Nio Touts First Adjusted Profit -- Here's What It Isn't Saying

Over the past four months Nio (NYSE: NIO) has shed roughly 35% of its value, giving risk-tolerant investors an opportunity to scoop up shares of a promising Chinese electric vehicle (EV) maker. The great news for potential investors is that Nio is turning a corner and is about to post its first adjusted profit thanks to consistently improving margins. Despite the great news, and it is, there is a downside that comes with Nio and its margins.

Turning the corner

Nio is taking a big step forward for investors as it anticipates, based on preliminary data, to report its first-ever adjusted profit from operations between $100 million and $172 million for the fourth quarter of 2025. It's a big step and sets the stage for the company to reach its goal of achieving at least breakeven for the full-year 2026.

Image source: Nio.

Getting to this point was made possible by Nio's rising margins and consistent growth in sales volume, especially as its two newer sub-brands Onvo and Firefly gain traction. Nio ended on a high note with sales surging 54.6% in December compared to the prior year, to a new monthly high of 48,135 deliveries. Fourth-quarter 2025 sales jumped an even stronger 71.7% compared to the prior year, to nearly 125,000 vehicles.

Despite its newer brands often selling at lower prices than its namesake premium Nio brand, and an ongoing price war in China's EV industry, its gross margins have made consistent progress over recent years.

NIO Gross Profit Margin data by YCharts

Nio recently announced it would report an adjusted profit from operations for the first time and investors should be more optimistic about its path forward. However, there is also more for investors to consider.

What's the catch?

While Nio has consistently improved its gross profit margins, and should continue to do so, it's also true that it consistently trails its nearest competitors in operating margin.

NIO Operating Margin (TTM) data by YCharts

One reason Nio comes up short compared to competitors is the financial drain of its battery swapping network. The difference is essentially that gross profit margin will indicate product profitability while operating profit margin goes a step further and includes indirect operating expenses, such as rent, salaries, or marketing.

The simple premise was to swap fully charged batteries out to consumers needing to recharge, essentially done as quickly as refilling a gasoline tank. The drawback is that the battery swap network is vast and requires significant upfront capital investment, as well as ongoing operating costs such as rent, maintenance, and battery inventory, which have weighed on the company's financials.

It's true that Nio's battery swap network could one day become a significant competitive advantage, but currently it's mostly a high-cost pile of uncertainty. Right now due to the low number of Nio vehicles on the road opting for battery-as-a-service (BaaS) and the increasing quality of substitute products such as fast-charging options, Nio's battery swap network will have a tough time pushing toward profitability. Ultimately, Nio's announcement of its first adjusted profit is great news, so long as investors keep the big picture in mind and understand that Nio may trail its competitors' operating margin for the long term.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.