Revenue for the first quarter was slightly lower than expected, but guidance for the second quarter was strong. In the first quarter of 2024, NIO Auto's revenue was 9.9 billion yuan (RMB, same below), down 7.2% year on year, about 5% lower than our/market expectations; car delivery volume was 30,053 vehicles, down 3.2% year on year; gross margin was 4.9%, of which car gross margin was 9.2%, slightly lower than our expectations, down 2.7 percentage points from month to month, mainly due to increased promotion efforts during the product transformation period, leading to a decrease in average sales price and changes in the product portfolio. Sales/R&D expenses decreased by 6.9%/increased 22.5% year-on-year respectively, and channel expansion led to higher sales expenses than expected. The company's net loss in the first quarter was 5.19 billion yuan, up 9.4% year-on-year, and the loss was about 15% higher than our/market expectations. NIO holds 45.3 billion yuan in cash and cash equivalents.

NIO's delivery guide for the second quarter of 2024 was 54,000 to 56,000 units, up 129.6% to 138.1% year on year; revenue guidance was 16.59 billion yuan to 17.14 billion yuan, up 89.1% to 95.3% year on year, with strong guidance.

Automobile gross margin is expected to improve in the second quarter; Ledao's delivery in the second half of the year is expected to pick up and become the driving force for sales growth. Although NIO's performance in the first quarter was lower than expected, we expect that with the month-on-month improvement in sales in the second quarter, automobile gross margin should return to double digits due to scale effects. NIO's sales reached a new high in May, and new orders remained strong. BaaS program discounts and promotions are expected to support NIO's monthly sales volume of ~20,000 units. In terms of the Ledao brand, management guidelines will complete the channel target for 100 direct-run stores this year, with a gross margin target of ~ 15%, while the break-even point of the Ledao brand is at the level of 20,000 to 30,000 vehicles. Next year, as more self-developed spare parts (chips, etc.) are put into use by NIO, it is expected that the gross profit margin will be further improved. Management also indicated that Ledao will release a medium to large SUV next year, while the lower-positioned “Firefly” (Firefly) brand will be released next year.

Maintaining purchases, we believe the Ledao brand will be the main driver in the second half of the year. The monthly sales volume of NIO Plus Music is expected to remain stable at the level of 25,000-30,000 units in 2025, which is beneficial to valuation repair. The energy replenishment experience of exchanging electricity is the biggest differentiating highlight of the Ledao L60 under 200,000 yuan. We predict that Ledao's steady monthly sales volume in 2025 will be at the level of 90 to 10,000 units, which will be the key driver for NIO's sales to enter the second growth curve. We maintain our buy rating and maintain our target price of HK$59.88/$7.7 (NIO US).