Investment highlights: On November 20, the company disclosed its 2024 three-quarter report. Total sales for the first three quarters were 0.149 million vehicles, +35.7% year over year; total revenue was 46.03 billion yuan, +19.5% year over year; gross profit margin was 9.1%, +4.5 pct year on year; net profit to mother - -15.53 billion yuan, a year-on-year loss of 0.03 billion yuan. 24Q3 achieved total sales volume of 0.062 million vehicles, +11.6/7.8%; total revenue of 18.67 billion yuan, -2.1/ +7.0% month-on-month; gross profit margin of 10.7%, +2.7/1.0pct; net profit to mother of -5.14 billion yuan, with a loss of 0.51/0.02 billion yuan. NIO Auto's three-quarter results are in line with expectations, and the new brand Ledao is driving positive sales.

Bicycle revenue declined as a result of changes in the product portfolio. NIO's bicycle revenue for the first three quarters of 2024 was 0.273 million yuan, -11.2% year on year; 2024Q3 bike revenue was 0.27 million yuan, -14.1/ -1.2% month-on-month. The decline in bicycle revenue is mainly due to changes in the product portfolio. Compared with ES8, ES7, EC7, and ET7 models priced at 0.4 million yuan or more, the share of sales of lower-cost models such as ET5 and ES6 increased quarterly, from 82.5% in 2023Q3 to 89.8% in 2024Q3.

Rapid growth in sales led to a steady increase in gross margin. Bicycle revenue declined in the third quarter, but the gross margin of automobile sales increased from 12.2% in the second quarter to 13.1%, +0.9 pct month-on-month, mainly due to the company's continued cost reduction, the decline in supply chain costs, compounded by rapid month-on-month sales growth in the third quarter, and a further increase in capacity utilization. According to Li Bin, the NIO brand's gross margin target for the fourth quarter was 15%; the new brand Ledao will also achieve a positive single-digit gross profit margin in 2024.

Net profit to mother declined in the third quarter due to new car launches and investment losses. 24Q3 NIO's R&D cost rate was 17.8%, or +1.8/-0.7pct, the year-on-year increase was mainly due to the increase in R&D personnel costs; the sales & management expense ratio was 22.0%, +3.1/+0.5pct. The year-on-month increase was mainly due to the increase in sales staff costs and marketing activity expenses due to the construction and sales preparation of the Ledao sales network. According to NIO CFO Qu Yu, currently Ledao has 190 stores. The goal is to reach 300 stores by the end of the year. In addition to the increase in cost rates during the period due to the launch of new models, the losses of invested companies also led to an increase in losses in the third quarter.

It is expected that new models of the Ledao and Firefly will contribute to a considerable increase in sales after they are launched one after another. The Ledao L60 was launched on September 19. With an innovative BaaS battery rental program, the price threshold was lowered to 0.1499 million yuan. As of September 24, the number of orders for the Ledao L60 had increased to 65,000 units, with a lock rate of 70%, and 4319 units were delivered in October. According to Li Bin, the Ledao L60 delivery in December will reach 0.01 million vehicles, and the production capacity and delivery target of 0.02 million units will be reached in March 2025, bringing NIO's sales volume Significant growth drivers. In addition, according to Ai Tiecheng, CEO of Ledao Motors, in 2025, Ledao Motor will launch 2 new models, a six-seater/seven-seater flagship SUV and a large five-seater SUV; the third brand Firefly will also be released on NIO Day 2024, and delivery of the first model will begin in the first half of 2025. Successive launches and deliveries of popular price segment models are expected to drive a significant increase in NIO's sales volume in 2025.

Profit forecasting and valuation. Due to the popularity of orders for the new model Ledao L60 in 2024, combined with the launch of many new models in 2025, the company's sales volume is expected to grow. We raised our 24-26 revenue forecast from 62/90.6/110.9 billion yuan to 66.5/93.9/116.4 billion yuan; since the Ledao L60 was launched in September and gross margin was low at the beginning of the sales climb, the net profit to mother was lowered from -18.3 billion yuan to -19.3 billion yuan. Net profit to mother in 2025-26 was -15/-9.7 billion yuan to -13.6/-9.1 billion yuan, maintaining a “neutral” rating.

Risk warning: Competition for new energy vehicles has intensified, raw material prices have fluctuated, and the company's net profit has not been corrected.