NIO wants to win the future, but it can't lose the present

Wen 丨Peng Suping

Editor丨Li Qin

Gross profit margins have been reduced, expenses have been further increased, and reserve cash has fallen sharply... NIO handed over a financial report that is difficult to satisfy the market.

In the fourth quarter, NIO's sales exceeded 40,000 units, up only 26.7% month-on-month, during the switch period when demand for old models was weak and deliveries of new platform models were still struggling to climb. Reflected in the financial report, the revenue in the quarter was 16 billion yuan, an increase of 23.6% from the previous quarter, which was 1 billion yuan less than market expectations.

The situation in the first quarter is still not optimistic. NIO's sales guidance is 3.1-33,000 units, and excluding the data delivered in January and February, sales in March are only around 12,000.

This is not an ordinary signal. The ET5 has received a large number of orders since its launch, and it is NIO's most capable model, and the market expects monthly sales of at least 10,000 - but judging from the above guidance, this expectation has been disappointed.

The slump in deliveries isn't even the most serious problem. In the case of improved sales, NIO lost even more, with a net loss attributable to ordinary shareholders of RMB5.847 billion in the fourth quarter, an increase of 168.3% year-on-year and 41.2% sequentially.

The increase in losses was due to the double whammy of a sharp decline in gross profit and a surge in expenses. Affected by the loss of model switching, NIO's gross profit margin fell to 6.8% rarely, while the R&D expenses were close to 4 billion, sales and administrative expenses were 3.5 billion, and the two expense ratios exceeded 45% - this thin steel wire has collapsed tighter and tighter.

Another obvious indicator is cash flow – NIO's cash reserves have been significantly reduced by the naked eye without significant growth in revenue from the main business and unusually rapid spending. As of the end of the fourth quarter, NIO's cash and equivalents were 45.5 billion yuan, down 5.9 billion yuan from the third quarter and nearly double the 3 billion yuan lost in the previous quarter.

User community, charging and swapping network, supply chain vertical integration, etc., NIO has created the most comprehensive car enterprise business territory, but at present, this new force of car manufacturing has fallen into the dilemma of execution and rhythm, and has reached the point where it has to pay attention.

Product switching, more painful than expected

In September last year, NIO began to deliver the ET5, but the most popular model since its release, the supply chain went wrong, coupled with the sluggish sales of the older generation of platform models, NIO went through a rather uncomfortable product switch period.

From the perspective of sales structure, the three "866" cars (ES8, ES6 and EC6) of the first-generation platform have been very weak in November and December, with an average sales of less than 3,000 units, while the new car ET5, which has a very strong order volume, has not significantly boosted sales due to the impact of supply chain and production efficiency, and its own scale effect is also limited.

A person close to NIO's front-line sales told 36Kr that NIO has some mismatches and mistakes in the demand judgment of models, with too many old models stocked and new cars in short supply. The impact of this on the terminal is that on the one hand, there is a discount promotion, but on the other hand, the new car is not enough to be delivered, delaying the opportunity to "bring the quantity with the quantity".

Throughout the fourth quarter, NIO's revenue was 16.1 billion yuan, of which automobile sales revenue was 14.76 billion yuan, while NIO's bicycle price in the quarter was 368,500 yuan, down 9,000 yuan from the previous quarter, and the increase in the proportion of ET5 sales at a lower price was of course the main reason, but in fact, the discount for older models at the end of last year has been launched.

In the letter outlook at the beginning of the year, NIO Chairman and CEO Li Bin also mentioned this problem: "In response to supply fluctuations, many manufacturers have responded faster and more efficiently; In response to demand fluctuations, the inertia is too strong, and the adjustment is not timely, resulting in unnecessary losses. ”

That's not all, NIO has paid more for switching between new and old models. It is reported that NIO spent 1 billion yuan on inventory provisions, accelerated depreciation of production facilities and purchase commitment losses related to the old "866" model, directly dragging down the gross profit margin of 6.7 percentage points in the fourth quarter.

However, the product switching process of car companies is often difficult to silk. In the third quarter of last year, Li Auto also had similar financial treatment, Li ONE came to the end of the product, Li Li also increased 800 million yuan of bad debts related to it, and the gross profit margin of the current car also lost 6.2 percentage points.

According to 36Kr's understanding, some new car-making forces even postponed the release of the facelift model because the pressure of the parts of the old model was too great. With such an option, the corresponding bad debt loss may be smaller, but the impact of the delay in the product launch window is more difficult to measure.

However, unlike Ideal Auto, even after adding back the loss of these replacements, NIO's gross profit margin in the fourth quarter of the automotive business was only 13.5%, significantly lower than the market's expectation of 16%.

At the same time as the price of bicycles fell, the cost of bicycles increased significantly, which is the reason why NIO was less than ideal in the same period. Power battery is the highest proportion of components in electric vehicles, NIO's battery pack adopts a platform design, and the bicycle has a higher power than its peers, especially compared to the ideal with the blessing of the range extender. The price of lithium carbonate rose by 100,000 yuan in the fourth quarter of last year, and according to NIO's calculations, the negative impact on gross profit margin was about 2 percentage points.

Ideal has smoothly passed the product switching period, and the recently handed over fourth-quarter financial report shows that its sales have exceeded 46,000 vehicles, and the gross profit margin has returned to the level of more than 20%, but NIO will continue to endure the pain in the next quarter - although the older generation of platform models have borne a certain loss of purchase commitment, but in the first quarter, NIO still needs to digest a batch of inventory vehicles.

In early February, old models such as ES8 and ES6 fell into a storm of price reduction, with a maximum reduction of 100,000 yuan. Although the actual situation is not as exaggerated as a drop of 100,000, the discounts such as 40,000 yuan for 120 days and 12,000 yuan for exhibition vehicles will undoubtedly further drag down NIO's gross profit in the first quarter.

The unstoppable input, the strings collapsed tighter

Although the performance of the main business is not good, NIO still holds high in strategic investment.

At the last earnings conference, Li Bin just said that R&D spending will be about 3 billion yuan per quarter, and this quarter has soared to nearly 4 billion; In terms of sales and administrative expenses, NIO's traditional major expenditures, also reached 3.5 billion yuan in the quarter, an increase of 49.6% year-on-year and 30% month-on-month.

Such a level of expense is almost uncommon for NIO. This emerging automaker, which already has a vast commercial territory, is accelerating the launch of new products, the deployment of related channel facilities, and research and development with an eye to longer-term development.

At NIO's annual press conference held at the end of 2022, NIO unveiled two new cars, the flagship coupe SUV EC7 and the facelifted ES8, according to the plan, four new cars will be delivered in the first half of this year, and one will be reserved for the second half of the year. This is quite a radical rhythm, and there are less than four months left in the first half of the year, which means that NIO has to hand over a new car every month on average, and the investment in research and development and operation can be imagined that it will not be small in the short term.

Li Bin reiterated at the performance meeting that the overall progress in the research and development of strategic new businesses such as self-developed batteries, AD chips, and mass market brands is advancing as planned. It is reported that these strategic new businesses invest about 4-5 billion yuan throughout the year, with an average of about 1 billion yuan per quarter. According to Li Bin's plan, to complete the profit of "excluding strategic new business" in the fourth quarter of this year, it can be roughly inferred that the company's overall loss will be about 1 billion yuan.

At present, NIO's financial balance is already extremely unbalanced, and its weak revenue and gross profit cannot support the huge R&D and sales expenses. If it were not for NIO's cash reserves of more than 40 billion yuan on its books, the situation would already be quite critical.

In NIO's strategy, it is difficult to sacrifice R&D and sales expenses in the short term, they are all necessary support to ensure NIO's sales, so the only way to alleviate the tension is to increase sales and improve gross profit, which is also the basis for NIO's asset-heavy and R&D model to operate.

Li Bin said that after all NT2 platform models are launched, the product portfolio can support monthly sales of 30,000 units, and the sales target for the whole year of 2023 is 240,000 units. "Our products can be divided into three categories, the first is the kingpin ET5, ET5 Touring Edition, ES6, and the goal is 20,000 vehicles per month; ET7, ES7 and ES8, 8,000-10,000 per month; Finally, there are niche models that reflect design and taste, such as EC7 and EC6, with 1000-2000 vehicles per month. ” 

In order to drive more sales, in addition to regular store openings, NIO will also build a large number of swap stations this year to extend its tentacles to more previously unreached markets, such as third- and fourth-tier cities.

This year's plan for replacement stations has been greatly increased from the original announcement of 400 to 1,000, nearly doubling the cumulative size of previous years. This will further strengthen NIO's service and brand walls, but it will undoubtedly be a huge investment, which will exacerbate NIO's financial risks.

Fortunately, the upper limit of the investment scale has been basically framed, and Li Bin has also realized the problem and is working to improve. He said at the performance meeting that NIO will not cut or shut down projects this year, but will improve human efficiency, on the other hand, it will also re-evaluate the priorities of some of its projects, including research and development, fixed asset investment, etc.

In order to achieve the goal of NIO brand profitability in the fourth quarter, NIO has been implementing cost reduction and efficiency increase, and people from many internal departments have reported to 36Kr that this year's personnel will not change much, even in some areas with expansion needs and fast pace of research and development, the solution is to improve human efficiency, that is, one person does more people's work.

Building a car is a marathon with a long journey, this is already the consensus of the industry, facing the end, the new forces have chosen different strategies and playing methods - NIO is the one with the widest layout and the largest investment, whether it can run faster and farther, it really needs to think more about rhythm and efficiency.