On June 6, NIO released its first-quarter financial report for 2024. The report showed that NIO's revenue in the first quarter was 9.91 billion yuan, a year-on-year decline of 7.2% and a quarter-on-quarter decline of 42.1%. The net loss reached 5.1846 billion yuan, representing a 3.4% quarter-on-quarter reduction in losses.

With the disclosure of NIO's Q1 financial report, the first-quarter reports of the three emerging automakers NIO, Xpeng, and Li Auto have all been released. In a horizontal comparison, although Li Auto saw declines in multiple indicators quarter-on-quarter, it still led the pack in terms of revenue and net profit. For reference, Li Auto's Q1 total revenue was 25.6 billion yuan, with a net profit of 591 million yuan for the quarter; Xpeng Motors' Q1 revenue was 6.55 billion yuan, with a net loss of 1.37 billion yuan.

Despite the less-than-ideal Q1 performance, NIO's founder, chairman, and CEO Li Bin stated in the subsequent earnings call that the company was in a product transition phase in the first quarter, with a vehicle gross margin of 9.2%. At the same time, with the improvement in the utilization rate of charging and battery swap infrastructure and the enhancement of the profitability of after-sales service business, the gross margin of other businesses has improved significantly. "The vehicle gross margin is expected to return to double digits in the second quarter and continue to improve in the third and fourth quarters."

Optimizing gross margin is an important task for the next stage

The financial report showed that NIO's gross margin for the first quarter of 2024 was 4.9%, compared to 1.5% in the first quarter of 2023 and 7.5% in the fourth quarter of 2023. Among them, its Q1 automotive gross margin was 9.2%, compared to 5.1% in the first quarter of 2023 and 11.9% in the fourth quarter of 2023.

From the aforementioned gross margin data, although NIO has improved year-on-year, it has temporarily fallen behind in the competition with Li Auto and Xpeng, as both of the other two companies have double-digit gross margin levels. For reference, Xpeng Motors' Q1 gross margin in 2024 was 12.9%, while Li Auto's figure was 20.6%.

"Starting from June, we will focus on adjusting the product mix, increasing the ratio of high-gross-margin products in the first tier, and narrowing the short-term promotional policies. Overall, optimizing the gross margin while ensuring steady growth in sales is an important task for our next stage," Li Bin said in the earnings call.

Despite the less-than-satisfactory Q1 performance, NIO remains optimistic about its future prospects. The company expects to deliver between 54,000 and 56,000 vehicles in the second quarter of 2024, representing a year-on-year increase of approximately 129.6% to 138.1%. At the same time, it expects total revenue in the second quarter to reach between 16.587 billion yuan and 17.135 billion yuan, representing a year-on-year increase of approximately 89.1% to 95.3%.

From a market performance perspective, NIO's sales in the second quarter have shown a trend of recovery. NIO mentioned in its financial report that as of May 31, 2024, the company's cumulative vehicle deliveries have reached 515,811 units. Among them, 15,620 and 20,544 vehicles were delivered in April and May 2024, respectively, indicating a steady increase in deliveries.

Regarding the reasons for the recent sales growth, Li Bin explained that one factor is the 2024 product transition, which has increased product competitiveness; the second is the BaaS strategy and price adjustment, which have promoted user acceptance of the leasing model, with 80% of new users choosing the BaaS model; the third is the expansion of the sales network and improvement in sales capabilities; and the fourth is the increase in battery swap stations and external recognition of NIO Power.

"The NIO ET9 has begun to gradually transition to the third-generation platform, adopting more self-developed technologies (such as chips), significantly improving the gross margin, and there is room for battery cost reduction. The target average gross margin for the third-generation platform is 20%, with a scale of 30,000 units per month. This is NIO's goal in the Chinese market," he revealed in the call.

NIO Energy will continue to open up investment in the future

At the first-quarter earnings call, the future development of NIO Energy became a focus of investors and the industry.

According to the financial report, on May 31 this year, NIO's subsidiary NIO Holdings Limited ("NIO China") and NIO Energy Investment (Hubei) Co., Ltd. ("NIO Energy"), a wholly-owned subsidiary of NIO China, entered into a definitive agreement with Wuhan Guangchuang Emerging Technology Phase I Venture Capital Fund Partnership (Limited Partnership) ("Investor") regarding investment in NIO Energy.

Pursuant to these agreements, the Investor will initially invest RMB 1 billion in cash in NIO Energy, subject to the satisfaction of customary closing conditions in the definitive agreements. Upon completion of the investment, the Investor will hold a 10% equity stake in NIO Energy and enjoy certain customary investor rights. The Investor has the right to invest an additional maximum of RMB 500 million in NIO Energy at the same valuation as the current transaction before the end of NIO Energy's next round of financing.

"NIO Energy has independent financing plans, and we will continue to open up investment in the future," Li Bin pointed out in the earnings call. We are very optimistic about the long-term sustainability of NIO Energy's operations. We are currently in the investment stage and need to establish the network first, which requires some advance investment, but the overall profitability is very clear.

According to him, "Each battery swap station can achieve breakeven with 60 orders per day. Considering investments in areas such as energy storage and flexible upgrades, we have no doubt about its profitability."

In addition to NIO Energy, NIO will also officially launch a multi-brand strategy to enter the broader mainstream mass market. In mid-May this year, NIO's second brand, ONVO, was officially launched. In terms of positioning, ONVO aims at the mainstream family user market, forming a certain brand differentiation with the high-end positioning of NIO.

After ONVO, NIO's third brand, Firefly, has also made new progress. Li Bin revealed that the development progress of Firefly is very smooth. "Its positioning in China is a high-quality small car with a price of around a hundred thousand yuan, but it is set up according to very high safety and quality standards. Currently, it is planned to share the sales network with NIO, similar to BMW and MINI. We strive to start delivery in the first half of next year, but the release date has not been determined yet."

He also pointed out that the positioning of the three brands is very clear. NIO is positioned in the high-end market, targeting business and family audiences; ONVO targets mainstream family market users; and Firefly is positioned as a high-quality small car in China, serving the needs of families' second vehicles. "In terms of price ranges, the main sales are in the tens of thousands, hundreds of thousands, and several hundred thousand yuan, with very clear distinctions. Their common feature is that they all support battery swapping."