Nio Stock's 12% Surge: A Contrarian Case for Long-Term Growth

The recent 10.84% surge in NIO Inc. (NYSE: NIO) stock on July 22, 2025, marked a pivotal moment for investors. After a 21% decline year to date, the stock's rebound—driven by the unveiling of the ONVO L90 and aggressive cost-cutting measures—signals a potential inflection point. While skeptics may dismiss this as a short-term rally, a deeper analysis reveals a compelling case for Nio as a contrarian buy.

Contrarian Valuation: Undervalued Amidst a Cost-Cutting Overhaul

Nio's Price-to-Sales (P/S) ratio of 1.09 places it in a unique position within the EV sector. While this ratio is above the industry median of 0.87, it is significantly lower than Tesla's 11.98 and even BYD's 1.263. Analysts argue that Nio's valuation is constrained by its current unprofitability, but this ignores its aggressive cost-restructuring. The company has slashed R&D and marketing expenses through cross-brand integration and organizational streamlining, improving vehicle margins to 10.2% in 2025 from 9.2% in 2024.

Compare Nio's P/S ratio to its peers: ZEEKR trades at 0.64, and XPeng at 2.58. Nio's valuation appears to reflect its past struggles rather than its forward-looking potential. With a target of breakeven by Q4 2025 and a projected 94% delivery growth in 2025, the stock's current discount to revenue suggests a margin of safety for long-term investors.

Accelerating Delivery Growth: Sub-Brands as a Catalyst

Nio's expansion into sub-brands like Onvo and Firefly has transformed its growth trajectory. The Onvo L90, priced at $27,000 under the Battery-as-a-Service (BaaS) model, has already driven 17,081 deliveries in Q1 2025. Firefly's focus on premium compacts added 7,843 units to the first-quarter tally, contributing to a 30% year-over-year delivery surge.

These sub-brands are not just volume plays—they're strategic. By targeting mass-market and premium segments simultaneously, Nio is diversifying its revenue streams. The BaaS model, which reduces upfront costs for buyers, is particularly appealing in China's competitive EV market. With 3,131 battery swap stations nationwide, Nio's infrastructure ensures that these sub-brands retain their value proposition through rapid battery swaps.

Battery Swapping: A Transformative Edge

Nio's battery-swapping network is its most underrated asset. While competitors like Tesla and BYD focus on fast-charging, Nio's 85-kWh battery swaps—now averaging 61 swaps per station daily in Shanghai—offer a logistical and user-experience edge. Analysts at Western Securities estimate that the network could break even by 2026 as utilization rates climb.

The BaaS model's scalability is key. By leasing batteries instead of selling them, Nio reduces capital intensity while locking in customers for recurring revenue. This approach also allows users to upgrade to newer battery tech without purchasing a new vehicle, creating a flywheel effect. With partnerships with CATL and Sinopec to expand the network to 10,000 stations, Nio is building a moat that rivals cannot replicate.

Why Now? A Strategic Inflection Point

Nio's recent 12% rally was fueled by three factors:
1. Product Momentum: The ONVO L90's July 2025 launch targets a $39,000 price point, competing directly with mid-tier EVs.
2. Cost Discipline: Operational restructuring has cut losses from $930 million in Q1 2025 to projected breakeven by year-end.
3. Global Expansion: Nio's European push, supported by its sub-brands, is opening new revenue channels.

Despite these positives, Nio remains undervalued. Its P/S ratio of 1.09 is below Tesla's 11.98 but still reflects a company in transition. For contrarian investors, this is a rare opportunity to buy a high-growth EV play at a discount.

Investment Thesis: A Long-Term Play

Nio's path to profitability hinges on three pillars:
- Delivery Growth: Targeting 440,000 units in 2025 (up from 222,000 in 2024).
- Margin Expansion: Vehicle margins are expected to climb to 12% by 2026.
- Network Scalability: A break-even battery swap business by 2026.

While risks remain—intense competition, macroeconomic headwinds, and regulatory challenges—the fundamentals are compelling. For investors with a 3–5 year horizon, Nio's strategic positioning in the EV ecosystem, coupled with its undervalued P/S ratio, makes it a high-conviction buy.

In a sector dominated by short-term volatility, Nio offers a rare blend of innovation, cost discipline, and long-term vision. The recent 12% surge is not just a rebound—it's a signal that the market is beginning to recognize Nio's potential. For those willing to bet on a transformative EV infrastructure and disciplined execution, NIO could deliver outsized returns in the years ahead.