China’s electric vehicle (EV) industry is evolving at a breakneck pace. Battery swapping is emerging as a game-changing solution to charging challenges. Leading the charge is NIO Inc. NIO, which has taken another bold step forward by partnering with Contemporary Amperex Technology Co (“CATL”), the world’s largest EV battery manufacturer, to supercharge its battery swap network.

The deal was announced yesterday, ahead of NIO’s fourth-quarter results on Friday. NIO and CATL aim to jointly build the world’s largest and most advanced battery swap network for passenger cars. Given this development, is NIO stock a buy now ahead of its earnings report? Let’s find out.

Battery-Swapping Tech: NIO Has an Edge in the Game

One of the biggest hurdles for EV adoption remains charging time. Unlike traditional charging stations, battery swapping allows drivers to replace depleted batteries with fully charged ones in just minutes — eliminating the hassle of long charging waits.

While the concept of battery swapping has been around for years, it is finally gaining serious traction, particularly in China, where government policies and automaker investments are accelerating its growth. China aims to have over 16,000 battery swap stations by 2025, and by 2030, some experts predict battery swapping could account for up to 10% of the global EV market. With hundreds of millions of battery swaps expected annually, this presents a massive opportunity for NIO.The company operates the largest battery swap network currently, with 3,172 stations in place.

The latest collaboration with CATL will reinforce NIO’s leadership in battery swapping. CEO William Li has called this a "pivotal moment," underscoring the partnership’s significance in pushing battery swapping into a new phase of growth.

The partnership will enhance battery swap network sharing across different brands and models, accelerating the adoption of battery swapping through unified battery standards. It will expand the deployment of CATL’s Choco-Swap technology into NIO’s upcoming Firefly brand. Additionally, the deal provides a financial boost to NIO and strengthens capital synergies, with CATL investing up to RMB 2.5 billion in NIO Power—the company’s energy division.

What Else is Working in NIO’s Favor?

Beyond battery swapping, NIO is making strides in multiple areas.

Expanding Vehicle Lineup: NIO currently offers nine premium electric models under the namesake brand (ES6, ET5T, ES8, EC6, EL7, ET5, ET7, EC7 and ET9). It expanded beyond its luxury lineup with the launch of a more affordable ONVO brand last year. L60, ONVO’s first product, commenced deliveries late in September. The Firefly brand is also set to hit the market soon, targeting entry-level consumers.

Strong Delivery Growth: NIO delivered 221,970 units in 2024, indicating an uptick of 30.7% year over year. Cumulative deliveries of NIO reached 698,619 vehicles as of Feb. 28, 2025. The company expects deliveries to double in 2025, fueled by new model launches and brand expansion.

Improving Margins: NIO’s vehicle margin has been on an upward trajectory, rising from 9.2% in the first quarter of 2024 to 12.2% in the second quarter and 13.1% in the third quarter. The company aims to hit 15% in the fourth quarter of 2024, driven by cost optimizations in components and supply chain efficiencies.

Path to Breakeven: NIO expects its losses will narrow in 2025 and aims to achieve breakeven by 2026. If execution aligns with expectations, profitability could be achieved sooner than many skeptics anticipated.

Challenges in NIO’s Path

NIO’s cash reserves are shrinking, falling from RMB 32.9 billion in December 2023 to RMB 23.7 billion in September 2024. On top of it, NIO is battling high R&D and expansion costs. While it aims for higher EV sales this year, rising expenses from ONVO’s expansion and Firefly’s launch could hurt margins. As it is, the company is up against formidable rivals such as XPeng XPEV, Li Auto LI and BYD Co ltd BYDDY. Price wars in China’s EV sector could put pressure on margins and force further discounts. Additionally, tariffs, trade tensions, and supply chain disruptions could impact NIO’s expansion plans and profitability.

NIO Stock Price Performance & Valuation

On a year-to-date basis, shares of NIO have surged 19%, outperforming the industry and LI but underperforming XPEV and BYDDY.

YTD Price Performance Comparison

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NIO is currently trading at a forward sales multiple of 0.72, lower than XPEV, BYDDY and LI.  

NIO Looks Relatively Undervalued 

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Should You Buy NIO Stock Now?

For long-term investors, NIO’s battery swap strategy and ambitious growth plans make it a compelling play in the EV market. The partnership with CATL strengthens its technological and financial standing, setting the stage for future success. However, risks remain, and new investors may want to wait for clearer signs of sustained profitability. For existing shareholders, holding onto NIO stock seems reasonable, given the company’s strong positioning in China’s premium EV segment and its progress toward profitability.

Ultimately, NIO’s success will depend on how well it executes its expansion plans, controls costs and navigates industry challenges. If the company can hit its margin and delivery targets, its current price (hovering around $5) could look like a bargain in hindsight.

The Zacks Consensus Estimate for NIO’s 2025 top and bottom line implies an improvement of 46.3% and 28.2%, respectively. The company currently has an average brokerage recommendation (ABR) of 2.72 on a scale of 1 to 5 (Strong Buy to Strong Sell).

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NIO stock carries a Zacks Rank #3 (Hold) currently.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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