Rising Global Tariffs Will Worsen EV Expansion Challenges

Key Takeaways

• Threats from protectionism, subsidy reductions, and intensified competition could limit NIO's international growth and put downward pressure on margins and demand.
  
• High R&D and infrastructure spending, along with inventory risks from a new sales model, jeopardize NIO's path to sustainable profitability.
  
• Enhanced sales growth, global expansion, and cost efficiency initiatives are expected to improve profitability, support recurring revenues, and reduce reliance on the domestic market.

Catalysts

Designs, develops, manufactures, and sells smart electric vehicles in China, Europe, and internationally.

• NIO's ambitious international expansion, particularly through partnerships in over 15 overseas markets, faces growing risk of disruption from rising global protectionism and increased trade barriers, especially as the EU and US implement tougher tariffs and regulatory scrutiny on Chinese EVs; this could significantly constrain future revenue growth outside China.
  
• The company's recent shift to an inventory-based sales model to compete more aggressively amid weaker consumer sentiment and price-based competition exposes NIO to the risk of elevated inventory levels and working capital strain; if demand softens further due to a slowdown in global economic growth or persistent inflation, sales growth could be materially weaker than projected, depressing future earnings.
  
• Tightly managed government incentives and the potential phasing out or reduction of subsidies for clean energy vehicles threaten to raise the effective purchase price for NIO's products, curbing demand and putting downward pressure on future top-line growth.
  
• Persistent heavy investment in research and development, in-house chip development, and battery-swapping infrastructure, while critical to maintaining technological edge, is driving sustained negative net margins and growing operational losses; unless significant cost reductions are realized rapidly, long-term profitability targets remain at risk, limiting the company's ability to sustainably generate positive earnings per share.
  
• Intensifying competition from other Chinese and global EV manufacturers is triggering more price cuts and compressed industry-wide margins; as legacy automakers and well-capitalized newcomers ramp up product launches and scale, NIO's ability to defend premium pricing and achieve targeted vehicle margins above 15 to 20 percent is vulnerable, raising the likelihood of further net margin compression in the coming years.

NIO Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on NIO compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming NIO's revenue will grow by 13.8% annually over the next 3 years.
• The bearish analysts are not forecasting that NIO will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate NIO's profit margin will increase from -35.8% to the average US Auto industry of 5.3% in 3 years.
• If NIO's profit margin were to converge on the industry average, you could expect earnings to reach CN¥5.3 billion (and earnings per share of CN¥2.23) by about July 2028, up from CN¥-24.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, up from -3.3x today. This future PE is lower than the current PE for the US Auto industry at 15.7x.
• Analysts expect the number of shares outstanding to grow by 2.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.48%, as per the Simply Wall St company report.

NIO Future Earnings Per Share Growth

Risks

• Robust sales growth for both NIO and the ONVO sub-brand, combined with the launch of multiple new models and ongoing product upgrades, could drive significantly higher delivery volumes, supporting improvement in overall revenue trajectory.
  
• Company-wide cost reduction programs, increased operational efficiency, and in-house technology innovation like the NX9031 smart driving chip are expected to meaningfully boost vehicle gross margins, setting up the potential for a return to sustained profitability and improved net margins over time.
  
• Expansion and enhancement of NIO's proprietary battery swap and charging infrastructure, now covering over 3,400 stations, establishes strong customer retention and repeat service revenue streams, which may lead to greater recurring earnings and higher customer lifetime value.
  
• NIO is actively pursuing international market expansion, using local partnerships across more than 15 core regions and launching global rollouts for brands such as FIREFLY, presenting the opportunity for diversified revenue growth and reduced dependence on the domestic China market.
  
• Management has outlined concrete breakeven targets for the fourth quarter of 2025, stating confidence in achieving positive cash flow and profitability through a combination of higher sales volumes, double-digit gross margins, and strict operating expense control, which if realized, could lead to significant improvement in net earnings and support share price appreciation.

Valuation

• The assumed bearish price target for NIO is $3.01, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of NIO's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.13, and the most bearish reporting a price target of just $3.01.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥100.0 billion, earnings will come to CN¥5.3 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 13.5%.
• Given the current share price of $4.92, the bearish analyst price target of $3.01 is 63.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.