Challenges remain despite 4Q25 beat on opex

NIO Inc. (NIO US/9866 HK) Challenges remain despite 4Q25 beat on opex Maintain HOLD.We are of the view that NIO’s R&D and SG&A expenses in4Q25are hard to sustain.As the OnvoL90has likely been a one-hit wonder,we are concerned if any new models would follow the pattern given China’shighly competitive market. We think NIO’s profitability still trails its peers. R&D,SG&A expenses significantly below our expectation.NIO’srevenue rose 76% YoY to RMB34.7bn in 4Q25, 0.2% lower than our priorprojection.GPM rose by3.7ppts QoQ to 17.5% in 4Q25, or 0.1ppthigherthanour expectation.NIO recorded a non-GAAP operating profit ofRMB1.25bn in 4Q25, higher than its previous profitalert of RMB0.8-1.2bn.R&D and SG&A expenses were about RMB0.5bn and RMB1.6bn lowerthan our estimates, respectively, which was the main reason for theearnings beat. NIO posted its first-ever net profit of RMB122mn in 4Q25. China Auto FY26 still challenging amidcompetition, AI race and component pricevolatility.We view NIO’s 4Q25 R&D and SG&A difficult to sustain, as itappears that management triedtheirbest to deliver its previous breakevenguidance. We revise down our FY26E sales volume forecast by 10,000units to 460,000 units due to the OnvoL90’s recent sales plunge, which isstillin line with management guidance of 40-50%growth.We areconcerned whether theES8could follow the same pattern, although westill project a sales volume of 80,000 units fortheES8inFY26E. Webelieve management’s 1Q26 GPM guidance of being flat QoQ is largelydue to theES8.Should theES8sales volume decline at a faster pace,NIO’s FY26E GPM could be under pressure. We also project its R&D andSG&A expenses to be RMB9.9bnand RMB15.5bn (12% of revenue) inFY26E, respectively, taking AI race and operating costs of NIOHouseintoaccount. Earnings/Valuation.We project NIO’s FY26E GPM to be 16.3% with asales assumption of 460,000 units and 60% being theES9,ES8,ES7,L90andL80.We still project a net loss of RMB3.8bn for FY26E.Weacknowledge NIO’s competitive edge in building brand value, which couldresult in greater marginal sales increase when cutting prices, as whatoccurred to the redesignedES8last year. However, such advantageis notfree. Management mentioned that battery swap could mitigate the lifespanmismatch of battery and vehicle by continuously upgrading batteries, whichis at the cost of the company’s profitability. We maintain our HOLD ratingand cut our ADRprices slightly from US$6.40to US$6.00(translating intoHK$47.00 for H-share), still basedon 0.8x our revised FY26E revenue.Key risks to our rating and target price include higher or lower sales volumeand margins thanwe expect, as well as a sector re-rating or de-rating. Disclosures& Disclaimers AnalystCertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressedaccurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong KongSecurities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendardays prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% overnext 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International CapitalCorporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial positionor