NIO Inc. (NYSE: NIO) is approaching a critical window where both scale expansion and profitability improvements are expected to advance together.

At the second-quarter 2026 earnings call, management signaled several key developments surrounding the performance of its flagship models, gross margin resilience, the push to build out the Onvo brand, and the company’s medium- to long-term growth strategy. Despite sustained upward pressure from raw material and chip costs, vehicle gross margin held at 18.5% in Q2, with non-GAAP operating profit marking a third consecutive quarter in positive territory.

CEO William Li noted that China’s automotive market is shifting rapidly from being product-driven to brand-driven. NIO’s brand positioning in the premium battery-electric segment priced above RMB 300,000 has established a notable competitive advantage. However, cost challenges persist: per-vehicle costs have risen around RMB 14,000 since the end of last year, and are expected to climb a further RMB 2,000 to RMB 3,000 in the second half. The company still aims to keep gross margins stable.

In terms of forward guidance, NIO has laid out a more ambitious growth trajectory. Average monthly deliveries in Q4 are targeted to surpass 40,000 vehicles. Over the medium to long term, annual delivery growth is expected to sustain at a 40% to 50% clip. For Q3, the company guides deliveries in the range of 108,000 to 111,000 units.

Flagship models power premium positioning, with average selling price now above BBA

Flagship models continue to serve as the backbone of NIO brand growth and profitability.

During the call, Li revealed that the new ES8 delivered roughly 10,000 units in August. Cumulatively, the model has reached 140,000 deliveries just 11 months after launch, with a 150,000-unit milestone expected to be achieved in September. Demand for the ES9, the premium executive SUV that began deliveries in late May, remains strong, with wait times for popular trims of three to four months. Order intake from July to August actually increased on a sequential-month basis.

Notably, about three-quarters of ES9 buyers come from outside the NIO ecosystem, suggesting the model is drawing in a fresh set of premium customers. Li also cited data from the insurance association showing NIO brand’s average transaction price reached RMB 406,000 in Q2, surpassing Mercedes-Benz, BMW and Audi, ranking first among mainstream luxury marques. That figure climbed above RMB 430,000 in July.

Management attributes the strength of its flagship models to four key pillars: product differentiation driven by technological innovation, precise coverage of high-end business and family use cases, the system-level advantages of battery swapping and after-sales service, as well as brand equity built up over many years. Li said that brand reputation now accounts for more than 30% of purchase decisions among existing NIO users. Additionally, NIO has ranked first in the J.D. Power after-sales satisfaction survey for new energy vehicles for several consecutive years.

Onvo’s core challenge lies in brand awareness; rising costs will test margins

Compared with the NIO brand, Onvo’s main obstacle is not product strength but rather brand recognition.

Addressing Onvo’s relatively moderate order ramp, Li acknowledged that competitive intensity in Onvo’s segment is significantly higher than for NIO and Firefly. Still, the brand’s overall performance remains encouraging. In the first half of this year, only eight brands in China’s passenger vehicle market managed to grow both sales and average selling price. Onvo was among them, achieving an average transaction price of RMB 240,000, exceeding that of some traditional premium brands.

Li compared Onvo’s current level of brand awareness to NIO’s position five or six years ago, asserting that conversion rates are solid once consumers actually learn about the brand and product. Going forward, the company will focus on expanding brand exposure through cross-industry partnerships, offline activities, and community-building. It will also push ahead with the “Sky Store” outlet strategy, consolidating all three brands — NIO, Onvo and Firefly — under one roof while extending reach into lower-tier cities. Onvo is also preparing a major strategic new product for next year. However, the company made explicit that it will not chase volume by sacrificing gross margins or resorting to entry-level pricing.

On the cost front, pressure remains significant. CFO Stanley Qu said per-vehicle costs had risen by about RMB 14,000 since the fourth quarter of last year, driven by memory chips, batteries and other bulk commodities. In the second half year, an additional RMB 2,000 to RMB 3,000 per vehicle is anticipated.

Despite these headwinds, NIO has managed to stabilize vehicle gross margin at 18.5% in Q2 through supply chain efficiency, commercial negotiations and product mix management. The company intends to defend this level in Q3 and Q4. The ES8 and ES9 are notable contributors, with vehicle gross margins for both models exceeding 20%.

On expenses, the elevated SG&A ratio in Q2 was mainly driven by roughly RMB 500 million in one-off costs tied to a dense period of new product launches. With no such charges expected in the second half, the non-GAAP SG&A expense ratio is projected to ease to 10%–11%, down from approximately 13% in the first half. R&D expenditure is expected to remain around RMB 2.5 billion per quarter, with flexibility to adjust based on project progress.

Battery swapping network moves toward commercialization; all three brands to expand lineups in 2027

Battery swapping is transitioning from infrastructure build-out to monetization. Li said the fifth-generation swapping station costs about RMB 1.4 million per station, excluding batteries and high-voltage power supply costs, roughly RMB 100,000 cheaper than the fourth generation. To date, NIO has built 4,123 swapping stations. The fifth-generation units are compatible with all models across the NIO, Onvo and Firefly brands, and first-pass success rates have improved by around 50% over the same period last year.

The company is also exploring collaboration with Robotaxi operators, positioning swapping infrastructure as a foundation for autonomous mobility services. New swapping infrastructure added this year is expected to be financed mainly by the more than 40 state-owned enterprises and financial institutions participating in the “battery swap partner” program, meaning NIO itself will not need to shoulder direct capital expenditures.

On the product front, the NIO brand will introduce new 5-series and 6-series models in 2027. Onvo will launch a major strategic product, while Firefly will stick to a “single model plus special editions plus technology upgrades” approach.

Autonomous driving monetization is also starting to gain scale. A software update rolled out on June 18 reached more than 700,000 NIO and Onvo users. Among ET7 owners, approximately 58% have used intelligent driving features on more than half of their journeys. Used-car buyers and users whose five-year free service period has expired can subscribe to the intelligent driving package at RMB 380 per month. Penetration among that cohort stands at about 20%, contributing tens of millions of RMB in annual revenue.

Additionally, NIO’s head of intelligent driving, Ren Shaoqing, is in the process of founding a startup focused on embodied AI. NIO will participate as a strategic shareholder, while Ren continues to oversee the company’s autonomous driving operations. Li said the arrangement is designed to track frontier developments in embodied intelligence, attract top AI talent, and explore future collaboration opportunities.