Author | Xue Xingxing

Editor | Zhang Wen

Cover | "Exile"

NIO's aggressive subsidy policy in September was most directly reflected in its latest third-quarter financial report. During the quarter, NIO sold 61,855 vehicles, an increase of 6,423 units over the same period last year, but automotive sales fell 4.1% year-on-year. The average price per vehicle further declined to 270,000 yuan, the lowest level since 2021.

Fortunately, due to higher sales and further declines in battery prices, NIO's automotive gross margin for the quarter increased to 13.1%, the highest level in the past two years. NIO's gross profit also increased to 2 billion yuan during the quarter, a year-on-year increase of 31.8% and a month-on-month increase of 18.9%. Free cash flow also turned positive during the quarter.

However, these squeezed gross margins ultimately did not significantly improve NIO's losses. NIO still incurred a net loss of 5.06 billion yuan during the quarter, the same as the second quarter, roughly equivalent to 2.8 times Xiaopeng's net loss for the quarter. In the first three quarters of this year, NIO's cumulative net loss exceeded 15 billion yuan.

At the earnings call, Li Bin said that in the short term, their high investment in R&D, the construction of battery swap stations, and the construction of the Lido sales and service system would all create short-term pressure for them. However, they remained confident that losses would continue to narrow, and their operating goal of achieving full-year profitability by 2026 would not change.

Analysts may not be entirely convinced. Next year, NIO will enter a larger product cycle, with the second brand Lido set to launch two new SUV models and the third brand Firefly to debut at the end of the year. NIO will also introduce a new executive sedan, the ET9, as well as facelifts of existing models, all of which imply greater capital expenditures.

More than one analyst raised questions about next year's capital expenditure plans during the earnings call. NIO's CFO Qu Yu said that next year's budget was still being formulated and that they would carefully manage the company's capital expenditure investments. They also did not have an urgent financing need and would dynamically adjust their financing pace based on market conditions. He emphasized that with sales growth and operational improvements next year, the company's losses would gradually narrow.

"So far, everything is going according to plan," Li Bin said when asked about the company's recent sales, adding that he was confident in achieving a 100% year-on-year sales increase next year.

01 | "There is still a gap between everyone's expectations and our assumptions"

Before Lido's launch, NIO barely maintained an average monthly sales volume of over 20,000 units through aggressive subsidy policies. However, once subsidies slowed, sales of NIO's main brand immediately declined.

October was the first full delivery month after Lido's launch. During the month, NIO reduced promotional spending for its main brand by 15,000 yuan, and deliveries immediately plummeted from 21,181 units in September to 16,657 units. With Lido's 4,319 sales, NIO barely maintained sales above 20,000 units for the month.

NIO Monthly Deliveries / Source: NIO

Li Bin said at the earnings call that the decline in NIO brand deliveries was a proactive adjustment. Although their monthly deliveries reached 20,000 units before September, gross margin pressure was also significant. They reduced promotional spending in October, which would undoubtedly impact sales, "but this is basically within our expectations," he said.

Overall, NIO still hopes to maintain the high-end positioning of its main brand. As subsidies slow, management said they are confident in increasing the gross margin to 15% in the fourth quarter. Qu Yu said at the earnings call that gross margins would increase to 20% next year.

Lido will be the main driver of NIO's sales for some time to come. Li Bin revealed at the earnings call that Lido would launch two new SUV models next year, a medium-to-large six/five-seater SUV and a large five-seater SUV. Both vehicles have completed development and are in the final preparations for mass production. He said that these two vehicles are comparable to Li Auto's L8 and L7 and that Lido's prices will be very competitive compared to Li Auto.

However, Lido's first model, the L60, is still limited by production capacity, with delivery cycles extending to up to 14 weeks. Compared to Xiaopeng, which also launched a second brand, Lido L60's ramp-up in production capacity has been slower. According to their plans, monthly deliveries of the L60 will reach 10,000 units by December, and production capacity will reach 20,000 units by March next year. Xiaopeng's MONA M03 has delivered over 10,000 units for two consecutive months.

Li Bin believes that Lido's production ramp-up is a reasonable pace and within their expectations. He emphasized the advanced technology and architecture of the L60, which have an impact on production capacity. They do not want to build excessive pre-delivery inventory to "appear to have higher deliveries in the first and second months." He said, "Overall, there is still a gap between everyone's expectations and our assumptions."

"Shan Shang" previously reported on the competitive relationship between NIO and Lido in frontline sales. Li Bin acknowledged at the earnings call that a "very small number" of users would have to choose between NIO and Lido, but based on data, this group accounts for "only 20%" of users. Lido's largest source of users is Tesla.

02 | No urgent financing needs

NIO will unveil its third brand, Firefly, at the NIO Day in December, and NIO's executive flagship sedan, the ET9, will also officially go on sale next year. Together with the two models already planned by Lido, NIO will have up to 13 models on sale next year.

Currently, NIO has not publicly announced sales plans for Firefly. If Firefly establishes its own sales network similar to Lido, it will further increase NIO's already substantial capital expenditures. In the third quarter of this year, due to Lido's launch, NIO's selling and administrative expenses have increased to 4.1 billion yuan, a year-on-year increase of 13.8% and a month-on-month increase of 9.3%.

NIO CFO Qu Yu said that they are still increasing investment in the construction of the sales network and hope to achieve 300 stores by the end of the year. Before next year, their sales expense ratio will remain high. By the first quarter of next year, when Lido's basic effectiveness is in place, the sales expense ratio will gradually return to normal.

Lido Store / Source: Lido Auto

NIO's battery swap station construction has not stopped. NIO previously emphasized that its third brand, Firefly, will also adhere to the battery swap model in China. As of November 22, they have built 2,684 battery swap stations. Qu Yu said that to support the sales growth of NIO, especially Lido, the overall layout of their battery swap stations will further accelerate next year to achieve the goal of "battery swap access in every county." However, advanced layout will bring losses to their other businesses.

At the earnings call, analysts were particularly concerned about NIO's capital expenditures and profitability plans for next year. Qu Yu said that as a "growing automaker," sales are still the most important for NIO. With the launch of new products from all three brands next year, they are very confident in sales growth. They are also continuing to reduce costs and increase efficiency, and with sales growth and operational improvements, the company's losses will gradually narrow.

Next year's capital expenditure budget is still being formulated, but the overall goal should be controlled at a similar level to this year's 8 billion yuan. "We will carefully manage the company's capital expenditure investments," he said.

During the quarter, NIO had cash and cash equivalents, restricted cash, short-term investments, and long-term time deposits totaling 42.2 billion yuan. Qu Yu said they do not have an urgent financing need.

Last year, NIO received a total of $3.3 billion in financing from the Middle Eastern investment institution CYVN in two installments. In September this year, NIO China once again received a strategic investment of 3.3 billion yuan from investors such as Anhui State-owned Assets. NIO stated in its financial report that this investment is still awaiting regulatory approval, and the investment funds will be disbursed in two installments.

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