Nio (2Q25 Minutes): Still maintains the target of breaking even in the fourth quarter

The following is organized by Dolphin Research$NIO(NIO.US) 2025 Q2 Earnings Call Minutes. For financial report interpretation, please refer to "Abandoning 'Price' for Survival, Is Nio's Dilemma Reversal 'Satisfactory'?"

Key points extracted by Dolphin Research:

① Q4 Sales Guidance: The company targets an average monthly delivery of 50,000 units for three brands in Q4, with a quarterly delivery target of 150,000 units for the three brands.

Currently, production capacity is prioritized for L90 and ES8, resulting in order backlogs for L90, the new ES8, L60, and Firefly. ONVO brand capacity is expected to recover to approximately 25,000 units per month in October, and Nio brand capacity is also expected to reach 25,000 units per month in Q4.

The overall supply chain capacity for Le Tao L90 can reach 15,000 units per month in October, and for ES8, due to a longer production ramp-up period, the plan is to reach 15,000 units in December.

② Q4 Gross Margin Guidance: In Q4, ES8 will begin delivery, and the group's vehicle gross margin is expected to increase to around 16% to 17% to achieve breakeven. The Q4 gross margin target for L90 and ES8 is 20%.

③ Q4 Expense Guidance:

R&D: We set the non-GAAP R&D expense target for Q3 and Q4 at RMB 2 billion per quarter.

SG&A: With the increase in sales volume in Q3 and Q4, the ratio is expected to decline. In Q3, due to new product launches and marketing expenses, SG&A expenses are difficult to breakeven.

However, in Q4, the non-GAAP SG&A expense target will be controlled within 10% of sales revenue.

④ Q4 Breakeven: The company's quarterly breakeven target is based on a non-GAAP basis.

⑤ 2025H2 and 2026 New Car Pipeline: As all capacity has been invested in the production of existing models, there will be no new models launched or delivered this year. The delivery of ONVO L80 has been postponed, and the new ES8 will be the highlight of NIO Day in September. The new ES8 was pre-released at the end of August, with test drives planned to start in mid-September, and official release and subsequent delivery at the end of September's NIO Day.

Next year, the Nio brand will launch the ES9 and another large five-seat SUV ES7, and Le Tao L80 will be delivered next year.

For ET5, ET5T, ES6, and EC6, as they have been upgraded to the 2025 models this year (including interior, exterior, intelligent systems, and standard 100 kWh battery), there are no major upgrades or redesign plans for next year. The company will still launch special editions and supplementary products. Additionally, there are no plans to launch a second Firefly model next year.

⑥ 2026 Non-GAAP R&D Expense Guidance: Next year's non-GAAP R&D expenses are expected to be around RMB 2 billion to 2.5 billion per quarter to maintain long-term technological competitiveness. The main changes will come from new model development, as foundational R&D investment is largely complete.

⑦ 2026 Capital Expenditure Guidance: Regarding capital expenditure, as the discussion on next year's operational targets has not yet started, it is not possible to provide a clear outlook for 2026. The general principle is to utilize social resources to build a battery swap network, and product capital expenditure depends on the pace of new model development and launch. The company hopes that next year's capital expenditure can be on par with or better than this year.

⑧ Impact of Standardizing 100kWh Battery on Vehicle Gross Margin: The policy adjustment to standardize the 100 kWh battery pack for the 5 and 6 series does not result in significant changes from a transaction or vehicle gross margin perspective. The company offered special discounts when launching the 2025 models, and this time replaced some discounts with the standard 100 kWh battery. This move has had a positive impact, with an increase in sales leads. The long-term impact remains to be seen, but the overall impact is positive.

⑨ Long-term Gross Margin Target: The company's long-term goal is to achieve a 20% product gross margin at the group level. Specifically, the Nio brand targets a vehicle gross margin of 20% or even higher up to 25%, ONVO not less than 15% in the long term, and Firefly around 10%.

⑩ Reasons for the Success of L90 and ES8: The aggressive pricing strategy for the new ES8, L90, and next year's new models is attributed to preparation during the product definition and design stages, as well as a decade of technological innovation, core component self-development, and strict cost control, enabling more competitive pricing and cost structure without compromising competitiveness.

a. For example, the 900V high-voltage architecture achieves high integration and lightweighting of the powertrain and vehicle, improving cost and user experience.

b. Innovative digital architecture, central computing cluster, and Efuse technology help reduce costs and enhance quality management.

c. The company's self-developed intelligent driving chip NX9031 offers performance comparable to industry flagship chips while reducing bill of materials costs.

d. The rechargeable, swappable, and upgradeable battery technology roadmap allows the 85 kWh and 102 kWh battery packs to achieve the same range performance while being about 200 kg lighter than peer solutions, optimizing cost and user experience.

e. In product definition, the company has learned from past experiences and combined market insights to enhance the product performance of ES8 and L90.

f. In the supply chain, the company has adjusted its strategy with partners to achieve a cost structure with long-term competitiveness through win-win cooperation.

Reasons for Q2 Gross Margin Only Matching Q1: Mainly because the 2025 model upgrades for ET5, ET5T, EC6, and ES6 occurred in mid-to-late May, with only about 20% of deliveries from new models, having an insignificant impact on gross margin improvement. As the 2025 models are fully delivered in Q3 and L90 begins delivery, vehicle gross margin will further improve.

Other Business Gross Margin: The gross margin for other sales in Q2 was 8.2%, mainly from revenue contributions from existing users and technical services provided to partners. The gross margin for other sales is expected to break even, with slight losses possible between quarters.

I. Review of Core Financial Report Information:

1. Guidance:

- The company expects total deliveries in Q3 to be between 87,000 and 91,000 units, a year-on-year increase of 40.7% to 47.1%, setting a new historical high.

- Starting from Q3, the multi-brand strategy will drive the company's sales growth and capture a larger market share in various segments.

- The company expects significant improvement in financial performance with sales growth, gross margin enhancement, and more effective cost control, paving the way for rapid growth in the next stage.

2. Personnel Adjustment Plan:

Sales, general, and administrative expenses (SG&A) decreased by 9.9% quarter-on-quarter, mainly due to reduced personnel costs and marketing expenses, driven by the company's comprehensive organizational optimization efforts in marketing and other support functions.

3. Business Advancement Pace:

- In Q2, NIO ET9 performed strongly in the executive flagship sedan market and began delivery.

- ONVO L90 was launched at the end of July, exceeding sales expectations, with a delivery volume of 10,575 units in the first full delivery month.

- The new ES8 was pre-released at the end of August, with test drives planned to start in mid-September, and official release and subsequent delivery at the end of September's NIO Day.

- Since its delivery began, the Firefly brand has delivered over 10,000 units in just three months, becoming the best-selling model in the high-end small car market.

II. Detailed Content of the Earnings Call

2.1, Core Information from Executive Statements:

1. Business Progress

a. Performance Overview: The company delivered 72,056 smart electric vehicles in Q2, a year-on-year increase of 25.6%. In July, 21,017 units were delivered, and in August, 31,305 units were delivered.

b. Quarterly Outlook: Total deliveries in Q3 are expected to be between 87,000 and 91,000 units, a year-on-year increase of 40.7% to 47.1%, setting a new historical high.

c. ET9: Since its delivery began in Q2, NIO ET9 has performed strongly in the executive flagship sedan market.

d. ONVO L90: The ONVO brand is gaining momentum in the mainstream family market. ONVO L90 was launched at the end of July, favored by the market for its clever space and comfort design, comprehensive intelligent safety, competitive pricing, and comprehensive charging and swapping services. Its sales performance exceeded expectations, with a delivery volume of 10,575 units in the first full delivery month. The strong market performance of L90 also enhanced ONVO's brand awareness and drove demand for L60, with L60 orders reaching a new high for the year in August.

e. Firefly: The Firefly brand has been widely praised by the target audience for its clear product positioning and deep insights into the high-end pure electric small car market. Since its delivery began, over 10,000 units have been delivered in just three months, becoming the best-selling model in the high-end small car market. Notably, in the recent CIASI test, Firefly, along with ONVO L60, received the highest safety rating ever.

f. Intelligent Driving: Nio is the first to apply self-developed intelligent driving chips and a full-domain vehicle operating system to mass-produced models such as ET9 and the 2025 models of ET5, ET5T, ES6, and EC6. At the end of June, the company launched the NIO world model on all Nio vehicles equipped with proprietary intelligent driving chips, representing the first case in China and the industry to achieve full-feature delivery on self-developed flagship intelligent driving chips.

g. Sales and Service Network: The company operates 176 Nio centers and 416 Nio spaces, as well as 414 Le Tao stores. In terms of service, the company has 388 service centers and 68 delivery centers.

h. Battery Swap Network: The company has 3,542 battery swap stations worldwide, including over 1,000 battery swap stations on Chinese highways, providing users with over 84 million battery swap services. The company has built over 27,000 supercharging and destination charging piles, making Nio the car company with the most charging piles in China.

i. Product Quality: In June this year, ET5 and ET5T won first place in JD Power's China New Energy Vehicle Initial Quality Study. EC6 and ES6 also won first place in JD Power's China New Energy Vehicle Initial Quality Study. They have won first place in JD Power's quality study for seven consecutive years since 2019.

2.2, Q&A Analyst Questions and Answers

Q: What is the ramp-up speed of production capacity for ES8 and L90, and what is the delivery target for this year? Can the group achieve a monthly sales volume of 55,000 units or more in December?

A: In response to the strong market demand for ONVO L90 and the new ES8, the company is working closely with supply chain partners to increase capacity. Our goal is for the overall supply chain capacity of ONVO L90 to reach 15,000 units per month in October. For ES8, due to a longer production ramp-up period, the company plans to reach 15,000 units in December. Considering the supply and demand situation, the company's Q4 target is an average monthly delivery of 50,000 units for three brands, meaning a quarterly delivery target of 150,000 units for the three brands.

Q: Can you provide more details on the trend of vehicle and non-vehicle gross margins in the second half of the year? What are the gross margin expectations for L90 and ES8? Can breakeven be achieved in Q4?

A: In Q2, the company's vehicle gross margin was 10.3%. This is mainly because the 2025 model upgrades for ET5, ET5T, EC6, and ES6 occurred in mid-to-late May, with only about 20% of deliveries from new models, having an insignificant impact on gross margin improvement. As the 2025 models are fully delivered in Q3 and L90 begins delivery, vehicle gross margin will further improve. In Q4, ES8 will begin delivery, and the group's vehicle gross margin is expected to increase to around 16% to 17% to achieve breakeven. The Q4 gross margin target for L90 and ES8 is 20%. The gross margin for other sales in Q2 was 8.2%, mainly from revenue contributions from existing users and technical services provided to partners. The gross margin for other sales is expected to break even, with slight losses possible between quarters.

Q: Can you provide more details on the breakeven target for Q4? What are the R&D and SG&A expenses for Q3 and Q4? Is breakeven at the operational level or net profit level, and is it GAAP or non-GAAP?

A: The company's quarterly breakeven target is based on a non-GAAP basis. To improve R&D efficiency, we set the non-GAAP R&D expense target for Q3 and Q4 at RMB 2 billion per quarter. In terms of SG&A expenses, although the sales volume in Q2 was about 70,000 units, the ratio was relatively high, but with the increase in sales volume in Q3 and Q4, the ratio is expected to decline. In Q3, due to new product launches and marketing expenses, SG&A expenses are difficult to breakeven. However, in Q4, the non-GAAP SG&A expense target will be controlled within 10% of sales revenue.

Q: Considering the strong demand for L90 and ES8 occupying capacity, will the company adjust the launch schedule for subsequent models? Can you share the update plans for models in the next few quarters?

A: Currently, production capacity is prioritized for L90 and ES8, resulting in order backlogs for L90, the new ES8, L60, and Firefly. ONVO brand capacity is expected to recover to approximately 25,000 units per month in October, and Nio brand capacity is also expected to reach 25,000 units per month in Q4. Firefly capacity will be increased to a maximum of 6,000 units per month. As all capacity has been invested in the production of existing models, there will be no new models launched or delivered this year. The delivery of ONVO L80 has been postponed. Next year, the Nio brand will launch the ES9 and another large five-seat SUV ES7. The new ES8 will be the highlight of NIO Day in September.

Q: The pricing strategy for L90 and the new ES8 is quite aggressive. Will this strategy extend to all upcoming models? What is the company's margin trajectory for next year and the sustainable vehicle margin level target?

A: The company's long-term goal is to achieve a 20% product gross margin at the group level. Specifically, the Nio brand targets a vehicle gross margin of 20% or even higher up to 25%, ONVO not less than 15% in the long term, and Firefly around 10%. The aggressive pricing strategy for the new ES8, L90, and next year's new models is attributed to preparation during the product definition and design stages, as well as a decade of technological innovation, core component self-development, and strict cost control, enabling more competitive pricing and cost structure without compromising competitiveness.

Q: Can you share the deep experiences behind the success of L90 and ES8, such as changes in the supply chain and dealer network?

A: The success of L90 and ES8 is due to the strong competitiveness of the third-generation products, optimized cost structure, and continuous technological innovation. For example, the 900V high-voltage architecture achieves high integration and lightweighting of the powertrain and vehicle, improving cost and user experience. Innovative digital architecture, central computing cluster, and Efuse technology help reduce costs and enhance quality management. The company's self-developed intelligent driving chip NX9031 offers performance comparable to industry flagship chips while reducing bill of materials costs. The rechargeable, swappable, and upgradeable battery technology roadmap allows the 85 kWh and 102 kWh battery packs to achieve the same range performance while being about 200 kg lighter than peer solutions, optimizing cost and user experience. In product definition, the company has learned from past experiences and combined market insights to enhance the product performance of ES8 and L90. In the supply chain, the company has adjusted its strategy with partners to achieve a cost structure with long-term competitiveness through win-win cooperation.

Q: Can you confirm the new model plans for 2026? Are there at least five new cars, including ES6, ES7, ES9, L80, and a second Firefly model?

A: Regarding the 2026 product, the company will focus on three large SUV models for the ONVO and Nio brands. For ET5, ET5T, ES6, and EC6, as they have been upgraded to the 2025 models this year (including interior, exterior, intelligent systems, and standard 100 kWh battery), there are no major upgrades or redesign plans for next year. The company will still launch special editions and supplementary products. Additionally, there are no plans to launch a second Firefly model next year.

Q: What is the expected level of R&D expenses per quarter in 2026? Can it be maintained at around non-GAAP RMB 2 billion? Can you provide the latest capital expenditure plans for 2025 and 2026?

A: Regarding R&D expenses, the company is committed to improving R&D efficiency and investment returns. Next year's non-GAAP R&D expenses are expected to be around RMB 2 billion to 2.5 billion per quarter to maintain long-term technological competitiveness. The main changes will come from new model development, as foundational R&D investment is largely complete. As for capital expenditure, as the discussion on next year's operational targets has not yet started, it is not possible to provide a clear outlook for 2026. The general principle is to utilize social resources to build a battery swap network, and product capital expenditure depends on the pace of new model development and launch. The company hopes that next year's capital expenditure can be on par with or better than this year.

Q: What is the financial impact of the strategy to standardize the 100 kWh battery for all Nio brands? What is the incremental cost?

A: The policy adjustment to standardize the 100 kWh battery pack for the 5 and 6 series does not result in significant changes from a transaction or vehicle gross margin perspective. The company offered special discounts when launching the 2025 models, and this time replaced some discounts with the standard 100 kWh battery. This move has had a positive impact, with an increase in sales leads. The long-term impact remains to be seen, but the overall impact is positive.

Q: What is the impact of shifting to self-developed chips? If 20,000 or 50,000 vehicles equipped with new self-developed chips are delivered monthly, what is the cost saving per vehicle?

A: Chip R&D expenses and investments are recognized in the financial statements, and the actual unit cost savings are not closely related to actual sales volume. Wafers are directly procured from chip manufacturing partners. Compared to the second-generation product chip solution, the company's self-developed solution is more cost-competitive while achieving the same level of computing performance. Even in the third-generation products, compared to industry flagship intelligent driving chips, the self-developed solution still has a cost advantage. The specific amount saved per product is not disclosed in detail.

Q: How does management assess the potential internal cannibalization of attractive pricing for L90 and ES8 on the existing product portfolio (such as ES6 or L60)? What is the potential impact on next year's new model plans?

A: The overall impact of L90 on L60 is positive, with L60 orders reaching a new high in August. The attractive pricing of the new ES8 helps enhance Nio's brand awareness and brings more attention to the 5 and 6 series with standard 100 kWh batteries. The company believes that this clear pricing system will have a positive long-term impact on the entire brand and products. Market trends show that the competitiveness of the mid-to-large pure electric SUV segment is increasing, with the BEV growth rate (39% in the first half) outpacing the revenue year-on-year growth (14%). The golden age of large three-row pure electric SUVs is coming, which will help the long-term competitiveness and popularity of existing SUVs like ES6 and L60.

Q: Can you provide a more quantitative explanation of the OPEX reduction target or more detailed cost optimization measures?

A: For the non-GAAP breakeven target in Q4, in terms of R&D expenses, the company hopes to control quarterly R&D expenses within RMB 2 billion without compromising core R&D and long-term competitiveness. The SG&A ratio to sales revenue target is to maintain around 10% this year. In the long term, R&D expenses in 2026 will be controlled at RMB 2 billion to 2.5 billion per quarter based on the product launch and development pace. The company will continue to improve SG&A expense efficiency and utilization.

Q: How should the long-term stable monthly sales of L90 and ES8 be viewed?

A: Due to the fierce competition in the Chinese automotive market and the volatility of smart electric vehicle sales, the company is unable to provide a clear outlook on the long-term stable sales of ES8 and L90. The company will set higher targets and strive for them. Nio and ONVO brands have begun implementing a new sales and marketing paradigm aimed at quickly maintaining and capturing market share, extending the market impact of new models, and stabilizing a reasonable and satisfactory market share. The effectiveness of this paradigm is still being observed, but the company hopes to achieve good results.