Smart electric vehicles are a long-term track that requires lasting endurance, and it is the comprehensive strength of the players that is tested. Nio must not only continuously expand the scale of production and marketing, improve profitability, but also maintain consistent service standards in order to continuously improve the brand reputation and achieve the biggest breakthrough in the history of Chinese brand cars.
2021 is coming to an end, and the outbreak of new energy vehicles has become the biggest highlight of the automotive market this year. In the first 11 months, new energy vehicles sold 2.99 million units (CAAM forecasts 3.4 million units for the whole year), an increase of 1.6 times year-on-year, and the market penetration rate reached 12.7%. Now the market is generally optimistic that new energy vehicles will come out of a steeper growth curve from 2022, and the "double carbon" target will provide medium- and long-term growth space.
In the high-growth market, the performance of new car-making forces is remarkable. After the market baptism in recent years, the head car companies in the new car-making forces have gained a firm foothold, and the differences in brand positioning, corporate strategy and business model are becoming more and more obvious. But even so, they are still far from success.
Smart electric vehicles are a long-term track that requires lasting endurance, and it is the comprehensive strength of the players that is tested. For Weilai, which has the highest brand positioning among the new car-making forces, it is necessary to continuously expand the scale of production and sales, improve profitability, and maintain consistent service standards in order to continuously improve the brand reputation and achieve the biggest breakthrough in the history of Chinese brand cars.
Qin Lihong, co-founder and president of NIO
On December 5, NIO released its flexible battery upgrade policy in Shanghai, and Qin Lihong, co-founder and president of NIO, took the opportunity to introduce NIO's corporate strategy and business model in detail. This paper attempts to analyze its strategy and model to determine the development trend of NIO, as well as the challenges and opportunities it faces in the process of building a high-end brand.
NIO's "compass" strategy
Among the new car-making forces, NIO's strategy and business model are the clearest, and its founding team's ability to think in the insight into the centenary development process and future direction of the automotive industry is admirable. Since its inception in 2014, NIO has also been steadily moving forward in accordance with its established strategy.
As shown in the chart above, NIO's judgment of the three stages of development of the global automotive industry for more than 100 years is the cornerstone of all its strategies. According to Weilai's judgment, the modern automobile industry has been in the brand 1.0 era for 100 years since its birth at the end of the 19th century, and in this long historical period, the main focus of consumers as an audience is the vehicle itself, hardware is the core competitiveness of car companies, the focus of the automobile industry is manufacturing, and interpersonal communication is the traditional medium.
After entering the 21st century, with the emergence of the Internet, the transformation of the automobile industry began to accelerate. In 2003, the establishment of Tesla marked the beginning of the era of car brand 2.0. Consumers are transformed from pure audiences into participants, the core competitiveness of car companies has shifted to software, vehicle intelligence technology has become a new focus of experience, and interpersonal communication methods have shifted to the Internet. The focus of the industry shifted from manufacturing to sales, and direct sales became a new trend.
By 2014, the year when many new Chinese car-making forces such as Weilai were born, the development of automobile brands entered the 3.0 era. The role of consumers has changed from participants to owners, the focus of the industry has shifted from the vehicle itself to the user, and the core competitiveness of car companies is no longer hardware or software, but the whole experience. While the focus of user experience extends from the vehicle itself to service, digital experience and lifestyle, the way people communicate shifts to the mobile Internet.
Nio's "Compass" strategic map
Based on the analysis of the evolution of the automotive industry over the past 100 years, NIO has formulated its own strategy, and the "compass" in the above figure is a condensation of all its strategies and business models. Its core is the basic elements that a company must have to survive and develop, such as design, research and development, manufacturing, management, and innovation. Beyond the core, NIO's strategy is divided into four quadrants: cars, full-life cycle services, digital experiences, and lifestyles beyond cars. Each quadrant then derives a specific business from the outer layer, and the outer layer becomes finer the particle size. Together, these businesses constitute NIO's "system competitiveness".
"With this strategic compass, we will not lose our way. When leading or frustrated at a certain point, I will know very clearly what its status is in my overall situation, a single point of leadership does not mean the overall lead, a single point of backwardness The end has not come, the make-up lessons, a variety of means are equally important, including mergers and acquisitions. Qin Lihong said.
In the four quadrants, "full life cycle service" and "lifestyle beyond the car" are absolutely leading in the industry, and to some extent have become the main characteristics of the NIO brand. In these two quadrants, NIO also has the most business model innovation. For example, in the service quadrant of the whole life cycle, BaaS and ADaaS are to service auto parts and turn them into a service product. BaaS allows power batteries to transcend component attributes, and ADaaS, which will be implemented in 2022, will make autonomous driving out of component attributes.
In the "Beyond the Car Lifestyle" quadrant, NIO has more innovation, whether it is NIO Day, NIO Life, or community interaction in NIO Center and NIO App, which are significantly ahead of other competitors. Continuous investment in lifestyle has enabled NIO to successfully attract the middle and upper classes of Chinese society, which is crucial for NIO to build a high-end brand image.
In the two quadrants of "car" and "digital experience", NIO is in a leading position in some fields, such as the "three electricity" field, NIO has full-stack self-research capabilities, has a number of patents, and many technologies are ahead of competitors, including ternary iron lithium battery packs, highly integrated electric drive systems and high-efficiency electronic control systems, semi-solid-state batteries that will be installed on ET7, and so on.
But in some areas of these two quadrants, NIO's advantages are not obvious, or they are lagging behind. Qin Lihong said that in the field of intelligence, Weilai's products have long and short, and the overall ratio of the industry, surpassing most brands, but compared with some cutting-edge brands, not every one is dominant, and it is more passive in individual areas. If you score a score, most of the fuel vehicles are 57 points, and Weilai can get 70 or 80 points.
Battery flexible upgrade to improve WEILAI energy "puzzle"
In NIO's "Compass" strategy, NIO Energy and its related BaaS services play a pivotal role, connecting vehicles and services; it is the key to cracking the range anxiety of electric vehicles, improving user experience, and reducing the threshold for car purchase and expanding the scale of users; it is also the key to connecting new cars and second-hand car businesses and forming a closed-loop link between business.
Fei Shen, Senior Vice President of NIO Energy
On December 5, Shen Fei, senior vice president of NIO Energy, announced that the flexible battery upgrade service was officially opened nationwide, further improving NIO's business puzzle, through which users can rent long-lasting battery packs at a lower cost.
On November 6, 2020, NIO launched the 100kWh battery pack and released a flexible upgrade plan, successively opening a permanent battery upgrade and an annual flexible upgrade service. And in July this year, in Urumqi, Shenyang, Xining, Lanzhou, Yinchuan, Hohhot and other cities to open the battery flexible upgrade pilot on a monthly basis. This time, it is a nationwide flexible upgrade on a monthly basis.
The battery upgrade service is located under the "NIO Energy" in the second quadrant of the "compass" strategy of WEILAI, and from the perspective of the level, it is in the third layer of "outside the core". The launch of this service is the most vivid embodiment of WEILAI's continuous refinement of its business model and meeting the diverse needs of users according to its "compass" strategy.
For example, if a Beijing user previously purchased a Weilai electric vehicle equipped with a 75kWh battery pack, next month he will frequently travel between Beijing and Tianjin, need longer battery life, you can choose this service, the 75kWh battery pack upgraded to a 100kWh large battery pack, and then next month does not need long battery life can also be changed back. In the future, large battery packs can also be replaced by small battery packs to achieve two-way free "upgrade" or "downgrade", which is expected to be achieved in the second half of 2023 at the latest. In addition, future power exchanges will also be strongly linked to the BaaS mode.
Whether in terms of function or value, power batteries are the most important core components of electric vehicles, so they are also the main areas of NIO's business model innovation. Based on the self-developed power exchange technology, WEIlai has created a business model of "rechargeable, replaceable and upgradable" power batteries, and has achieved success.
This model first solves the needs of electric vehicle users for rapid energy replenishment, thereby alleviating mileage anxiety. For those who do not have the conditions to install private charging piles or charging is inconvenient, buying an electric car has also become an option.
Secondly, the BaaS model based on power exchange effectively reduces the cost of users to buy Weilai electric vehicles, after all, the average price of 400,000-500,000 yuan is not easy for many consumers to afford. Under the BaaS model, users have NIO electric vehicles by buying cars + renting batteries, which helps NIO expand its user scale. Moreover, on-demand use & flexible power exchange can also allow users to control the cost of daily use.
Finally, the replacement battery pack is detected and centrally charged and maintained in the replacement power station, which also helps to maintain the health of the battery, which is helpful for the residual value of the second-hand car, the cascade utilization and recycling of the battery.
As of December 10, the total number of WEILAI substations nationwide reached 700, completing this year's construction target ahead of schedule and providing more than 5.3 million power exchange services to users nationwide. Before the Spring Festival in 2022, WEILAI will open up the "five vertical, three horizontal and four metropolitan areas" highway power exchange network. By the first half of 2022, the number of substations will reach 1,100 by July at the latest, which is the goal that Li Bin, the founder and chairman of WEIO, promised in 2018 and plans to achieve in 2020 – although it is two years late, it has been achieved.
Nio's profit conjecture
Among the new car-making forces, Weilai is the one who can "burn money", and Weilai also gives the impression that the outside world is very good at financing. Qin Lihong admitted in the interview that "the company's first two or three years were not good enough due to its craftsmanship, and the capital efficiency did not reach as high as expected", but he said that the reason why Weilai raised more money was because it needed to do so many things. "I often joke with Li Bin that if we started over, we might do a better job than we do now." He said.
Although history cannot be repeated, the money "burned" by Weilai has not been in vain, without these investments, it will not be able to support the average selling price of 400,000 or 500,000 yuan, and Weilai will not become the highest-priced mass-produced Chinese car brand at present. But despite this, WEILAI's losses in the past few years are still somewhat shocking. According to NIO's financial report, from 2016 to 2020, NIO's net losses were 2.573 billion, 5.021 billion, 9.639 billion, 11.296 billion and 5.304 billion yuan, respectively, plus a loss of 1.777 billion yuan in the first three quarters of 2021 (losses of 350 million, 587.2 million and 840 million yuan in the first three quarters of 2021), and the cumulative loss of NIO reached 35.61 billion yuan.
Qin Lihong believes that smart electric vehicles are a long-term track, which is still in the early stages, and Weilai is still in the investment period. In fact, since the third quarter of this year, Weilai's revenue from car sales has been able to cover two of the three expenses of marketing and management, and the loss part is mainly research and development investment, if you stop research and development, you can immediately make a profit. However, whether it is for the founders of Weilai or for the core investors, everyone pays more attention to the qualifications of Weilai to make a profit tomorrow, rather than how much harvest there is today, and this value will continue to be adhered to by Weilai. The implication is that Weilai's losses will continue for some time.
The author agrees with his point of view, but at a time when it was founded 7 years ago and the gross profit margin exceeded 20%, profitability gradually became a problem that had to be faced. Moreover, combined with the development trend of China's new energy vehicle market, Weilai's sales volume, revenue trend, development planning and other aspects of the analysis, the possibility of profitability is gradually increasing.
In the past three years, with the expansion of sales scale, NIO's revenue scale has expanded sharply, and the gross profit margin has continued to increase. Until the first quarter of 2020, WEILAI's gross profit margin has been negative, and in the second quarter of 2020, it began to turn positive, and by the third quarter of 2021, the gross profit margin of vehicle sales reached 18.0%, and the comprehensive gross profit margin reached 20.3%. With the improvement of gross profit margin, WEILAI's net loss began to narrow rapidly at an annual rate of 50% after reaching a high of 11.296 billion yuan in 2019, falling to 5.304 billion yuan in 2020 and a loss of 1.777 billion yuan in the first three quarters of 2021.
NIO R&D investment
NIO plans to invest 5 billion yuan in R&D in 2021, 2.76 billion yuan in research and development in the first three quarters, and 2.24 billion yuan in the fourth quarter of the plan. According to the information revealed on the Weilai Q3 earnings call, the delivery guidance in the fourth quarter (23500-25500 units) is not much different from the actual delivery volume of 24439 units in the third quarter, and most of the new energy vehicle integration revenue has been confirmed in the third quarter, and the fourth quarter will not be too much, so the sales revenue growth in the fourth quarter is limited, but the research and development investment in the fourth quarter is equivalent to twice that of the third quarter, so it is expected that the loss in the fourth quarter may also reach twice that of the third quarter, and the loss for the whole year may exceed 3 billion yuan.
Looking forward to 2022, WEILAI will continue to increase investment, next year will release and deliver three new cars based on the NT2.0 platform, will still maintain a high research and development intensity, sales and after-sales service channels will continue to expand, coupled with the investment in charging and replacing infrastructure and the construction of the second factory, comprehensive a variety of factors, 2022 Weilai will not pursue profitability.
But 2023 will be different. The gross profit margin of new cars on the NT2.0 platform is expected to reach 25%, the second factory has been built, the sales and after-sales network channels have gradually matured after several years of expansion, and the three new models will not be launched soon after the launch of three new cars in 2022.
Weilai new brand conjecture
NIO is preparing a new brand, which mainly solves the problem of the market segment and the population covered by the NIO brand is not large enough. From the perspective of brand positioning, the new brand will be lower than the Weilai brand, but it is still unknown how low it is, and when the new brand will be launched and in what way it will operate is also unknown.
According to Qin Lihong's explanation, the basic logic of WEILAI's launch of the new brand is that intelligent electric vehicles will be in the overall upward stage in the visible 10-20 years, and its replacement of non-intelligent and non-electric vehicles will become the mainstream phenomenon in the market. If it is assumed that global car sales will not grow much, IF weilai wants to occupy a larger mainstream consumer market, it needs to launch a new brand, and based on this new brand, build a new community that is different from the existing Weilai brand community, rather than placing the two types of users with large differences in Weilai brand users and new brand users in the same community.
In fact, as early as the beginning of the establishment of NIO, a new brand had been planned, and GAC NIO and Changan NIO, which were established in April and July 2018 respectively, can be regarded as the sub-brands of NIO. It's just that Weilai has no time to take care of him after encountering an existential crisis in 2019, and has gradually faded out of these two joint ventures since then. Now that Weilai has rethought and prepared a new brand, I believe it has a deeper understanding than a few years ago.
First of all. As for the timing of the launch of the new brand, the author believes that it will not be launched at least for the next year. Although the current average price of the NIO brand exceeds 400,000 yuan, which is not only higher than the average price of domestic Tesla, but also higher than the average price of traditional luxury brands such as Mercedes-Benz BMW, the high-end position of the NIO brand is still unstable, and there is still room for further upward development. It is expected that the upcoming delivery of new models of the NT2.0 platform, especially the flagship sedan ET7, will be priced higher than the NIO ES8, thus raising the ceiling of the NIO brand. Therefore, doing a good job in the three new models of the NT2.0 platform will be the main work of WEILAI next year, and the launch of the new brand will not be earlier than 2023.
Secondly, regarding the positioning of the new brand, it is not expected that there will be too much price gap with the WEIlai brand, otherwise the social class gap between the users of the two brands is too large, and the fault line between the two brands will make it very difficult to operate them at the same time. Based on the analysis of the mainstream consumer market of smart electric vehicles, the author judges that the price range covered by the new brand will mainly be concentrated around 200,000-300,000 yuan.
Finally, as for how the new brand works, it is expected that NIO will operate itself and will not take the form of joint ventures with other companies.
Can NIO's success be replicated?
Weilai's model, or some of its practices, is being borrowed or imitated by some peers, including both new car-making forces and traditional car companies, but most of the industry believes that Weilai's success cannot be replicated. There are many reasons for this, such as the genes of each company are not the same, the current market environment is very different from 7 years ago, many car companies can not be like Weilai both financing and dare to "burn money" and so on.
In general, the author also believes that the success of Weilai cannot be copied, but at the same time, he also believes that other car companies can learn from or learn some strategies of Weilai, so he wants Qin Lihong to give some suggestions to those car companies that want to learn from Weilai's successful experience, but his answer is quite modest and cautious. He said: "We are full of respect for every company in the industry that has developed steadily, and we definitely do not dare to be a good teacher, and we will make suggestions on how to develop, although each company is on the same track, but each company's path is unique." Qin Lihong believes that if a company can do the whole system, thorough underlying thinking, any way can be, if only from the appearance to do follow-up imitation, the effect may not be particularly large.
Two days later, on December 18th, NIO DAY, NIO's annual event, will be held in Suzhou, when there will be more information about NIO's new products, new brands, new businesses, etc., so stay tuned to our report.