Nio (NIO) stock is up over 50% for the year, which is a welcome break for investors, as the stock closed in the red in the previous four consecutive years and trades at a fraction of its 2021 highs. Nio looked doomed for yet another year in the red, but the stellar rally over the last three months has helped the stock move higher. While the optimism towards Chinese shares has helped Nio’s rally, the company has also finally impressed with its execution.

Nio released its Q2 2025 earnings Tuesday, Sept. 2, and while the stock initially fell after the confessional, it eventually closed 3.1% higher. In this article, we’ll look at some of the key takeaways from Nio’s Q2 earnings and examine whether the stock’s rally still has wings.

Nio Missed Q2 Earnings Estimates

Nio reported revenues of $2.65 billion in Q2, a year-over-year (YoY) rise of 9%. However, the metric fell short of the $2.73 billion analysts had forecast. Its vehicle margin also fell slightly on a sequential basis, while the adjusted loss per share of $0.32 was a tad higher than consensus estimates.

Nio is battling an intense price war in China, and while the company once stated that it had no intention of joining the price war, it too had to cut vehicle prices to stay competitive. The price war situation is not expected to get better anytime soon, even as market leader BYD (BYDDY) has rolled back the steep price cuts that it had announced in May. In the most recent instance, Tesla (TSLA) has slashed the price of its Model 3 rear-wheel drive in China as the Elon Musk-run company grapples with weak sales in the country.

Nio’s Guidance Was Quite Promising

While Nio’s Q2 earnings were tepid at best, the guidance was quite upbeat, and it forecast deliveries of 150,000 in Q4. For context, the company delivered 72,056 vehicles in the second quarter, and even the top end of its Q3 guidance calls for deliveries to rise to 91,000.

The management expects vehicle gross margins to rise to between 16% and 17% in the final quarter of the year, compared to 10.3% in Q2. Moreover, it reiterated its previous guidance of achieving breakeven on adjusted profits in Q4.

These are ambitious forecasts given where things stand today. However, the optimism is driven by several factors. Firstly, Q4 would be the first full quarter of sales for Nio’s L90, whose deliveries have already commenced, and the ES8, which would be officially launched later this month. Nio sold 10,575 L90s in August and said that the demand for both these models exceeds its expectations. L90 and ES8 have higher margins, and Nio expects them to deliver a gross margin of 20% in Q4.

Higher sales mean better capacity utilization and would help Nio lower its fixed production costs per unit. The company has also lowered its cost base and optimized the supply chain, which would help buoy margins.

NIO Stock Forecast

Nio’s Q2 earnings were received well by Wall Street, and US Tiger Securities raised Nio’s target price from $5 to $8. Mizuho also raised its target price from $3.5 to $6 while maintaining its “Neutral” rating. Citi was also upbeat on the company’s performance and expects Nio to post positive free cash flows in the back half of the year.

Previously, J.P. Morgan upgraded NIO to “Overweight” heading into the Q2 earnings and raised its target price to $8. While Nio trades above its mean target price of $4.86, more analysts should raise the stock's target price amid strong sales of its new models.

How High Can NIO Stock Go?

As I noted previously, L90 was perhaps Nio’s last chance to prove its mettle in the hyper-competitive Chinese EV market. The model hasn’t disappointed, with sales topping 10,000 units in August, the first full month of launch.

NIO still does not look expensive at a forward price-to-sales (P/S) multiple of 1.07x, and if the company can deliver (or even come close) to the kind of numbers it is predicting for Q4, the stock should head higher from these levels.