We came across a bearish thesis on NIO Inc. (NIO) on Substack by The Wolf of Harcourt Street. In this article, we will summarize the bears’ thesis on NIO. NIO Inc. (NIO)'s share was trading at $4.38 as of Nov 27^th.

A row of electric cars being charged simultaneously at a public charging station.

NIO (NIO) reported strong third-quarter 2024 earnings, with vehicle deliveries reaching a record 61,855 units, marking a 12% year-over-year (YoY) increase and an 8% rise from Q2 2024. This solidified NIO’s dominant position, capturing over 40% of China’s battery electric vehicle market for vehicles priced above RMB 300,000 ($42,350). Deliveries continued to impress in October, with 20,976 cars shipped, indicating another potential record-breaking quarter and expanding market share. However, the company faced revenue challenges, as total revenues amounted to $2.66 billion, a slight 2% YoY decline but a 7% quarter-over-quarter (QoQ) increase. The drop in revenue was primarily due to a lower average selling price (ASP) resulting from changes in the product mix, though higher delivery volumes provided some offset. ASP pressure, stemming from the ongoing EV price war in China, is a concern, as NIO’s ASP fell 11% YoY, constraining revenue growth despite increased unit sales.

On the profitability front, NIO showed improvement, with gross margins rising to 10.7% from 8.0% in Q3 2023, driven by improved vehicle margins which increased to 13.1% from 11.0% YoY. This was attributed to reduced material costs per unit, though it was partially offset by the lower ASP. Despite these improvements, net losses grew by 11% YoY to $721 million, highlighting ongoing profitability challenges. NIO expects vehicle deliveries in Q4 2024 to range between 72,000 and 75,000 units, reflecting a 44%-50% YoY increase. However, total revenues are projected to be between $2.80 billion and $2.90 billion, a 15%-19% YoY growth, with ASP likely to drop further, signaling potential margin pressures. While NIO's strong delivery growth and improved vehicle margins are positives, ASP pressures remain a significant hurdle, raising concerns about the company’s ability to scale and achieve sustained profitability.

NIO Inc. (NIO) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held NIO at the end of the third quarter which was 20 in the previous quarter. While we acknowledge the risk and potential of NIO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.