8x its projected sales over the next 12 months. The multiples are below Chinese peers like Xpeng Motors (XPEV) and Li Auto (LI) – let alone any comparisons with Tesla.
The company now has a healthy balance sheet and held $6 billion of cash and cash equivalents at the end of September. It posted positive free cash flows in Q3 and expects to do so in the current quarter as well. Volume growth and cost cuts should drive margin expansion in 2025, and any major economic stimulus from China would be positive for the country's EV industry.
Overall, I find NIO’s risk-return quite attractive, and while I don’t expect the company’s 2025 deliveries to grow at the kind of pace it is predicting, the stock is too cheap to ignore at these price levels.
