How far is NIO from profitability?

09/06 2024 423

On September 5, NIO announced its second-quarter financial results.

For NIO, this is an impressive report card.

Revenue in the second quarter reached 17.45 billion yuan, setting a new record for quarterly revenue.

Deliveries totaled 57,373 units in the second quarter, also a new record for quarterly deliveries.

For an automaker, these are the most tangible achievements.

NIO invested 3.22 billion yuan in R&D in the second quarter, continuing its commitment to full-stack in-house development of core technologies, driving high-quality growth.

NIO plans to maintain R&D investment of approximately 3 billion yuan per quarter going forward.

Importantly, NIO's sales growth is sustainable, not just a temporary surge.

For the third quarter, NIO expects to deliver 61,000 to 63,000 vehicles, with revenue guidance of 19.11 to 19.67 billion yuan.

With 20,498 deliveries in July and 20,176 in August, September deliveries are expected to exceed 10,000 units.

I've already thought of the headline for NIO's press release on October 1: "NIO Delivers Over 20,000 Units for the Fifth Consecutive Month"

Assuming no unexpected events, NIO is poised to set new quarterly delivery and revenue records in Q3.

However, NIO is still operating at a loss. It recorded a loss of 5.046 billion yuan (US$694.4 million) in Q2, following a net loss of 5.1846 billion yuan in Q1.

As of June 30, 2024, NIO had cash reserves of 41.6 billion yuan (US$5.7 billion).

While this may seem substantial, given NIO's current burn rate, the situation remains precarious.

Therefore, NIO is working hard to enhance its self-sustainability.

NIO's gross margin on vehicle sales was 12.2% in Q2, up from 6.2% in Q2 2023 and 9.2% in Q1 2024.

NIO's overall gross margin was 9.7% in Q2, up from 1.0% in Q2 2023 and 4.9% in Q1 2024.

NIO stated, "We will continue to optimize product costs and take market actions to increase the proportion of high-margin models, aiming to gradually raise our vehicle gross margin in Q3 and Q4. We hope to achieve a 15% gross margin for our vehicles by Q4."

Looking further ahead, Li Bin's expectations for the NIO brand are focused on the market above 300,000 yuan. He believes that with the launch and updates of new products, it is a reasonable goal for NIO to sell 30,000 to 40,000 units per month in China in the long run."

"A monthly sales volume of 40,000 units and a gross margin of 25% are our long-term operational targets," he added."

In a previous earnings call, Li Bin stated that "NIO can achieve profitability with monthly sales of 30,000 units and a gross margin of 20%."

Therefore, NIO needs to sell more cars vigorously going forward.

01

About Letao

Currently, much of the attention on NIO is focused on Letao, NIO's second brand.

Previously, NIO and Letao were positioned as follows: NIO targeted the high-end market (above 300,000 yuan), while Letao aimed for the mass market (200,000-300,000 yuan). NIO secured profits, while Letao ensured scale. NIO focused on after-sales, while Letao captured market share upfront."

However, it seems that the situation has changed slightly. Letao may not engage in intense competition and will still aim to maintain a certain gross margin.

During the earnings call, Li Bin stated, "Our current pre-sale price is 219,900 yuan, which is 30,000 yuan cheaper than Tesla's Model Y. While we still have some pricing flexibility, our official launch price on September 15 will be lower, but we will balance gross margin and pricing. We won't adopt an aggressive pricing strategy and will ensure a reasonable gross margin for the vehicle."

The market Letao targets is over 8 million units, and combined with BaaS and the charging and swapping network, it is highly competitive. In terms of sales volume, its upside potential is much higher. Letao's medium- to long-term operational target is a 15% gross margin on vehicle sales."

However, it is important to note that competition in the 200,000-300,000 yuan smart SUV segment is fierce, with several new models expected to launch in the coming months, including the all-new IM Motors LS6, Zeekr 7X, Lantu Zhiyin, and AITO 07, in addition to Tesla's Model Y, which remains a formidable competitor. Many in the automotive industry are closely watching Letao L60's performance.

Regarding production capacity, Li Bin noted that the supply chain will require a ramp-up process after the official launch. A certain volume of deliveries will occur in September, with the majority taking place in Q4. Total deliveries in Q4 are expected to reach 20,000 units, with gradually increasing monthly deliveries. "We hope to achieve monthly deliveries of 10,000 units by December this year and aim for 20,000 units per month sometime next year," he said. This indirectly suggests that Letao L60 orders may indeed be strong."

Of course, whether Letao can sustain its sales growth in the long run will depend on customer feedback."

02

About Firefly

Firefly is NIO's third brand, positioned as a "boutique small car." In China, Firefly will share the same sales network as NIO, similar to the relationship between MINI and BMW."

The first Firefly model is scheduled for delivery in the first half of next year, and all preparations are progressing smoothly. This means that by 2025, NIO will have three brands under its umbrella."

In terms of production capacity, NIO is already preparing for its full product line for 2025-2026. The company has two factories, with F2 already operating on a double-shift basis and expected to reach full double-shift capacity by the end of September to October."

Additionally, NIO has started construction on a third factory, which is expected to commence production in Q3 next year." "By Q3 next year, we will have at least three factories, which we believe will meet our long-term production needs," Li Bin said."

03

NIO's Methodology

NIO has developed its own methodology for future sales growth:

Firstly, expanding its brand portfolio across different price ranges. By next year, NIO will have three brands covering the 140,000-800,000 yuan range, and with BaaS (battery-as-a-service), it will cover the 100,000-700,000 yuan target range, providing a broader target market than its competitors."

Secondly, expanding its product categories. With multiple brands and a more comprehensive product lineup, NIO can leverage its differentiated advantages."

Thirdly, expanding regional coverage. By expanding its sales outlets to third- and fourth-tier cities, ensuring charging and battery swapping services in every county, and advancing into overseas markets, NIO can reach a wider audience."

NIO plans to expand both its sales and service network and its energy replenishment network, targeting incremental growth in third- and fourth-tier cities."

At the "NIO Charging Day 2024" in August, NIO announced the "Charging in Every County" plan, aiming to achieve nationwide charging coverage in every county and battery swapping coverage in 14 provincial-level administrative regions by June 30, 2025. Regarding battery swapping stations, NIO plans to complete coverage in 27 provincial-level administrative regions by the end of 2025, encompassing over 2,300 county-level administrative regions."

Why is NIO doubling down on battery swapping? Because the expansion of the battery swapping network has indeed led to increased sales."

Moreover, since decoupling lifetime free battery swapping benefits from vehicle sales last year, the number of paying users has increased with sales, gradually boosting NIO's revenue and profits from battery swapping services."

NIO stated that as sales of its main brand and Letao increase, this segment will soon reach breakeven or profitability."

Furthermore, NIO is accelerating its global expansion. On August 20, its official website in the United Arab Emirates went live, and products are expected to be officially launched and delivered in the fourth quarter of this year." "In terms of broader global market expansion, we will actively evaluate and explore opportunities while ensuring controllable investments and efficient operations, introducing our products to more global markets," NIO said."

In summary, NIO still has some way to go before achieving profitability. Boosting sales, enhancing self-sustainability, and continuing to raise funds are the priorities for NIO going forward."

The end.

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