NIO INC.(9866.HK)：FAIR VALUATION WITH CONTINUED NET LOSS IN FY26E

Core Viewpoint - NIO's cost reduction efforts are acknowledged, but losses are expected to continue in FY26E despite a sales volume assumption of 0.5 million units, with recent share price rally leading to a fair valuation [1][4]. Financial Performance - NIO's revenue in 2Q25 was approximately 5% higher than previous forecasts, driven by a slightly higher average selling price and R&D services, with a gross profit margin (GPM) of 10%, which was 0.2 percentage points above projections [2]. - The net loss for 2Q25 was RMB5.1 billion, about RMB300 million lower than prior projections, attributed to higher R&D expenses and lower SG&A expenses [2]. Future Projections - For 4Q25E, a significant narrowing of net loss is expected, but breakeven is not anticipated, with key assumptions including unit sales of 0.15 million and vehicle GPM of 16-17% [3]. - The projected GAAP net loss for 4Q25E is RMB1.6 billion, with a non-GAAP net loss of RMB1 billion, reflecting expectations of increased sales volume and associated costs [3]. Competitive Landscape - Competition in FY26E is a concern, as other automakers may introduce new models with aggressive pricing, making it difficult to extrapolate NIO's sales volume from 4Q25 figures [4]. - Despite projecting FY26E sales volume at 0.5 million units, a GAAP net loss of RMB7.8 billion is still expected, indicating the need for higher sales volume for breakeven due to significant investments in various areas [4]. Valuation - The HOLD rating is maintained, with the target price raised from US$4.00 to US$7.00, based on a 0.9x FY26E price-to-sales ratio, which is considered fair compared to competitors [5]. - Key risks to the rating and target price include fluctuations in sales volume and margins, as well as potential sector re-rating [5].