NIO's cost pressure is well managed; Goldman Sachs expects non-GAAP operating profit to break even in 2026E and keeps a Neutral rating

Overview

This report is a summary of Goldman Sachs' conference call takeaways on NIO. The core conclusion is that NIO is seeing improvements in cost pressure management, model cycle and working capital, and is expected to achieve non-GAAP operating profit break-even and turn positive in 2026. However, the report also emphasizes that competition in the premium new energy vehicle market has intensified significantly; the number of new models in the above-Rmb250k price band has risen from 30 last year to 61 this year, so Goldman Sachs keeps a Neutral rating.

Core views

Goldman Sachs' key views are: First, strong ES8 orders, the complementary positioning of the ES9 and ES8, and new vehicles such as the refreshed L60 and the 5-seat ES8 are likely to sustain sales momentum. Second, although lithium, copper, memory chips and other raw materials push BOM costs up by about Rmb10k, the company can maintain a vehicle gross margin of 17%-18% through product mix, stable pricing, improved engineering efficiency and supplier negotiations. Third, selling expenses will rise temporarily in 2026 due to new model launches and marketing campaigns, and 2Q26 operating profit may be lower than 1Q26, but full-year non-GAAP operating profit is still expected to turn positive. Fourth, the improvement in net cash and leverage structure enhances financial resilience.

Analysis framework

The report combines 1Q results, management conference call guidance, model launch cadence, gross margin breakdown, expense trends, working capital turnover and DCF valuation analysis, and checks valuation reasonableness by comparing 2026E P/S with the China auto OEM industry average.

Methodology notes

• Valuation methodsDCF

  12-month target price

  Goldman Sachs uses DCF valuation, assuming a WACC of 11.8% and a terminal growth rate of 3.5%, to derive an ADR target price of US$6.6 and an H-share target price of HK$52.0.

• Relative valuationP/S comparison

  2026E P/S

  The report notes that NIO trades at about 0.7x 2026E P/S, which is close to the China auto OEM industry average of about 0.7x, so valuation does not provide a clear basis for a rating upgrade.

• Fundamental analysisGS Factor Profile

  Growth, financial returns, valuation multiples and composite percentile

  Goldman Sachs' factor framework compares individual stocks with the market and peers through growth, financial returns, valuation multiples and composite percentile, but in this report it is mainly used as a disclosure framework; the investment view still centers on improvements in deliveries, gross margin, expenses and cash flow.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 9866.HK

  Research coverage H-share

  Strengths

  Strong orders for new models, gross margin recovery, improved net cash and a denser product pipeline.

  Weaknesses

  Intense competition in premium new energy vehicles, ONVO brand awareness still needs improvement, and 2Q26 selling and marketing expenses are expected to rise.

  Comparison

  About 0.7x 2026E P/S, in line with the China auto OEM industry average; Goldman Sachs believes the relative valuation is not cheap, but the fundamental recovery can support the target price.

  Risks

  Sales falling short of expectations, a deeper-than-expected price war, further increases in raw material costs, and weaker-than-expected expense control.

• NIO ADR

  ADR security of the same company

  Strengths

  Shares the same model cycle, cost improvement and profitability inflection logic as the H-share.

  Weaknesses

  Affected by sentiment toward Chinese ADRs, exchange rates and overseas market risk appetite.

  Comparison

  The 12-month ADR target price of US$6.6 implies about 17.9% upside versus the reported current price of US$5.60.

  Risks

  In addition to operating risks, there are exchange rate fluctuations and changes in cross-market valuation discounts.

Key data

• 1Q26 deliveries83k vehiclesUp 98% year on year, mainly driven by demand for premium models.
• 2026E sales forecast471k vehiclesGoldman Sachs expects growth of 45% year on year.
• 2026E revenue growth60%Driven by full-year deliveries of the L90 and ES8, as well as multiple new and refreshed models.
• 1Q26 gross margin19%Vehicle gross margin was 18.8%, up 10.2 percentage points year on year and 18.1 percentage points quarter on quarter.
• 2026E gross margin forecast17.6%Goldman Sachs expects this to benefit from product-mix improvement and scale effects, above 2025's 13.6%.
• Full-year vehicle gross margin target17%-18%Management aims to offset rising BOM costs through product mix, pricing, efficiency and supply-chain synergies.
• BOM cost pressureabout Rmb10kMainly from higher prices for lithium, copper, memory chips and other raw materials.
• 2026E non-GAAP operating profitRmb1.3bnGoldman Sachs expects non-GAAP operating profit to turn positive in 2026, with 2Q26 likely being a temporary low point.
• 2026E-2030E non-GAAP net profit forecastRmb1.5bn to Rmb6.8bnThe previous forecast was Rmb-1.8bn to Rmb6.7bn; the revision reflects better-than-expected sales and revenue guidance.
• 1Q26 net cashRmb32bnAbove Rmb30bn in 4Q25 and Rmb8bn in 1Q25.
• 1Q26 days of receivables/payables/inventory63 days/241 days/38 daysAll improved versus 1Q25, but slowed versus 4Q25.
• 1Q26 debt-to-asset ratio89%Below 90% in 4Q25 and 93% in 1Q25.
• Target priceUS$6.6/HK$52.012-month DCF target price unchanged.

Impact & implications

For investors, the report sends a signal of 'fundamental recovery, but valuation and competitive pressure still need to be monitored.' If NIO can deliver on premium model orders, maintain a vehicle gross margin of 17%-18% and control expense ratios, a return to positive non-GAAP operating profit in 2026 will strengthen market confidence. However, if competition in premium new energy vehicles intensifies or new model sales fall short of expectations, the path to gross margin and earnings improvement could come under pressure.

Risks

• Upside risks include stronger-than-expected policy support for the auto industry and better-than-expected order momentum.
• Downside risks include weaker-than-expected sales and larger-than-expected price cuts.
• Competition in the premium new energy vehicle market is intensifying, with a significant increase in the number of new models in the above-Rmb250k price band.
• Rising raw material prices continue to pressure BOM costs.
• New model launches and marketing campaigns could push SG&A expenses higher and weigh on short-term operating profit.
• ONVO brand awareness remains a challenge, and Firefly needs to keep launching new and limited editions to maintain attention.

What to watch

• Order and delivery conversion for new models such as the ES9, 5-seat ES8 and refreshed L60.
• Whether 2Q26 operating profit bottoms as expected and whether subsequent quarters can keep non-GAAP operating profit positive.
• Whether vehicle gross margin can stay in the 17%-18% range.
• Whether the SG&A expense ratio can stay around 10% and whether new model marketing spending remains under control.
• The effectiveness of ONVO brand promotion and the popularity of the Firefly brand.
• ADAS subscription revenue and the penetration of the NX9031 chip; management expects 80%-85% of NIO vehicles to be equipped with this chip in 2H26.
• Working capital turnover, net cash and leverage ratio changes.