It wasn't that long ago that Nio(NYSE: NIO) seemed poised to post a breakout fourth quarter.
The Chinese electric vehicle (EV) maker had delivery momentum driven by a new brand, Onvo, which began boosting deliveries at the end of 2024. It had a good third quarter when it improved vehicle margins amid a challenging environment, and it had launched yet another brand, Firefly, that was positioned to drive the top line even higher throughout 2025.
But then Q4 largely disappointed Wall Street analysts and main street investors alike. So what happened?
Driving growth
One of the largest reasons to buy into Nio's vision was that the previously mentioned new brands are set to drive deliveries higher and thus generate strong revenue growth. While part of that worked according to plan, it's also true that it didn't drive top-line growth analysts expected during the fourth quarter.
In Q4, vehicle deliveries checked in at 72,689. That figure breaks down into 52,760 vehicles from its premium Nio brand and the remaining 19,929 vehicles from its family-oriented smart EV brand, Onvo. The result was a solid 45% gain over the prior year's Q4 and a healthy 17.5% jump from 2024's Q3.
However, that vehicle delivery growth didn't drive the top line quite as investors hoped. Total revenue jumped 15.2% from the prior year and increased 5.5% from 2024's third quarter. This suggests that while the company is indeed expanding its sales, China --Nio's primary market currently -- is still in the thick of a very brutal price war that's causing competitors to aggressively slash prices to maintain market share.
While the top line remained sluggish compared to the company's delivery gains, there is a silver lining in the data. The vehicle margin checked in at 13.1% during Q4 compared to 11.9% during the prior year's Q4 and the same level as 2024's third quarter. This suggests that while the Chinese EV maker had to get more competitive on pricing, it was also able to reduce costs enough to salvage its margins.
So, to summarize, Nio is expanding its sales and deliveries through new brand launches while simultaneously cutting costs to save its margins. Why wasn't Wall Street satisfied?
What gives?
Nio's stock price had been on a steady rise through March right up until the company prepared to drop its Q4 results on the market. Nio's top and bottom line checked in lower than analysts estimated for Q4, but the main driving force behind the pessimism is likely the company's unenthusiastic guidance for 2025's Q1.
Nio now only expects to deliver about 43,000 vehicles during Q1, with revenue checking in at about 12.9 billion yuan ($1.8 billion), which was well short of analysts hoping for about 65,000 vehicles and 17.8 billion yuan ($2.45 billion). If anything, the muffled Q1 guidance just stoked fears that have long existed for the Chinese EV maker: Will it ever truly turn the corner for profitability?
Another issue facing investors is the elephant in the room. Nio is aggressively cutting costs to maintain margins, but at the same time, it's still expanding its capital-intensive, battery-swap network, and the losses from that program aren't expected to narrow.
What it all means
Despite missing estimates and dishing out lethargic Q1 guidance, it was far from a horrible Q4 from Nio. However, it's becoming more clear that the company will need to shift gears to offset the country's EV price war. Nio's going to need vehicle refreshes, new vehicle launches, and other ways to generate revenue from its lineup without aggressively slashing prices to the bone as some competitors have begun to do.
If, and it's a big if, the company's revenue growth can more closely match its stronger vehicle delivery growth, while consistently cutting costs to maintain its margins, 2025 is still setting up to be a strong year for the company. That said, there are still many questions facing the company's battery-swap strategy, its expansion plans overseas, primarily in Europe where it will face tariffs, and it's sluggish top-line growth.
Management still hopes to achieve profitability during 2025's Q4, but it might take more than doubling its sales as planned. It's going to have to find ways to offset the brutal price war that doesn't appear to be fading anytime soon.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
