$NIO Inc(NIO.US)
Context: Nio stock broke the support $4 level, extending a rough three month slide of almost 30%. That short-term frustration sits against a very different earnings picture. NIO has started to show positive free cash flow and a small adjusted profit while still running a premium battery electric vehicle business that scales fast.The bullish pitch on NIO is that premium volume, margin repair and recurring services can carry the company toward a self funded growth model. Q2 hits several of those checkpoints. Deliveries rose to 107,658 with premium ES8 and ES9 anchoring mix, and vehicle sales reached RMB 29.1b. Vehicle gross margin of 18.5% and an overall gross margin of 18.4% line up with the margin recovery narrative, helped by tighter R&D. The bearish view is that NIO remains a capital hungry China focused EV company where scale does not reliably convert into profitable, less risky growth. Q2 chips away at that with a small non GAAP profit, 18.4% gross margin and positive free cash flow, plus a cash balance of RMB 56.7b that reduces immediate funding stress. However, revenue fell short of expectations, and Q3 delivery guidance of 108,000 to 111,000 units sits only slightly above Q2 levels despite prior record months, which tempers the idea of uninterrupted volume momentum. Management also flags rising material and chip costs of roughly RMB 14,000 per car versus late 2025 and a further RMB 2,000 to 3,000 per car expected, which keeps margin sustainability in question.
My Trade: I started my position too late after the stock already had its bullish run from late last year. Moreover, current share price sits back at $3+ with a P/S ratio of below 1, signalling potential undervaluation.
Takeaway: The miss versus revenue expectations and softer Q3 guidance show the path is not smooth, but the key profitability milestones are beginning to appear in the actual numbers. @Captain's Treasure
