I
After 5.5 years of losses totaling ¥76.4 billion, how will William Li explain to Yu Minhong?
There’s a saying online that the cause of a rich person’s bankruptcy might not be extravagance but entrepreneurship. Although this is a joke, it highlights the cash-burning nature of entrepreneurship, especially in the field of new energy vehicles.
NIO, the Chinese electric vehicle (EV) maker, has accumulated losses of ¥76.4 billion in 5.5 years. For every car sold, they incur a loss of ¥200,000!
Looking at the financial reports from 2020 to June 2023, NIO’s accumulated net loss is ¥30 billion, with a half-year loss of ¥10.8 billion from January to June 2023, resulting in a net loss rate of 56%. This means NIO is losing ¥200,000 for every car sold.
In comparison with peers, NIO’s performance is even less favorable. In the first half of 2023, XPeng’s revenue reached ¥47.44 billion, while NIO and Li Auto had revenues of ¥19.45 billion and ¥9.09 billion, respectively.
In terms of profits, the gap is significant, with NIO posting a loss of ¥10.65 billion, Li Auto with a loss of ¥5.14 billion, and XPeng making a profit of ¥3.24 billion.
Looking at sales volume, NIO sold only 55,000 units, XPeng sold 41,000 units, and Li Auto reached 139,000 units.
Analyzing sales volume combined with net profit data gives a clear picture of how much money they make per car sold.
In the first half of the year, on average, XPeng made a net profit of ¥20,000 for each car sold, Li Auto suffered a net loss of ¥120,000, and NIO incurred a net loss of ¥200,000.
Once known as one of China’s top three new forces in the auto industry, collectively referred to as “Wei Xiao Li,” NIO’s current position at the top is precarious.
This situation brings to mind a joke from the early days of NIO’s founding when Yu Minhong, the founder of New Oriental Education, joked with William Li that if NIO couldn’t make him money, he would “retaliate” against Li Bin.
However, reality is stark. NIO’s financial data is grim, and the capital market continues to decline. Over the past few years, NIO’s market value has plummeted from $50 in January 2021 to around $8, a staggering 85% decrease. In contrast, the S&P 500 index has risen by approximately 15% over the same period.
One wonders how William Li will explain this to Yu Minhong.
II
Spending hundreds of billions, where did NIO’s money go?
Why is NIO facing such significant losses? The answer is simple: high costs.
In the first half of the year, NIO’s sales cost (production cost), R&D, and marketing and administrative expenses were ¥19.2 billion, ¥6.4 billion, and ¥5.3 billion, respectively, totaling ¥30.9 billion, a year-on-year increase of 20.67%.
The rate at which money is burned is far faster than NIO’s income growth rate.
So where did NIO’s money go?
Analyzing NIO’s business lines reveals several controversial areas of high spending.
Firstly, “diverting from the main business” to produce smartphones.
Last year, NIO decided to start a battery research and development (R&D) business, but this initiative seemed to fade away. This year, making smartphones became NIO’s new story. On September 21, NIO officially released its first smartphone, the NIO Phone, priced at ¥6,499, equipped with the Snapdragon 8 Gen 2 chip and a Samsung AMOLED display.
Similar specifications can be compared to the Xiaomi 13 Standard Edition, which is priced at ¥3,999, with a price difference of ¥2,000. However, NIO Phone has an additional feature – seamless integration with NIO cars. When the owner approaches the vehicle, the NIO Phone uses Ultra-Wideband (UWB) technology to determine the distance between the phone and the car, and then the car door will automatically unlock.
According to NIO’s introduction, even if the phone is turned off and within 48 hours, it can still unlock the vehicle using NFC technology. Outside the car, users can also use the phone to pre-start the air conditioning, open the trunk, remote park, and honk the horn.
So, NIO Phone has been jokingly referred to by many netizens as the “large car key” for NIO cars. William Li also mentioned that they are not trying to turn the phone into their main business but to make the car more user-friendly and improve the user experience.
However, does NIO need to invest heavily in developing a “large car key”? What value does it bring?
According to NIO’s financial report, the NIO Phone team has about 500 people, meaning they have spent at least hundreds of millions on labor costs since its establishment, including other categories of costs.
In the context of NIO already burning a lot of money, adding a non-profitable smartphone business seems to be pouring salt on the wound.
Moreover, compared to other carmakers that make phones, such as Geely, which acquired the mature team and brand Meizu to enter the smartphone market, NIO is building its own team, making it even more challenging.
In fact, NIO’s app can achieve the same results, so how much value can NIO Phone bring to NIO?
As the saying goes, any non-profitable business model is a cheat. Therefore, since NIO released the NIO Phone, the stock price has been falling, erasing all the gains from the increase in NIO’s sales volume after the launch of the ES6 new model on May 24.
Secondly, the increasing number of high-cost battery swapping stations.
One of NIO’s biggest features that sets it apart from its competitors is “battery swapping.” On October 26, NIO announced that it had deployed 2,000 battery swapping stations nationwide, including 601 on highways, connecting the high-speed battery swapping network in six vertical and four horizontal large city clusters.
While NIO’s extensive construction of battery swapping stations creates a good user experience, from a financial perspective, NIO’s battery swapping stations are not only extremely costly but have yet to turn a profit. This model is challenging to sustain.
At the Shanghai Auto Show this year, NIO President Qin Lihong stated that the single-station cost of a battery swapping station is approximately ¥3 million. Although the costs for each generation of NIO battery swapping stations vary slightly, using ¥3 million per station as a rough calculation, the fixed cost investment for all 2,000 battery swapping stations of NIO would be ¥6 billion.
With the high cost of battery swapping stations, how much money can they make?
NIO Vice President Shen Fei once said, “Currently, each battery swapping station averages about 35-36 orders per day. Even if it is priced at the same level as the nearby superchargers, as long as it can reach 50-60 orders per day, the battery swapping station can break even.”
However, according to NIO’s official website data, the daily average number of battery swaps for the 2,000 stations is over 60,000 times. If we calculate roughly based on 30 times per station per day, it is even lower than the data mentioned by NIO Vice President Shen Fei.
Clearly, NIO’s battery swapping stations have a long way to go to break even. If NIO’s battery swapping business cannot quickly reduce costs and increase efficiency, the construction of a service system centered around battery swapping will continue to be a major contributor to NIO’s losses.
The more fatal blow is the rapid development of fast-charging technology, which poses a challenge to the very existence of the battery swapping model itself. For example, the XPeng G6 uses 800V SiC silicon carbide high-voltage technology with a 3C fast-charging battery pack, achieving a charging speed of 300 km in 10 minutes. The Smart Edge S7, jointly developed by Huawei and Chery, features Huawei’s 800V high-voltage fast-charging technology, replenishing over 200 km in 5 minutes and providing a range of over 400 km in 15 minutes.
Many people draw a parallel between mobile phones and electric vehicle charging, recalling that most phones were replaceable batteries more than a decade ago, but now most are not. When electric vehicles can achieve a 15-minute charge for 400 km of range, what is the significance of the battery swapping model compared to fast charging?
III
Layoffs, price reductions – NIO finally lowers its posture
Facing immense operational challenges, NIO has finally begun to lower its posture and strives for self-rescue.
Known for its “luxury” route, NIO is now forced to tighten its belt. Previously insisting on “no layoffs,” they are now starting to encourage “early graduation.”
At the end of 2022, William Li released an internal speech, stating, “As long as we can pay salaries, we won’t easily lay off people.” “Keep 100% of the people, complete 150% of the work – that’s what we should do.”
A year later, in November 2023, Li Bin sent a company-wide letter to 30,000 employees, expressing regret for the adjustments that would affect some colleagues and asking for understanding, acknowledging it was a difficult decision the company had to make in the face of intense market competition.
According to financial reports, as of the end of 2022, NIO had a total of 26,800 employees, the highest among the “Wei Xiao Li” trio. XPeng had 15,800 employees, and Li Auto had 19,300. In that year, NIO paid over ¥11.2 billion in employee compensation, with an average salary of ¥370,000, double that of SAIC Motor Group.
Following Li Bin’s letter, “the company will reduce around 10% of positions,” which roughly translates to a savings of about ¥1.1 billion.
In terms of product sales, we know that NIO has always positioned itself as “high-end.” With a long-standing insistence on not reducing prices, its main product range is priced above ¥300,000 and is generally located in the more expensive core business districts of cities.
However, in the first half of this year, a total of 54,500 vehicles were delivered, averaging less than 10,000 vehicles per month. The term “bleak” is an understatement.
Under these circumstances, NIO has joined the price reduction army. In June this year, NIO uncoupled the battery swapping benefit from the vehicle price, reducing the price of all models by ¥30,000, with the ET5 dropping to ¥298,000.
In addition, NIO’s distribution network is no longer limited to expensive shopping centers but has expanded to traditional automobile trading centers with cheaper rents and a more vibrant sales atmosphere.
Stimulated by the price reduction, NIO finally achieved a historic breakthrough in July, with monthly sales surpassing 20,000 units. However, the effect of the price reduction did not continue.
In the first ten months of this year, NIO delivered a total of 126,100 vehicles, a year-on-year increase of 36.3%, far from the annual delivery target of 250,000 vehicles.
IV
This time, what will make investors believe in NIO’s future?
In the face of external doubts, William Li always likes to proclaim “long-termism.” For example, in 2019, Li Bin said, “NIO is still a company that has just been established for four years. You can’t expect a four-year-old child to support a family.”
In the first half of this year, when responding to suggestions to spend money more frugally and make appropriate reductions, Li Bin said, “Actually, I have more information than you do, and the reference for decision-making is different.” “How long a time frame we use to look at our return on investment is crucial.”
However, in the struggle for survival, only the fittest survive.
Nowadays, the new energy vehicle competition is in a state of intense competition, and the industry situation is changing rapidly. In addition to the aforementioned old rivals such as XPeng and Li Auto, new energy brands such as Aiways, Jinkang, Smart, Lantu, Zhiji, Weimar, and Feifan have seen significant growth in delivery volumes.
In 2019, Li Bin was called the “most miserable man.” The company’s sales were sluggish, the stock price was cut in half, and the daily earnings were not enough to cover the losses in the stock market. But in this darkest moment, NIO turned its fortunes around and was saved by the Hefei municipal government and wealthy individuals from the UAE, thus “coming back to life.”
However, by this year, Li Bin seems to have become the “most miserable man” again. NIO is struggling to make a profit, sales are poor, and layoffs are needed for survival. It can be described as a crisis on all fronts.
In the fierce competition, what can NIO rely on to continue convincing investors to wait for the future when NIO will eventually become profitable?
No matter how beautiful the scenery, it is hard to escape the basics of life. Time is running out for NIO.