Maintain HOLD. We are of the view that NIO’s R&D and SG&A expenses in 4Q25 are hard to sustain. As the Onvo L90 has likely been a one-hit wonder, we are concerned if any new models would follow the pattern given China’s highly competitive market. We think NIO’s profitability still trails its peers.
R&D, SG&A expenses significantly below our expectation. NIO’s revenue rose 76% YoY to RMB34.7bn in 4Q25, 0.2% lower than our prior projection. GPM rose by 3.7ppts QoQ to 17.5% in 4Q25, or 0.1ppt higher than our expectation. NIO recorded a non-GAAP operating profit of RMB1.25bn in 4Q25, higher than its previous profit alert of RMB0.8-1.2bn. R&D and SG&A expenses were about RMB0.5bn and RMB1.6bn lower than our estimates, respectively, which was the main reason for the earnings beat. NIO posted its first-ever net profit of RMB122mn in 4Q25.
FY26 still challenging amid competition, AI race and component price volatility. We view NIO’s 4Q25 R&D and SG&A difficult to sustain, as it appears that management tried their best to deliver its previous breakeven guidance. We revise down our FY26E sales volume forecast by 10,000 units to 460,000 units due to the Onvo L90’s recent sales plunge, which is still in line with management guidance of 40-50% growth. We are concerned whether the ES8 could follow the same pattern, although we still project a sales volume of 80,000 units for the ES8 in FY26E. We believe management’s 1Q26 GPM guidance of being flat QoQ is largely due to the ES8. Should the ES8 sales volume decline at a faster pace, NIO’s FY26E GPM could be under pressure. We also project its R&D and SG&A expenses to be RMB9.9bn and RMB15.5bn (12% of revenue) in FY26E, respectively, taking AI race and operating costs of NIO House into account.
Earnings/Valuation. We project NIO’s FY26E GPM to be 16.3% with a sales assumption of 460,000 units and 60% being the ES9, ES8, ES7, L90 and L80. We still project a net loss of RMB3.8bn for FY26E. We acknowledge NIO’s competitive edge in building brand value, which could result in greater marginal sales increase when cutting prices, as what occurred to the redesigned ES8 last year. However, such advantage is not free. Management mentioned that battery swap could mitigate the lifespan mismatch of battery and vehicle by continuously upgrading batteries, which is at the cost of the company’s profitability. We maintain our HOLD rating and cut our ADR prices slightly from US$6.40 to US$6.00 (translating into HK$47.00 for H-share), still based on 0.8x our revised FY26E revenue. 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.