Summary of NIO’s Q4 2020 Earnings Call:

Vehicle and Battery Separation

NIO is committed to creating a “vehicle and battery separation, battery leasing, and upgradable” system to provide full-scenario services. In February 2021, 55% of users in newly-added orders chose Battery as a Service (BaaS). NIO believes that its battery swapping system can accelerate the conversion of traditional gas-powered vehicle users to pure electric vehicle users.

Investment in Research and Development

In 2021, NIO plans to invest ¥5 billion in research and development.

Production Capacity

As of January 2021, NIO has reached a full supply chain production capacity of 7,500 units. NIO’s partner, JAC Motors, has begun expanding its factories and plans to achieve a single-shift production capacity of 150,000 vehicles and a double-shift production capacity of 300,000 vehicles by the end of this year, in preparation for the production of ET7 and subsequent products. In February, NIO signed a strategic cooperation agreement with the Hefei government to create a world-class industry cluster.

Sales and Service Network

Currently, NIO has 23 NIO Houses and 203 NIO Spaces, covering 121 cities in China. NIO plans to add 20 NIO Houses and 120 NIO Spaces this year.

There are currently 191 battery swapping stations, with second-generation battery swap stations being deployed starting from the second quarter of this year. NIO plans to increase the number of battery swapping stations to at least 500 this year. At the same time, NIO will also increase the construction of supercharging networks and destination charging piles. Currently, there are 127 supercharging stations and more than 1700 destination charging piles, with plans to reach 600 supercharging stations and 15,000 destination charging piles respectively by the end of 2021.

Regarding after-sales service, NIO currently has 31 NIO service centers and 158 authorized service centers. In 2021, NIO will further improve its after-sales system by expanding the layout of after-sales service networks.

Q&A

Q1: NIO’s target market has always been the high-end market. Will it establish a new brand to enter the mass market? What are NIO’s long-term sales expectations for entering the European market this year? How does NIO plan to enter the US market?

William Li, Founder, Chairman, and CEO of NIO: From a branding perspective, NIO will not enter the massive market. Several years ago, NIO attempted to enter the mass market through investments with GAC and Changan, but its stake has decreased from around 40% to around 5% currently. NIO is actively observing how to enter the mass market, and it has been one of NIO’s strategies all along.# About International Market

This year, the sales and service will begin in Europe, and the team is being built to prepare for the team and sales network, and proceed according to the plan. The entry of the international market is a long-term work that requires enough patience. The long-term goal is to occupy a significant share in various markets around the world. We have established R&D teams in Europe and the United States. We have been studying and exploring overseas business models for a long time, and we will definitely enter the US market, but we will patiently proceed step by step.

Q2: About Gross Profit, Battery and Chip Supply, and Cost Impact

The growth of vehicle gross profit in the financial report is mainly due to the higher proportion of sales of the high-profit ES8 and EC6. The gross profit in Q1 will also increase slightly, and it is still too early to estimate the gross profit for the whole year.

Chips have a greater impact on the supply, which affects Q2, but production plans can be mostly met. Currently, there are more changes. Since Q4 of last year, NIO has been negotiating with partners and contacting chip suppliers to establish a smooth supply chain. Currently, the demand can still be met in Q2, but the risk is higher.

Battery supply is also a bottleneck, especially the supply of 100 kWh batteries is less than expected for Q2. Currently, the market demand is high, and suppliers need to increase production capacity that meets our requirements. The Q2 production capacity is expected to be 7,500 vehicles, which is also constrained by battery and chip supply.

Battery cell costs have little impact on us. The cost will decrease to a certain extent this year, but not as much as last year.

Q3: About Model Y Pricing

Model Y has good incentives for their short-term orders, but Tesla often does this and reaps a batch of orders with one news. However, we will not pursue impulsive sales behavior and will not quickly reduce prices to get orders. We focus on improving products, reputation, and services comprehensively, and what we want is long-term demand growth. We can demonstrate our advantages in long-term competition.

Q4: About ET7, Existing Models, Charging and Battery Swap Networks, Sales Networks, and the Efficiency of Investing in NIO Houses

ET7 will be delivered in the first quarter of next year, and there are many preparations to be made, including testing and development. From now until the delivery of ET7, the existing main products are EC6 (delivered since September last year), ES6 (delivered in the second half of 2019), and ES8 (delivered since March last year). From the product lifecycle perspective, they have vitality and competitiveness, so there is no need for major changes to these three products at present.

We will actively expand the charging and battery swap networks and sales networks. The Chinese market is huge, and improving the infrastructure will help increase sales. From this year to before NT2 next year, sales will mainly be improved through network and experience expansion, and we are confident in achieving the sales target. In addition, BaaS and the delivery of 100 kWh batteries will help oil car users become electric car users.我们计划在今年的销售网络中增加新的销售店面，目前已经有一些店面在建设中。同时，我们也在不断地优化线上渠道，提高用户便利性。

ET7 的自动驾驶系统采用了蔚来最新的车辆运动控制单元，可以提供更高的精准度和更快的反应速度。我们也在不断完善自动驾驶相关技术，如路况预测、高精地图等，以提供更安全、更方便的出行体验。Currently, our NIO House and NIO Space cover 121 cities in China, including cities where BBA and Lexus are located. It’s our basic strategy to establish offline stores in these cities. We will definitely cover all cities where BBA is present this year, including some third and fourth-tier cities.

Our network layout is not deliberately based on specific areas, but rather a natural choice based on the regional sales distribution of high-end cars.

However, in terms of the charging network (supercharger+destination charger), we will focus on remote areas such as Inner Mongolia, Heilongjiang, and Xinjiang, where others are not willing to invest in charging infrastructure. We believe that all electric vehicle users should have a good charging experience. Currently, there are not many electric vehicle users in these regions, and no third parties are willing to invest in charging infrastructure. But we are willing to invest because we believe this is a unique opportunity.

All sensors for the ET7 are standard equipment, but we will not lower the overall vehicle margin by around 20% because of them. NAD’s long-term revenue will be one of the sources of our margin and is a more sustainable approach.

Q8: Impact of NOP and BaaS on margins

The optional rate of BaaS has little effect on our profit margins. NOP will increase our margins. We will promote retrofitting this year; the optional rate for BaaS in February was 55%. The NIO Pilot package, NIO Pilot advanced package, and customer retrofits together accounted for around 50% without any significant increase. We will launch, for example, installment policies to drive demand because we have a stock of users. We are confident that we will achieve better results in the second half, but specific data is still too early to tell. Please make reasonable speculations.

Q9: Issues related to battery swap stations and site selection

Because we serve our users directly, we can know related information such as whether users can install a charging station at home, their main driving routes, and their distribution. Therefore, we will combine this data to make optimal site selection plans. We will also select high-speed battery swap station locations based on user data from areas they frequently visit.

Currently, our site selection speed and accuracy are higher compared to when we first established stations. After new stations are put into use, they quickly reach a reasonable usage rate, with peak daily usage of up to 10,000 times.

In the long term, many users in China cannot install a charging station at home, and this ratio significantly increased in new users, demonstrating that our battery swap service is very suitable for user needs. With a combination of battery swap, BaaS, and a supercharger network, this is the best user experience for Chinese users.

🔗 NIO’s Q4 2020 and Full Year Earnings Call Transcript

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.