Written by: Puzi Xu

With the release of NIO's Q3 2024 financial report, an even more mysterious question is posed to NIO's founder, Li Bin. During this financial report meeting, Li Bin remained enthusiastic about the future: by 2025, the company aims to achieve 100% sales growth, and by 2026, it aims to achieve overall profitability. However, after the price reduction promotion of NIO's main brand in Q3, despite delivering a new record, the company's revenue declined again, and the situation of this established new force did not improve much. Moreover, with the disorder in cost control, NIO's operating losses continued to widen. Over the years, NIO's extreme design, considerate service, and unique style have won the favor of users. However, in these years, NIO has been somewhat unlucky, catching up with consumer downgrading where cost-effectiveness has replaced prestige. Yet, NIO did not lower its standards early enough and missed many opportunities.

From 2018 to the first three quarters of 2024, NIO has accumulated losses exceeding 100 billion yuan: this is almost an astronomical figure that could define the legitimacy of any automaker's survival. Nowadays, NIO's profitability has almost become a Goldbach conjecture similar to Jia Yueting's "coming back to China next week."

Turning losses into profits: NIO's mystery?

There have always been two major controversies surrounding NIO: first, when will NIO turn losses into profits; second, is NIO's battery swapping model the right path. However, as NIO's battery swapping "circle of friends" grew stronger in 2024, more automakers cooperated with them, and due to users' strong dependence on the battery swapping model, it has become a significant advantage for NIO. However, the problem plaguing NIO's continuous losses has always existed: in Q3 2024, NIO reported a net loss of 5.059 billion yuan, a year-on-year increase of 11.0%. Additionally, the company's revenue for the quarter was 18.673 billion yuan, a year-on-year decline of 2.1%. This also means that not only did NIO's revenue decline, but the speed of its losses is also accelerating. Generally speaking, new force automakers invest heavily in their early stages, with long payback periods. The market focuses on sales volume and growth, and losses are not a priority. However, NIO's problem is almost a "special case": from 2018 to 2023, NIO accumulated losses of over 86.63 billion yuan. Adding the 15.53 billion yuan in losses for the first three quarters of this year, in less than seven years, NIO's cumulative losses have exceeded 100 billion yuan.

Compared to traditional automakers or new forces in the automotive industry, NIO's scale and rate of losses have consistently surpassed market expectations. During the Q3 financial report, Li Bin once again provided a profitability forecast, stating that the company aims to achieve 100% sales growth in 2025, with annual sales reaching approximately 450,000 units, and plans to achieve profitability by 2026. Notably, during the 2021 performance call three years ago, Li Bin stated that the company would achieve profitability by 2024. Considering the fierce industry competition, coupled with Li Bin's personal charm and strong financing ability, NIO's circle of friends can expand from China to the world. The market may not be overly concerned about whether NIO will fall into a slump.

In fact, sales can be increased through new product launches, and gross margins can be improved by spreading manufacturing costs through increased sales. However, a more crucial issue for NIO at present is the disorder in cost control: whether it's industry leader Tesla or NIO's good friend XPeng, despite being at different stages of development, in recent years, various automakers have been able to "tighten their belts" in terms of non-manufacturing costs for vehicles. However, in Q3, NIO's problem of excessive spending persisted. The 2 billion yuan in gross profit gained from the hard work of reducing prices to sell cars could not offset NIO's slightly poor cost control, which directly led to the company's continuously widening operating losses.

In Q3, NIO's research and development, sales, general, and administrative expenses amounted to 7.426 billion yuan. Among them, NIO's sales, general, and administrative expenses were 4.108 billion yuan, a year-on-year increase of 13.8% and a quarter-on-quarter increase of 9.3%, which was the direct cause of the 8.1% year-on-year increase in operating losses, reaching 5.237 billion yuan, outperforming market expectations. Additionally, as of the end of Q3, NIO had 42.2 billion yuan in cash and cash equivalents, an increase of 600 million yuan compared to the previous quarter. Regarding this, NIO's Chief Financial Officer stated, "With the continuous growth in sales volume and steady improvement in gross margins, we achieved positive cash flow in this quarter."

Interestingly, NIO's accounts payable and notes were 24.585 billion yuan in Q2 2024 and 30.197 billion yuan in Q3, a quarter-on-quarter increase of 5.6 billion yuan. From this perspective, the increase in NIO's occupation of upstream accounts payable may also be another reason for the increase in its cash flow.

NIO owners are no longer high-end

Compared to the disordered cost control in Q3, NIO's fundamental performance in vehicle manufacturing was mixed. In Q3, NIO's revenue was 18.673 billion yuan, a year-on-year decline of 4.1% and a quarter-on-quarter increase of 7.0%. Among them, automotive manufacturing revenue was 16.697 billion yuan, a year-on-year decrease of 4.1% and a quarter-on-quarter increase of 6.5%. Regarding the closely watched gross margin, NIO's automotive gross margin was 13.1%, returning to double digits. However, the improvement in NIO's gross margin did not solely come from its own cost reduction and efficiency enhancement or scale effects but was more dependent on the price reductions of upstream raw materials. Considering that if battery raw material prices rebound from their lows in Q4, NIO's cost pressure will surge. At this point, whether to reduce prices to promote sales and gain survival space or to stabilize prices to maintain gross margins becomes a "trolleybus" dilemma for NIO. On the one hand, reducing prices to promote sales does stimulate NIO's sales growth, enabling the company to deliver 61,855 vehicles in Q3, with sales increasing by 11.6% year-on-year and 7.8% quarter-on-quarter. Among them, NIO's main brand delivered 61,023 vehicles, and Letao delivered 832 vehicles.

The embarrassment for NIO lies in the fact that other automakers can often cover price reductions with increased sales volume, achieving revenue growth through small profits but quick turnover. However, after NIO's sales increased, the prices of its main brand models continued to fall, with the average price per vehicle coming to around 270,000 yuan, a year-on-year decrease of 14%. The increase in sales volume could not compensate for the losses caused by the price drop, leading to a year-on-year decline in NIO's revenue in Q3. On the other hand, if NIO continues to reduce prices, it will be difficult to guarantee gross margins, which will deal a heavier blow to NIO's already tight financial statements.

In fact, during the performance meeting after the Q3 report, NIO stated that it would increase its gross margin from the baseline target of 15% to 20% by 2025. Moreover, during the Q&A session of the financial report, regarding the decline in NIO's automotive sales in October, Li Bin mentioned that the decline was a proactive adjustment by NIO due to the significant gross margin pressure brought about by the initial sales increase. Continuously improving the gross margin of the NIO brand is one of the company's core objectives. Whether it's failing to maintain revenue through price reductions or failing to maintain profits through price stability, the core of the series of problems that have erupted at NIO actually lies in the fact that its current main brand models are struggling to secure consumer premiums. It is impossible to maintain sales while also maintaining prices; the ideal state of having both does not exist anymore.

This also means that in the face of a fiercely competitive market, NIO's high-end fundamentals are beginning to shake, inevitably losing their advantages. In this regard, NIO's actions speak louder than words. In the Q4 delivery guidance, NIO expects to deliver 72,000 to 75,000 vehicles, generating revenue of 19.68 billion to 20.383 billion yuan. Based on this calculation, NIO's average vehicle price in Q4 will be 262,400 to 283,100 yuan, continuing to decline, and NIO's promotional efforts for its main brand may not stop.

Another piece of evidence lies in NIO's continuing inventory increase. At the end of Q3, NIO's inventory reached 6.718 billion yuan, an increase of nearly 2 billion yuan compared to the previous quarter's 4.885 billion yuan. To some extent, this indicates that even though NIO's "price reduction to sell cars" strategy in Q3 increased sales, the effort was still insufficient, and NIO still has a considerable amount of inventory vehicles that need to be digested. Therefore, it is almost certain that NIO will continue to reduce prices in Q4.

Achieving the gross margins Li Bin desires while maintaining NIO's Q4 sales volume is not easy. At this point, Letao is the only game-changer for NIO in Q4.

Who is dragging down Nice Guy Li Bin?

'With sales doubling next year, overall operations will continue to achieve positive growth. Losses are expected to narrow next year, with the goal of achieving profitability by 2026.' During the financial report meeting, Li Bin looked to the future with enthusiasm. However, for NIO to take a small step forward, Letao needs to take a big step forward. On September 19, with the launch of the Letao L60 at the end of the Q3 statistical period, one of the questions raised by the public regarding the Letao brand was whether it was necessary to operate Letao and Firefly as independent brands when NIO's main brand had not yet reached a certain scale, potentially damaging the influence of NIO's main brand and even "backstabbing" older users. Regarding these sharp questions, Li Bin also gave candid answers.

During the Q&A session of the financial report, he stated that using two or three brands to target different users has so far been a successful branding strategy. Letao's target users are still those in the same price range. For example, users of the Tesla Model 3. Li Bin also mentioned that based on internal data analysis, Letao's impact on NIO users is only about 20%. Therefore, the user increment brought by the two brands to NIO is far greater than the decrease. From this perspective, betting on Letao is not only NIO's only choice but also a battle it cannot afford to lose. If Letao can open up sales channels in Q4 and form a positive cycle of scale benefits, it will undoubtedly greatly boost NIO's revenue, gross margins, and other key indicators, providing timely assistance to Li Bin. In fact, throughout its journey, NIO's core selling points have focused on brand tone, service, and battery swapping.

Considering the birth of the new Letao brand, the price reduction has deviated from NIO's high-end positioning. Without brand premiums, compared to the Model Y and other brands, battery swapping is the biggest difference for Letao L60. Previously, Li Bin introduced that the company plans to achieve county-level charging station coverage nationwide by June 30, 2025, ensuring every county has NIO charging stations. By the end of 2025, NIO aims to complete county-level battery swapping station coverage in 13 provincial administrative regions, including Hunan, Hebei, and Shaanxi. For Letao, this is an advantage that other new brands do not possess. However, the direct challenges faced by Letao are not new: previously, in 2021, many older NIO owners faced embarrassingly long ET5 delivery times of over six months. From this perspective, NIO's inefficient internal organization does not seem to have fundamentally improved in the past two years. Letao has been on the market for nearly two months and has only delivered over 7,000 vehicles. NIO's sluggish pace may be related to Li Bin's excessive leniency, indulgence, and disorganization within the company.

Although Li Bin has led NIO to overcome various pressures and rebounds with strong resilience and affinity, he has been able to turn the tables several times during crises. For example, NIO, which was once on the brink of collapse in 2019, achieved a turnaround in 2020. In 2021, when NIO did not deliver any new vehicles throughout the year, it launched five new models within four months in 2023. When NIO completed the production of 500,000 vehicles in six years in 2024, Li Bin said, 'Whether it's our highlight moments or our darkest times, our users have always stuck with us, which is particularly touching.'

To some extent, due to the particularity of China's new energy market, many users have become more cautious after witnessing the rapid collapse and elimination of automakers. Nowadays, after overcoming numerous difficulties, the only obstacle between potential, onlooking mass users and NIO may be the word "profitability." However, Li Bin's strongest affinity is also a double-edged sword. Previously, XPeng, which was once in chaos, underwent continuous reflection and rectification by He Xiaopeng, who cooperated with Wang Fengying to restructure the mid-to-high-level personnel. Almost all the "old-timers" in the company were purged. During the Q3 2023 financial report, He Xiaopeng even made a "hellish" joke: 'XPeng's listed company financial report had 12 senior executives, but today, only two remain.'

During that protracted personnel adjustment, there was almost no upper limit: within a year, several core executives, including XPeng's founding team (e.g., co-founders Xia Heng and He Tao stepped down from the "core management team" and took on new identities as "lifetime honorary" members), successively left XPeng. After such a deep adjustment, XPeng Automobile finally began to recover and get back on track. From this perspective, history has proven countless times that once an organization grows larger, the "enemy" that often hinders its strength may still be internal.