How far is the future for loss-making NIO 76.40 billion？

"If you split the 76.40 billion yuan of NIO’s cumulative loss, you will find more less optimistic realities. For example, in just three and a half years, NIO’s cumulative net loss has reached 30 billion yuan. For example, in the first half of 2023, the net loss has exceeded 10 billion yuan. Even Evergrande, which has accumulated sales of less than 10,000 yuan, has a net loss of only 6.865 billion yuan in the first half of the year. With such a tragic loss, how far is the future for NIO?"

Author/Youth

Recently, NIO has been on the hot search again. This time the topic seems a bit heavy – from 2018 to the first half of 2023, in just five and a half years, NIO’s attributable net profit suffered a deep loss, accumulating 76.40 billion yuan.

If you split the 76.40 billion yuan, you will find a more pessimistic reality. For example, from 2020 to the first half of 2023, in just three and a half years, NIO’s cumulative net loss will reach 30 billion yuan; in the first half of 2023, NIO’s net loss has exceeded 10 billion yuan, and the loss rate has reached an astonishing 56%.

It is amazing because even if the cumulative sales of Hengda are less than 10,000, the net loss in the first half of the year is only 6.865 billion yuan. In the first half of 2023, among other peers in the new power camp, Xiaopeng lost 5.14 billion yuan, and the ideal profit was 3.24 billion yuan.

As a leader in China’s new energy vehicle industry, why is NIO so miserable?

01

Why is it lingering in a loss-making black hole for a long time?

"During the product iteration period, it is normal for sales to be low." This is one of NIO Chairperson Li Bin’s responses to the cause of the miserable loss.

It is not difficult to see from the financial reports of the past years that there are two main sources of income for NIO: on the one hand, car sales, and on the other hand, other business income. This other income also includes accessories sales, maintenance, auto finance, used cars and energy solutions. According to the financial report, in the first quarter of 2023, NIO’s sales revenue was 9.20 billion yuan, a year-on-year decrease of 0.2%; other income was 1.50 billion yuan, an increase of 118%. This also means that although the total revenue looks to be growing, the revenue of NIO’s main business – selling cars has declined.

On the one hand, the main business revenue declined, and on the other hand, R & D expenses and operating costs continued to rise. According to the financial report, in the second quarter of this year, NIO’s operating income was nearly 8.80 billion yuan, a year-on-year decrease of 14.8%. In the first half of 2023, NIO’s expenditure on production costs, R & D investment, and marketing reached 30.90 billion yuan, an increase of 20.67% year-on-year.

It can be said that at present, NIO is nearly saturated in terms of the number of employees, research and development projects, and participation areas.

Some losses are even considered a "road of no return". For example, the burden of changing power stations is getting heavier and heavier. As we all know, one of the biggest features of NIO compared with its peers in other new power camps is "changing power". The service system centered on changing power is the cornerstone of NIO’s brand and product premiums. As of October 2023, NIO announced that it has established more than 2,000 power stations across the country, and nearly 50% of them are located in first-tier cities and economically developed provinces.

At this year’s Shanghai Auto Show, NIO President Qin Lihong said that each replacement station will cost about 3 million yuan. If this figure is roughly calculated, the current cost of these 2,000 replacement stations is about 6 billion yuan.

Although building a large number of replacement stations can bring better experience to car owners, it is necessary to face up to the fact that these replacement stations have not been profitable so far, and more importantly, the profit point of replacement stations has not yet emerged. One of the reasons is that the rapid development of fast charging technology has posed a considerable threat to these replacement stations. In this way, whether to continue to adopt the strategy of replacement technology may become a headache for NIO.

In addition, NIO also has to face difficult problems such as intense market competition and difficulties in building sales channels.

In addition, the mobile phone business, a controversial "not doing business" section of NIO, is also difficult to say whether it will succeed or fail.

On September 21, 2023, NIO launched its own mobile phone brand and officially released the first smartphone NIO Phone. It is understood that the highlight of this mobile phone is that when the owner approaches the vehicle, the mobile phone will use ultra-broadband technology to judge the distance between the mobile phone and the vehicle, and then the door will be automatically unlocked. Even if the mobile phone is turned off, the vehicle can still be unlocked through NFC technology within 48 hours. Outside the car, the owner can also turn on the air conditioner in advance, open the trunk, remotely park and honk the horn through the mobile phone.

These functions, at first glance, seem a little new, but then again, this is a large "car key". In order to develop this large "car key", Weilai built its own team. According to incomplete statistics, hundreds of millions of yuan have been invested in the research and development of NIO mobile phones. The starting price of this car key that can make calls is 6499 yuan.

Of course, any attempt must start with "youth". After all, no one doubts that Lego can’t grow into a world-famous building block toy brand in the 21st century because Lego’s first product is a duck spliced with wood – "Lego Duck". Or this car key is to NIO what logistics is to JD.com, but at such a high price, whether NIO can grow it into a closed-loop key of new energy ecology is more like a gamble.

02

A more uncertain future

As soon as the "bill" with a loss of 76.40 billion yuan came out, people directly entered the discussion of "whether NIO will go bankrupt". In the face of this rumor, NIO President Qin Lihong also made a positive response: The current market is full of huge opportunities, and NIO will not give up or go bankrupt. It will not go bankrupt and go bankrupt because NIO has a strong brand influence and market foundation, an excellent team, and leading technical strength. At the same time, Qin Lihong also emphasized NIO’s innovation ability. And these are the confidence for NIO to get out of the predicament and usher in a better future.

In fact, in recent years, the topic of whether NIO will fail seems to come up every month. A few years ago, facing the same doubts, Li Bin, the chairperson of NIO, responded with "long-termism". For example, in 2019, Li Bin said, "NIO is still a four-year-old company, and you can’t ask a four-year-old child to support your family."

That year, Li Bin was called "the most miserable man".

Now that four years have passed, Li Bin seems to have not gotten rid of the title of "the most miserable man". In front of NIO, it is still facing a situation that looks dangerous, such as difficult profitability, dismal sales, and layoffs to survive. In June this year, NIO untied the rights to exchange electricity from the price of the whole vehicle. The price of all models was reduced by 30,000 yuan, and ET5 dropped to 298,000 yuan.

In early November, NIO made another important decision: layoffs.

In fact, layoffs are not part of the 2023 plan. During NIO’s fiscal year 2022 results call in March 2023, Li Bin mentioned that "this year’s focus is on improving staff efficiency, rather than reducing staff or shutting down projects. Pursue the same manpower to bring more output."

Six months ago, there was still no downsizing, but six months later, it announced a 10% layoff, which also means that in just over half a year, the new energy automotive industry has undergone profound changes.

Not long ago, in a letter to all staff related to layoffs, Li Bin mentioned "three guarantees": NIO ensures investment in core key technologies and maintains the leading edge of technology and products; ensures that the sales and service capabilities are sufficient to cope with fierce market competition; and ensures that 9 core products of 3 brands are launched on schedule. On the basis of the "three guarantees", NIO will also merge duplicate departments and positions, change inefficient internal workflows and division of labor, eliminate inefficient positions, and at the same time improve resource efficiency. Delay and cut investment in projects that cannot improve the company’s financing performance within three years.

The state has announced that the new energy vehicle tax incentives will be withdrawn, or will be completely withdrawn from the historical stage, which means that the new energy vehicle market has shed its novice aura, and a price war that has swept the new energy and fuel vehicle market is imminent.

At that time, the competition facing new energy vehicle companies will not only come from their peers, but also from established fuel vehicle companies.

Compared with the mature R & D and production of traditional fuel vehicles, as well as the brand value advantage accumulated over the years, new car manufacturers are still a little young. However, the market does not give them much time. If they cannot find the advantage of increasing customer stickiness and meeting fuel passenger cars, then low prices will become the last card in the hands of new energy vehicle companies. It is conceivable how passive they will be in the red ocean of the passenger car market.

In a period of great changes in the overall economic environment, there is no foreseeable and certain successful future, but the automotive industry needs some bottom line. After all, as a special consumer goods market, consumers choosing a brand model is equivalent to choosing a long-term service relationship. It is self-evident how embarrassed consumers will be when the car is bought and the car company is gone.