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Historical detractors appear resolved Upgrade to BUY.NIO’s 1Q26 earnings beat our estimates largely due toitsstrong GPM. It appears to us that NIO’s cost reduction efforts this time are notshort-lived, which hasresolved our previous concerns including low GPM forother revenueandhighopex due toinvestments in unnecessary areas. Thesuccess of theES8is also alearning experiencefor NIO when launching new China Auto 1Q26 earnings beat on GPM.NIO’s 1Q26 revenue surged 112% YoYamid a 98% YoY growth in sales volume, or 2% lower than our priorforecast. GPM widened to 19.0% in 1Q26, the highest since 4Q21,or1.7ppts higher than our projection.SG&A and R&D expenses were slightlylower than our forecast, which resulted in an operating loss of RMB309mn Consistent cost reduction efforts and improving GPM lead to betterearnings visibility.In the past, we were concerned about NIO’s higher-than-peers expenses due to its heavy investments in unnecessary areasand short-lived sales boom for new models. Now,they seem to beresolved.NIO’s restructuring since FY25 has led to sustainable costreduction.Even GPM for other revenue, which significantly dragged overallGPM in the past,reached 20.6% in 1Q26. Management expects such GPMto continue throughout the year.TheES8’s sales momentumalsoappearsto be longer than its other models in the past.We maintain our FY26E sales Better positioned than peers amid raw-material cost hikes, aided byits premium brand image.We agree with management that Chineseconsumersnow have clearer labels for so-calledNEV start-up brands andNIO is perceived as a more premium brand than most peers. That could Source: FactSet Valuation/Key risks.We upgrade our rating toBUY from Hold and raiseour target pricesfromUS$6.00/HK$47.00to US$7.00/HK$55.00, based on0.9x (prior 0.8x) our FY26E P/S.We raise our target valuation multiple dueto our upwardearningsrevision anditsbetter positioning than peers whenfacing raw-materialinflation. Key risks to our rating and target price include Disclosures& Disclaimers Analyst Certification The research analyst who is primary responsiblefor the content of this research report, in whole or in part, certifies that with respect to the securities or issuerthat the analyst covered in this report: (1) all of the views expressed accurately 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/herassociates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate 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 Ratings BUY: Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM Address: 45/F, Champion Tower, 3Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly owned Important Disclosures There are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGMdoes not provide individually tailored investment advice. This reporthas been prepared without regard to the individual investment objectives, financial positionor special requirements. Past performance has no indication of future performance, and actual events may differ materially from that which is contained in thereport.The value of, and returns from, any investments are uncertain and are not guaranteed and may fluctuate as a result of their dependence on the or its affiliate(s) to whom it is distributed. This report is not and should not be construed as an offer or solicitation tobuy or sell any security or any interest insecurities or enter into any transaction.NeitherCMBIGMnor any of its affiliates, shareholders, agents, consultants, directors, officers or employees shall beliable for any loss, damage or expense whatsoever, whether direct or consequential, incurred inrelying on the information contained in this report.Anyone CMBIGMhas exerted every effort in its capacity to ensure, but not to guarantee, their accuracy, completeness, timeliness or correctness.CMBIGMprovidesthe information, advices and forecasts onan "AS IS" basis.The