Maintain HOLD. NIO still targets 4Q25 breakeven despite a wider net loss YoY in 1Q25. We are of the view that management’s breakeven assumptions are a bit unrealistic. Unlike its peers, we are of the view that NIO’s heavier investments in battery swap, sales channels and other unnecessary projects require a much higher sales volume to achieve breakeven.
1Q25 earnings miss on SG&A. NIO’s 1Q25 revenue was 2% lower than our prior forecast. GPM in 1Q25 was 0.7ppts lower than our projection, mainly due to the vehicle GPM miss. Operating loss of RMB6.4bn in 1Q25 missed our forecast by RMB1.0bn, as SG&A expenses were RMB0.9bn higher than expected. That also led to a miss of RMB1.3bn for net loss.
Company’s 4Q25 breakeven assumption a bit ideal. Management’s target for 4Q25 breakeven is based on the following key assumptions: sales volume of 150,000-160,000 units, GPM of 17%, R&D ratio of 7% and SG&A ratio of 10%. We are of the view that such assumptions are unlikely to become reality, especially for SG&A. It requires NIO to quadruple its sales volume from its 1Q25 level with a 15% reduction in SG&A from the 1Q25 level of RMB4.4bn. We cut our FY25E sales volume forecast by 30,000 units to 350,000 units, taking the Onvo models’ contribution into consideration. That also implies a sales volume of 235,000 units in 2H25E, or an average monthly volume of about 40,000 units in 2H25E. We project FY25E vehicle GPM to be 14.7% (NIO: 17.1%, Onvo: 11.4%, Firefly: 8%). We also cut R&D and SG&A expenses forecasts following management’s cost reduction efforts. That would still result in a net loss of RMB16.2bn in FY25E, or RMB0.2bn higher than our prior forecast, as we cut sales volume forecast.
FY26E breakeven still unlikely. We reiterate our prior argument that an annual sales volume of 0.5mn units is not enough for NIO to achieve breakeven. Compared with its peers, NIO’s heavier investments in battery swap and sales channels either drag its GPM or SG&A quite significantly, in our view. We project NIO’s FY26E sales volume to be 0.47mn units and net loss to be RMB9.4bn.
Valuation/Key risks. We maintain our HOLD rating and trim target price from US$5.00 to US$4.00, based on 0.7x (prior 0.8x) our FY25E revenue estimates, as we revise up our FY25E net loss forecast. We believe NIO deserves a lower P/S multiple than Li Auto (1.3x FY25E) and Xpeng (1.6x FY25E), as NIO has much worse profitability. We also add HOLD rating and target price of HK$31.00 for NIO’s H-share, as it is convertible with its US ADS. Key risks to our rating and target price include higher or lower sales volume and margins than we expect, as well as a sector re-rating or de-rating.