Unsurprisingly, NIO has once again released a loss-making semi-annual report.

In terms of specific data, NIO generated revenue of 27.35 billion yuan in the first half of the year, a year-on-year increase of 40.65%; net loss was 10.38 billion yuan, a year-on-year increase of 4.95%.

Compared to a loss of 10.93 billion yuan in the same period last year, NIO's loss in the first half of this year has decreased. Looking at a longer-term perspective, NIO has yet to achieve profitability since its listing. From 2020 to the first half of 2024, in less than five years, NIO's cumulative losses have amounted to 62.271 billion yuan.

Despite the significant loss in the first half, NIO's share price rose instead of falling after the financial report was disclosed. By the close of trading that day, NIO's U.S. shares surged 14.39%, closing at $4.85 per share, with a total market value of $10.1 billion, once again exceeding the $10 billion mark. In contrast, Lixiang Auto, which generated a profit of 1.695 billion yuan in the first half, saw its share price plummet 16.12% on the day of its financial report disclosure.

According to Kanjian Finance's observations, NIO's rating was upgraded by multiple institutions after the financial report was disclosed, with JPMorgan Chase raising its ADR rating for NIO to Overweight and setting a target price of $8, leaving a 65% upside potential from the latest share price.

Comprehensive Recovery

Despite the significant loss, a closer look at the financial report reveals that NIO's various metrics actually showed signs of recovery in the second quarter.

Let's start with the most straightforward revenue and net profit figures. In the first half of the year, NIO incurred a net loss of 10.38 billion yuan, of which 5.126 billion yuan was incurred in the second quarter, a year-on-year increase of 16.26%. It can be seen that NIO's loss in the second quarter was significantly reduced compared to the same period last year. Additionally, NIO generated revenue of 17.45 billion yuan in the second quarter, a year-on-year increase of 98.89%. Compared to the 40.65% growth in revenue for the first half of the year, it is evident that the growth in revenue was primarily driven by the second quarter.

There are two main reasons for the substantial recovery in revenue and net profit in the second quarter:

First, NIO's sales volume increased significantly in the second quarter. According to statistics, NIO sold 57,373 vehicles in the quarter, setting a new quarterly sales record. Notably, unlike in the past when it relied heavily on the ET5, NIO's main sales model in the second quarter was the ES6. Statistics show that sales of this model increased from less than 3,000 units in February to 8,094 units in August, with ES6 sales accounting for 37% of total sales in the second quarter.

Second, NIO's costs decreased in the second quarter, leading to a notable recovery in gross margin. According to the financial report, NIO's actual gross margin on vehicle sales was 12.2% in the second quarter, exceeding market expectations. Specifically, the cost per vehicle was 240,000 yuan, and the gross margin per vehicle increased to 33,000 yuan, a significant improvement over the previous quarter.

The reason for the cost reduction is attributed to the decrease in upstream material costs, as stated in the financial report. From the perspective of the entire new energy vehicle industry chain, due to a significant increase in production capacity, the current situation is one of oversupply, resulting in price reductions across the upstream battery industry chain. Even CATL, a major battery supplier, has lowered its prices. NIO renegotiated its supplier contracts in the second quarter, benefiting from the cost reductions in the upstream battery industry chain.

Apart from its vehicle sales business, NIO's "other" business segment also performed impressively. In this quarter, NIO's overall gross margin was 9.7%, while the gross margin of its "other" business segment improved by 6.4% quarter-on-quarter to -12.3%.

The narrowing of losses in the "other" business segment is primarily attributed to the increased utilization rate of battery swap stations and enhanced profitability in after-sales services. Previously, NIO's battery swap station business had been a "burden" on its accelerated development. However, as sales have increased and the "Battery as a Service (BaaS) Alliance" collaboration has expanded, the outlook for the battery swap station business is becoming increasingly promising. According to management estimates, the gross margin of the "other" business segment is expected to continue to improve in the coming quarters, approaching -10%, further reducing losses.

From the current perspective, NIO's performance in the second quarter has indeed improved, especially with the initial establishment of its battery swap station moat, which has given NIO more influence in the high-end electric vehicle market.

However, for NIO, this improvement in performance is just the beginning. While the outlook appears promising, NIO cannot stop until it achieves true profitability.

Expectations vs. Reality

Along with the disclosure of its financial report, NIO also provided its outlook for the third quarter:

It is expected to sell 61,000 to 63,000 vehicles in the third quarter. Given that sales in July and August were both around 20,000 units, this guidance implies sales of 20,000 to 23,000 units in September.

As the Ledo L60 is scheduled to begin deliveries in late September, and given July and August sales of around 20,000 units, it should not be difficult for NIO to meet its third-quarter sales guidance. However, market expectations are undoubtedly higher than simply 3,000 monthly sales.

As a competitor to Tesla's Model Y, the Ledo L60 offers advantages in size, with more interior space and a longer wheelbase. In terms of pricing, the Ledo L60 has a starting price of 219,900 yuan, which is 30,000 yuan lower than the entry-level Model Y. If the final price includes rental discounts (which have not yet been confirmed), the Ledo L60's price could drop directly into the 150,000 yuan range, making it highly cost-effective. Moreover, the Ledo L60 supports both 900V high-voltage fast charging and battery swapping, giving it access to over 1,000 battery swap stations and more than 25,000 NIO-owned charging piles nationwide, making it almost as competitive as NIO's high-end models.

In terms of sales channels, Ledo continues to adopt a direct sales model. Its layout includes not only business districts and traditional 4S stores but also auto malls. Currently, there are already 105 Ledo L60 dealerships nationwide.

Li Bin is quite optimistic about the prospects for the Ledo L60 – "This year, we aim to prepare our supply chain for monthly deliveries of 10,000 Ledo L60s, with the expectation of achieving monthly deliveries of 20,000 units next year. We will gradually increase production thereafter, ultimately aiming for monthly deliveries of 30,000 units." Precisely because of such expectations, even though marketing expenses in the first half of the year reached 6.754 billion yuan, an increase of 1.42 billion yuan from 5.334 billion yuan in the same period last year, NIO's share price still surged after the financial report was disclosed.

In essence, NIO is currently in a similar situation to several years ago when it focused on gaining market share despite losses. The greater the current investments and losses, the more promising the future appears.

However, these are merely expectations. Ultimately, there is still considerable uncertainty as to whether the Ledo L60 will be a big hit. After all, the 150,000 to 250,000 yuan price range is highly competitive, and NIO may need to face challenges from new energy giants such as Tesla and BYD. While the Ledo L60 does have a certain degree of competitiveness in terms of its product offerings, it is unlikely that Tesla and BYD will readily cede their market share.

Essentially, the automotive industry is scale-driven. While NIO's sales have remained stable at around 20,000 units in recent months, it is still incurring losses. In other words, NIO needs to increase its sales volume significantly to achieve profitability, and the Ledo L60 is crucial in expanding sales and helping NIO emerge from its loss-making predicament. Nevertheless, expectations are just that – expectations. Only time will tell whether the Ledo L60 will be a hit and help NIO overcome its challenges.