The company attributed the gross margin improvement in the recent quarter to the growth in 'revenue per vehicle' and cost savings brought about using a different battery, specifically the '75kWh LFP NCM hybrid battery.' In terms of profitability, NIO disclosed at its recent quarterly earnings briefing that its vehicle gross margin improved by +280 basis points QoQ and +360 basis points YoY to 20.9% in Q4 2021. As NIO didn't launch any new models last year, its top line expansion has trailed its key Chinese EV peers. On a YoY basis, XPEV and LI's revenue growth rates were also relatively faster at +200% and +156%, respectively in the recent quarter.

( LI), expanded by +50% QoQ and +36% QoQ, respectively in local currency terms in Q4 2021. As a comparison, revenue for its peers, XPeng Inc. On the flip side, NIO's revenue only grew by a marginal +1% on a QoQ basis in the fourth quarter of last year. The company's Q4 2021 revenue was largely in line with market expectations, as it exceeded the market consensus' sales forecast by +1.5%. There are three key metrics for NIO that investors should focus on, namely revenue, vehicle gross margin, and deliveries.Īs per its Q4 2021 financial results press release, NIO's top line increased by +49% YoY from RMB6,641 million in the fourth quarter of 2020 to RMB9,901 million in the most recent quarter. Considering the above-mentioned factors, I have a Hold investment rating for NIO, instead of a Buy or Sell. NIO's valuations have become more reasonable (single-digit EV-to-Revenue) following the correction in its stock price, but the stock is still more expensive than its Chinese EV peers. But slower-than-expected top line growth and a delay in the company's path to profitability (net profit level) in the years ahead are the key downside risks, assuming that it is less successful in mass-market penetration than what investors would expect. In five years' time, Chinese electric vehicle or EV maker NIO will be larger in size (revenue base) and witness an improvement in its profitability (gross margin expansion and becoming profitable at the net profit level).

I assign a Hold rating to NIO Inc.'s ( NYSE: NIO) shares. Andy Feng/iStock Editorial via Getty Images Elevator Pitch

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