Maintain HOLD. Despite 3Q25 GPM beat, we still project a net loss in 4Q25. We think that management’s key assumption for FY26E underestimates competition and sales cannibalization. We project net losses in FY26-27E to narrow significantly, but sustainable profits are in doubt, in our view, which means NIO’s profitability still trails its peers.
3Q25 GPM beat with weak 4Q25 sales guidance. NIO’s 3Q25 revenue was in line with our prior forecast while its GPM was about 3.2ppts higher than our projection. The beat was probably due to higher margins from the ES6, EC6, ET5 and ET5T. SG&A and R&D expenses combined were about RMB120mn lower than our estimates. That, along with higher GPM and greater investment income, resulted in a net loss of RMB3.66bn in 3Q25, about RMB890mn narrower than our forecast. On the other hand, the company’s sales guidance of 120,000-125,000 units for 4Q25 was lower than its previous target of 150,000 units during 2Q25 earnings call.
4Q25 breakeven still unlikely. We believe that management has turned more cautious about 4Q25 non-GAAP breakeven now vs. 2Q25 earnings call. We believe NIO’s overall 4Q25 sales guidance and the ES8 sales target imply a sales volume peak in Oct 2025 (11,722 units) for the Onvo L90. Although we revise up our 4Q25 GPM forecast to 17.1% (with vehicle GPM of 17.9%, in line with its guidance of 18%), we still estimate a GAAP net loss of RMB1.6bn and a non-GAAP net loss of RMB0.7bn in 4Q25, as we believe it is unrealistic to control its non-GAAP SG&A expenses in 4Q25 at a similar level as in 3Q25 given QoQ sales volume growth of 40+%.
Linear extrapolation is not suitable given China’s highly competitive auto dynamics. Management aims to turn profitable in FY26E with a vehicle GPM assumption of 20%, as it believes more large-size SUVs (the NIO ES8, Onvo L90 and three new models in FY26E) would improve product mix next year. Such assumption has a key prerequisite: strong sales volume, which requires very competitive pricing in China. As almost all Chinese automakers have large-size SUV models on sale, competition will likely make high margins unsustainable, as we have seen many times. In fact, almost no automakers in China could now maintain a GPM of 20%.
Valuation/Key risks. We maintain our HOLD rating and cut our ADR/Hshare target prices from US$7.00/HK$55.00 to US$6.40/HK$50.00, based on 0.8x (prior 0.9x) our revised FY26E sales to reflect the recent weak market sentiment on Chinese auto sector. 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 and de-rating.