NIO Inc. (NYSE:NIO) reported its second-quarter 2026 results on September 1, though it reflected the same tension that has been building around the company for months: operational improvement in China colliding with a European business that was continuously unraveling.
Q2 Results: Progress With Caveats
NIO Inc. shipped 107,658 vehicles in the second quarter of 2026, an increase of 49.4% year-over-year and 29.0% quarter-over-quarter across the NIO, ONVO, and Firefly brands. Revenue increased 69.1% year-over-year to 32.14 billion yuan, or around $4.74 billion, owing to better deliveries and an improved product mix, albeit revenue was nearly 2% below the company’s previous projection and fell short of Wall Street’s $4.95 billion consensus. Shares fell as much as 4.4%, trading at approximately $4.05-4.09, as investors focused on the revenue miss instead of the improved bottom line.
Vehicle gross margin was 18.5%, up from 10.3% the previous year and 18.8% in the first quarter, while overall gross margin increased to 18.4%, up from 10% in the second quarter of last year. Net loss fell to RMB0.5 billion, an 89.4% improvement year-over-year, though it increased 59% from the previous quarter, and adjusted net profit came in at RMB26.1 million, excluding share-based compensation. Management identified the ES8 and ES9 flagship SUVs as important drivers of the margin profile, with both generating vehicle margins of more than 20%, and underlined strong demand, including delivery wait periods of more than three months on certain ES9 variants.
Europe Remains the Weak Spot
None of this quarter’s progress changes the picture in Europe, where the data remains stark. NIO registered just three vehicles in Germany in July, down 93.6% year-over-year, bringing its first-seven-month total to 18, down 89.3%. In the Netherlands, NIO-brand registrations fell 87.9% to eight vehicles during the first seven months of 2026. Germany and the Netherlands, two of NIO’s oldest and most important European markets, recorded just 26 NIO-brand registrations combined in the first seven months of 2026. Norway has fared relatively well, with 211 combined NIO Inc. and Firefly registrations up until August 23, but even this bright spot couldn’t make up for the extent of the decline elsewhere.
Wall Street’s Mixed Reaction
The reaction wasn’t restricted to the initial earnings-day move. J.P. Morgan downgraded the stock following the report, setting a $4.50 price target and modeling a larger adjusted net loss of 2.34 billion yuan for 2026, compared to a prior forecast of a 512 million yuan loss, while also cutting delivery estimates to 430,000 units for 2026 and predicting flat-to-declining China passenger-vehicle demand in 2027. The firm said it continues to prefer BYD and Geely among Chinese automakers due to their stronger earnings resilience and broader global growth.
Hedge fund ownership fell from 31 funds in the first quarter to 27 in the second, predating the earnings report but reflecting the same cautious institutional posture that has lasted during NIO’s multi-month stock slump.
The Bull Case
The case for NIO Inc. is based on visible profitability progress: vehicle margins nearly doubling year-over-year, a third straight quarter of adjusted operating profit, and a narrower net loss all indicate that the company’s cost discipline and product-mix shift toward higher-margin models like the ES8 and ES9 are working. Management’s projection for stable margins in the second half, despite growing material costs, and its target of positive free cash flow indicate that this quarter’s improvement is sustainable rather than one-time. With China accounting for the vast majority of NIO’s business, ongoing success there could outweigh a stalled European operation that accounts for only a small fraction of total volume.
The Bear Case
That said, the revenue shortfall and J.P. Morgan’s post-earnings downgrade, indicate that at least some analysts see decreasing Chinese demand as a greater risk than the margin improvement balances. The sequential widening of net loss and the minor fall in gross margin from Q1 raise doubts about how consistent this profitability trend is quarter after quarter. Meanwhile, Europe remains a worsening rather than improving situation, with registration falls in Germany and the Netherlands showing little signs of reversing until 2027 model updates arrive, adding to broader concerns about NIO’s ability to perform outside of its home market.
Insider Monkey’s Verdict
The quarter gave proof that NIO’s core China business is moving toward sustainable profitability, but the revenue miss and persistent European decline show that the stock’s risks haven’t gone away. Investors should keep an eye on whether vehicle margins remain near 18.5% in the second half despite increased material costs, as management has indicated, and whether Q3 deliveries fall within the 108,000-111,000 range forecast. Europe remains a smaller but symbolically important gauge of execution risk, and any further delay to the 2027 model-refresh timeline would support the notion that foreign expansion is NIO’s biggest unresolved issue, even as China shows indications of improvement.
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