CITIC International lowered NIO's target price to 47 yuan; last quarter's extremely low R&D and sales management expenses may not be sustainable

Zhao Yin International published a report stating that NIO-SW (09866.HK) controlled operating expenses better than expected in the fourth quarter of last year, but challenges remain this year. Fourth-quarter revenue grew 76% year-on-year to RMB 34.7 billion (same below), and gross margin increased by 3.7 percentage points quarter-on-quarter to 17.5%, in line with the bank's expectations. Non-GAAP operating profit was RMB 1.25 billion, higher than the previous profit forecast of RMB 800 million to RMB 1.2 billion. Research and development and selling and administrative expenses were approximately RMB 500 million and RMB 1.6 billion lower than the bank's expectations, respectively, which was the main reason for the better-than-expected performance. NIO achieved its first quarterly net profit of RMB 122 million in the fourth quarter of last year.

The report indicated that in 2026, challenges from market competition, AI competition, and fluctuations in component prices still exist. It believes that the management's top priority is to turn losses into profits, which may lead to unsustainable very low research and development and selling and administrative expenses in the fourth quarter.

The bank slightly lowered its 2026 sales forecast by 10,000 units to 460,000 units, still in line with the company's growth guidance of 40% to 50%, mainly due to a sharp decline in sales of the Ledo L90. Management guided that the gross margin for complete vehicles in the first quarter will remain flat quarter-on-quarter, mainly benefiting from the contribution of the ES8, while the historical volatility in sales of new models at NIO may also lead to uncertainty in future gross margins.

The bank predicts that NIO's gross margin will reach 16.3% in 2026, with net losses narrowing to RMB 3.8 billion. The bank recognizes the competitive advantage of building NIO's brand value, but brand building requires costs. For example, management mentioned that battery swapping technology can solve the mismatch between battery and vehicle lifespan, but this comes at the expense of company profits, which it believes also leads to NIO's overall profitability being lower than most peers. It maintains a "Hold" rating, with the target price for H shares lowered from HKD 50 to HKD 47. The target price for NIO (NIO.US) in the US stock market is lowered from USD 6.4 to USD 6