Introduction | Lead

On December 21, 2024, at NIO Day, NIO unveiled its third brand, Firefly, and its inaugural model, also named Firefly. As NIO's most affordable offering, priced at approximately RMB 100,000, will the Firefly significantly boost NIO's sales?

Produced by | Heyan Yueche Studio

Written by | Zhang Chi

Edited by | He Zi

Total words: 2319

Reading time: 4 minutes

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NIO Day marked the debut of Firefly's first model.

△The Firefly, priced at RMB 148,800 for pre-orders, will officially hit the market in April next year.

With a pre-sale price of RMB 148,800, the Firefly is set to enter the market in April 2025. Its distinctive 'Trio' headlights and robust passive safety features, including a high-strength steel and aluminum alloy body comprising 83.4% of its construction and nine airbags—the highest in its class—stand out. Additionally, despite being a compact car, the Firefly boasts a spacious front trunk measuring 92 liters, expandable to 1250 liters with the rear seats folded down.

△The Firefly is equipped with nine airbags.

Crafting a high-quality compact car is no small feat.

Creating a top-notch compact car often poses greater challenges than designing a larger vehicle. The primary constraint lies in cost. Under a strict budget, product planning teams must strategically allocate limited resources to the most appealing features for users. To minimize costs, according to Firefly President Jin Ge, 80% of the Firefly's software and hardware leverage existing NIO technology, with the remaining 20% undergoing personalized modifications. In terms of intelligent driving, the Firefly will be equipped with Horizon Robotics' advanced driving chips.

△To minimize costs, 80% of the Firefly's software and hardware utilize existing NIO technology.

Despite leveraging NIO's technology, will the Firefly enjoy a significant advantage in gross profit margin per vehicle? NIO's least expensive model, the ET5, is priced at RMB 300,000. Sharing hardware across brands can save time, reduce R&D investment, and lower mold costs, but material costs are unlikely to drop significantly. Volkswagen's MQB platform faced similar issues where entry-level cars used the same hardware as mid-to-high-end models, significantly increasing overall vehicle costs. Thus, despite being a high-quality compact car, the Firefly's pre-sale price stands at RMB 149,900. At this price point, both emerging and established automakers offer numerous A-segment/compact sedans. For instance, XPeng's M03, priced from RMB 119,800, has surpassed 10,000 units sold for three consecutive months. Given this, why would consumers opt for a smaller pure electric vehicle?

△XPeng's M03, priced from RMB 119,800, has exceeded sales of 10,000 units for three consecutive months.

The Firefly's future prospects remain uncertain.

As the Firefly targets premium compact cars like MINI and Smart, its market potential in China is inherently limited. Chinese consumers prefer larger vehicles with spacious interiors. Additionally, intense price competition in the past two years has significantly reduced domestic car prices in this segment. Even NIO CEO William Li acknowledges that the Firefly's domestic market is "indeed quite limited" but holds great potential in the global market.

Regarding the domestic market, William Li is pragmatic. Competitors like MINI and Smart currently experience modest sales in China. For instance, Smart, now an all-electric brand supported by Geely and Mercedes-Benz, consistently sells around 3,000 units monthly in China. In November, Smart sold 3,889 units across its three models: Smart #1, Smart #3, and Smart #5.

△With the support of Geely and Mercedes-Benz, Smart's monthly sales in China consistently hover around 3,000 units.

In the global market, the Firefly's prospects are equally uncertain. While the European Union market is enthusiastic about pure electric compact cars, it imposes punitive tariffs on domestic electric vehicles. Given NIO's current financial resources, establishing a new factory in Europe is challenging. Collaborating with giants like Stellantis, as XPeng did, could leverage European factories and global dealer networks, brightening Firefly's prospects. However, entering the overseas market alone may underestimate multinational automakers' global deployment and operational capabilities.

Moreover, the Firefly could encounter production capacity issues similar to those faced by Letao. Letao's L60 sold 832 units in its first month, followed by 5,082 in October and 4,319 in November. NIO cites production capacity constraints, with actual deliveries lagging behind orders. Excluding Letao sales, NIO's position on new energy vehicle sales rankings may decline further. With Letao's production issues unresolved, introducing the Firefly raises further questions about NIO's production capacity.

△Letao is constrained by production ramp-up.

Can NIO effectively manage three brands?

It's unclear if launching the Firefly brand is necessary for NIO, given its existing NIO and Letao brands. This approach contrasts with current trends.

XPeng, initially planning a new sub-brand called MONA, opted to sell it as a series under the XPeng brand to save costs. The MONA series' first model, the M03, is performing well, boosting XPeng's overall sales. Similarly, Geely integrated Geometry into its Galaxy brand, reflecting a consolidation strategy. In contrast, NIO struggles with sales and quarterly losses of around RMB 5 billion. Deploying three sub-brands and establishing distinct dealer networks adds significant pressure.

△Unlike NIO, which continues to expand its brand portfolio, many domestic automakers are consolidating their operations.

For NIO, the priority is to stem losses and achieve profitability by 2026, as envisioned by William Li. If the Firefly and NIO brands are too disparate, positioning Firefly as a series under Letao could maximize cost savings, given Firefly's sales are unlikely to surge in the short term. However, William Li and NIO's management team have already established the three-brand matrix, including brand awareness and sales networks, at considerable initial investment. To succeed with Firefly, NIO must maximize resource sharing while prudently managing expenses to maximize sales at minimal cost.

△NIO needs to be frugal with its Firefly project.

Commentary

By introducing the Firefly brand, NIO aims to achieve economies of scale and overall profitability through increased sales. However, Firefly's market segment is not mainstream in China, and NIO's current size offers a smaller scale effect compared to giants like BYD and Geely. Expanding into overseas markets is unlikely to be NIO's short-term focus, as significant initial investment is required, which NIO can only afford after achieving profitability. Only then can it better manage its global operations.

(This article is originally created by Heyan Yueche and cannot be reproduced without authorization)