Capital likes good stories, but capital will not be satisfied with just hearing stories.As the competition for new energy vehicles approaches the finals, capital always hopes that companies can provide more "certainty." On the evening of December 5, NIO (09866.HK/NIO.US) disclosed its third quarter financial report for 2023. Deliveries and revenue both hit record highs, gross profit margin and cash reserves both increased, and losses narrowed significantly quarter-on-quarter.

NIO's third quarter report gave some positive responses to the outside world, but on the other hand, problems such as poor sales growth, turbulent layoffs, over-expansion, R&D losses, and qualification issues have also raised questions about NIO's ability to secure its position in the finals. According to Phoenix Technology, the day before the financial report, it was revealed that NIO had obtained independent production qualifications, but NIO officials have not responded to the qualification question. According to relevant reports from Phoenix Technology, "the official announcement needs to be further communicated with the Ministry of Industry and Information Technology, and it has currently passed the National Development and Reform Commission."

In any case, Weilai needs to address its uncertainties one by one in order to give an explanation to the market, consumers, partners, and more importantly, investors.

01.

Revenue reaches new high

Added a but

Cash flow increased significantly, revenue reached a record high, and delivery volume reached a record high... After Weilai sent a positive message to the market with a pretty good third quarter report, the Hong Kong stock price rose 4.87% on the day after the financial report was disclosed.

Specifically, NIO’s revenue in the third quarter was 19.0666 billion yuan, a month-on-month increase of 117.4%, a year-on-year increase of 46.6%, a record high; the net loss was 4.567 billion yuan, a year-on-year increase of 10.8%, but a month-on-month decrease of 24.8%. NIO's revenue growth mainly relies on the increase in automobile sales. In the third quarter, automobile sales reached 17.409 billion yuan, accounting for 91.3% of total revenue. In addition, NIO's other income besides selling cars is mainly from the sales of accessories, second-hand car sales and energy solutions, which account for a small proportion.

The financial report also mentioned that NIO’s vehicle delivery volume in the third quarter reached 55,432 vehicles, a year-on-year increase of 75.4% and a month-on-month increase of 135.7%, setting a new quarterly delivery record. Looking forward, Weilai's vehicle delivery volume in the first quarter and second quarter was 31,041 vehicles and 23,520 vehicles respectively, both showing a downward trend month-on-month and year-on-year.

In the earnings call, NIO founder, chairman and CEO Li Bin said that in the third quarter of 2023, NIO ranked first in China's pure electric vehicle market with more than 300,000 customers, with a market share of 45%.

The car is sold, but what is the gross profit margin?

According to disclosures, NIO's gross profit margin in the third quarter was 8%, a significant increase from 1% in the second quarter. The gross profit margin of the vehicle was 11%, an increase of 4.8 percentage points from the previous quarter, returning to double digits. Regarding the increase in automobile gross profit margin, Li Bin said in the financial report conference call that it was mainly due to "the increase in the proportion of high-priced models, the reduction in parts costs, the scale effect brought about by the increase in delivery volume, and the refined management of sales policies."

In addition, NIO’s cash reserves in the third quarter were 45.2 billion yuan, an increase of 13.7 billion yuan from the previous quarter. Although this figure is not as good as Li Auto’s cash reserves of 88.52 billion yuan, it has exceeded Xpeng Motors’ cash reserves of 36.48 billion yuan.

In addition to the income from selling cars, the increase in cash reserves may also benefit from external financing. In the middle of this year, Weilai received a strategic investment of approximately US$1.1 billion from CYVN, an investment institution in Abu Dhabi, United Arab Emirates. In addition, in the first two months, NIO also issued a total of US$1.15 billion in convertible senior bonds.

02.

Net loss 4.5 billion

Weilai starts chop chop chop

Among the many data listed in the financial report, the most “eye-catching” is NIO’s net loss.

In the first three quarters of this year, NIO’s cumulative losses have exceeded those in the whole of 2022. In the third quarter, NIO's net loss reached 4.557 billion yuan. Although it has narrowed from 6.056 billion yuan in the second quarter, it is still far from ideal compared with ideals. Data shows that Li Auto's net profit in the third quarter was 2.81 billion yuan, which has been profitable for four consecutive quarters. Another company, Xpeng Motors, had a net loss of 3.89 billion yuan.

In the past few years, benefiting from abundant financing funds, NIO has expanded its business and is involved in many fields such as batteries, chips, mobile phones, battery replacement, smart driving, sub-brands, etc. However, the company's revenue growth cannot keep up with the rapidly expanding business territory, and this is one of the reasons why the outside world has questioned: the end of losses is far away, how can NIO give investors a certain profit "future"?

In September this year, rumors circulated that Mercedes-Benz invested 3 billion in NIO, but NIO did not respond to the matter. Xiao Yong, an investor close to NIO, told Phoenix.com: “Without this $3 billion, NIO’s net cash might be negative in the middle of next year.” As mentioned in Phoenix Technology’s report, many investors speculated that in addition to NIO’s financing from Abu Dhabi, NIO must also be negotiating with other investors for financing.

Of course, Li Bin also gave solutions to profitability and cash flow issues.

The first step is to reduce losses, and the second step is to expand sales. At the same time, the gross profit margin is guaranteed and "never reduce prices."

In order to reduce costs, Li Bin has launched a 10% layoff plan in November, involving between 2,500 and 3,000 employees. In the internal letter, Li Bin said that this was a "difficult decision that had to be made in the face of fierce market competition." All in order to win the qualification to participate in the new energy vehicle company finals, Weilai had to postpone and reduce investment in projects that could not improve the company's financial performance within three years.

In this earnings conference call, Li Bin said that self-made batteries are one of the projects that have been cut, and the company will choose to manufacture batteries through commissioned production. NIO's battery team was established in 2021. The team once numbered thousands of people, and its annual R&D investment exceeds 1 billion yuan. At that time, the company hoped to achieve a gross profit margin of more than 20% in the battery business and achieve profitability.

However, according to the financial report data of battery companies, in the first half of 2023, the gross profit margins of CATL's power battery system business, Guoxuan High-tech, and Yiwei Lithium Energy were 20.35%, 15.35%, and 15.93% respectively, and the lower gross profit margin of China New Aviation was 9.6%. This also shows that it is not easy for Weilai, which has only entered the battery field for two or three years, to achieve profitability in the battery business.

On the other side of cutting projects and jobs, Weilai is accelerating the construction of its own sales capabilities.


▲Picture: NIO car show scene (Source: NIO official website)

As of November this year, NIO has delivered 142,000 vehicles. At the same time, the company's vehicle sales guidance for the fourth quarter is 47,000-29,000 vehicles, which means that in the last month of this year, NIO needs to deliver at least 15,000 vehicles to achieve the minimum sales target. From August to November this year, NIO's sales were 19,300 vehicles, 15,600 vehicles, 16,000 vehicles, and 15,900 vehicles respectively. If no mistakes are made, NIO can still achieve the minimum sales target.

However, it should be noted that NIO’s previous sales target for 2023 is to double year-on-year, which means it needs to reach the target of 245,000 vehicles. Judging from the current progress of only delivering 142,000 vehicles, it is far from enough.

Weilai currently has about 5,700 sales consultants, of which more than 3,000 have recently joined the company. According to media sources, NIO’s sales staff evaluation system has begun to adjust, requiring each salesperson to bring in nine to ten test drives every month, and adopt an elimination mechanism.

NIO has eight car models on sale, namely ES8, ES6, EC6, ET7, ET5, ES7, EC7, and ET5T, which are basically high-end models priced at more than 300,000 yuan.

NIO also knows that the sales volume of high-end electric vehicles priced at more than 300,000 yuan is naturally inferior to that of lower-priced car companies. However, Li Bin has made it clear that the main brand "will never reduce prices." In order to expand sales, it has become the only choice to launch lower-priced sub-brands to compete with competitors.

NIO's sub-brand "Alpine" is expected to be launched in the second half of 2024, with a price range of 200,000 to 300,000 yuan - the mid-range market where new energy vehicles are currently the most competitive. According to market news, NIO will try to introduce a dealer model for its sub-brands to share store construction and operating costs.

If Alps can "win for Weilai", it will undoubtedly open up a vast mid-range car market for Weilai, and it will also help the main brand to stick to the positioning of a high-end brand. In May of this year, Li Bin said with a smile at a media communication meeting, "In the half year between now and the release of Alps at the end of the year, if Weilai still sells 10,000 units per month, Qin Lihong (President of Weilai) and I will have to find jobs."

All joking aside, for capital and the outside world, the true story can only be seen if the profit statement is given.

03.

How many trump cards does NIO have?

2023 has come to an end. Looking back on this year, it can be said that it has been a year of extreme involution for new energy vehicle companies.

There are many new energy vehicle manufacturers on the track, and in order to seize more market share, car companies have started price reduction mode. At the beginning of the year, Tesla’s domestically produced models Model 3 and Model Y saw significant price cuts, followed by Citroën’s official announcement of a price cut, followed by BYD, GAC Eon, Wuling, and Xpeng. Even Weilai, which has repeatedly insisted on not cutting prices, also announced a price cut of 30,000 yuan for all models in June this year.

In an internal speech on the ninth anniversary of NIO on the afternoon of November 20, Li Bin said more bluntly that the intensity of competition in the next two years will be beyond imagination. "This year, many peers have directly cut prices by 70,000 to 100,000, and many of them are operating with negative gross profits, especially some pure electric peers."

Regarding the next changes in the industry, Li Bin has already made a judgment: before 2019, it will be the group stage, from 2019 to 2024, it will be the qualifying stage, and after 2024, it will enter the final stage.

Li Bin, who has entered the final stage of the qualifying round, will certainly not give up the opportunity to play on the poker table. "Our current layout and direction need to ensure that we still have subsequent cards to play in the two years when the competition will be the most fierce."

To this end, NIO has given two trump cards at the end of 2023 - launching battery swap cooperation with Changan Automobile and Geely Holding and taking over the Jianghuai Automobile foundry, releasing a signal for independent car manufacturing.

On December 5, Weilai Automobile announced that the company will acquire the production equipment and assets of the first advanced manufacturing base and the second advanced manufacturing base from Jianghuai Automobile, with a total price of approximately 3.16 billion yuan excluding tax. At the same time, NIO Technology (Anhui) Co., Ltd. has also recently appeared in the "Vehicle Manufacturing Enterprise Credit Information Management System" of the Ministry of Industry and Information Technology.

In the past few years, both Lideal and Xpeng have obtained the production qualifications to build their own cars through acquisitions, and NIO is finally one step closer to independently building cars. Li Bin revealed that if cars are manufactured independently, production costs will drop by 10%. Next, the gross profit margin of cars will continue to increase, and is expected to reach 15% in the fourth quarter.

On the other hand, NIO officially announced its cooperation with Changan Automobile and Geely Holding in the battery swap business. In this official announcement, what attracted more attention from the outside world is that in NIO’s vast business territory, the battery swap business is expected to become a profitable business as soon as possible.


▲Picture: NIO battery swapping station (Source: NIO official website)

As of November 20, NIO has built 2,103 battery swap stations. According to Qin Lihong, the president of NIO, the cost of a single battery replacement station is about 3 million yuan. So, based on this rough estimate, Weilai’s investment in battery swap stations has reached 6 billion yuan.

Previously, the market believed that such a high-cost battery swap station would drag down NIO’s profit progress. According to data disclosed on NIO’s official website, the average number of power swaps per day at a power swap station exceeds 60,000. Based on the current level of around 2,000 power swap stations, the average daily power swap at a single station is only about 30 times. Research from Orient Securities shows that the maximum number of services per day for a single battery swap station is 411, and the break-even point can only be reached when the utilization rate reaches 20%, which means at least 88 battery swap services are provided per day.

NIO’s sales obviously cannot keep up with the construction of battery swap stations. How to solve the dilemma?

Opening the power swap network is NIO’s answer.

On November 21, Changan Automobile and NIO signed a cooperation agreement on battery swap business. The two parties will cooperate in promoting the establishment of battery swap standards, building and sharing battery swap networks, research and development of battery swap models, and establishing an efficient battery asset management mechanism.

On November 29, Geely Holding and NIO signed a strategic cooperation agreement on battery swapping. The two parties will carry out comprehensive cooperation in battery swap battery standards, battery swap technology, battery swap service network construction and operation, battery swap model development and customization, battery asset management and operation, and other fields.


▲Picture: Geely Holding and NIO officially announced their cooperation (picture source NIO official website)

Changan Automobile and Geely Holding are representatives of the leading state-owned enterprises and leading private enterprises in the automobile industry respectively. Li Bin said that the cooperation with Changan Automobile kicked off the opening of NIO’s power swap network and NIO Energy Cloud to the entire industry. In his internal speech on the ninth anniversary, Li Bin also revealed that in addition to Changan Automobile, there are 4 or 5 companies that are discussing cooperation in the battery swap business.

In addition to independently building cars and opening up battery swap cooperation, Weilai also left itself other trump cards.

In terms of chips, on September 21 this year, NIO announced its first self-developed chip - the lidar main control chip "Yang Jian". On the same day, NIO's mobile phone NIOPhone was released, with a starting price of 6,499 yuan.

In terms of autonomous driving, NIO is the first domestic car company to launch high-speed pilot assistance. Currently, all major car companies are studying the field of urban assisted driving, hoping to further enter the field of autonomous driving through urban assisted driving. At present, among the main competitors, Xpeng seems to be making slightly faster progress in the field of urban assistance. In September last year, Xpeng Urban NGP was still piloted in Guangzhou and is currently being promoted to many cities across the country. It is the first car company in the industry to implement urban NGP.

Of course, the trump card is the mid-range sub-brand Alps, which will be launched next year. It is foreseeable that when NIO uses its sub-brands to attack the price range of its competitors, in the near future, other car companies will also attack the high-end electric vehicle track where NIO has a market share of more than 300,000 yuan and accounts for 45% of the market.

Whether Weilai’s many “trump cards” can bring it more “certainty” depends on its performance next year.