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Author: Chris Zheng
NIO, a six-year-old electric vehicle company recently went through what could have been its busiest Labor Day holiday ever.
On April 29, the groundbreaking ceremony for Neo Park, the New Energy Intelligent Vehicle Industrial Park in Hefei, Anhui, was held, with NIO CEO William Li as the sole corporate representative.
On April 30, NIO released its Q1 2021 financial report. During the conference call, Li Bin claimed that NIO had no comprehensive competitors in the high-end market.
On May 6, yesterday afternoon, NIO announced its Norway strategy, taking the first step in its expansion overseas.
The general impression is that the expansiveness of NIO has returned, with intensive actions and high-profile statements from Li Bin. In reality, however, NIO and Li Bin have undergone significant changes in 2021, becoming even more comprehensive, cautious, and tough.
Battle – Systematic Capability
Let’s start with Li Bin’s high-profile statements. “NIO sees no comprehensive competitors in the high-end market” sounds extremely arrogant, more like the words of the late Apple CEO Steve Jobs or Tesla CEO Elon Musk. Nonetheless, Li Bin has stated similar opinions publicly on at least two occasions.
In Li Bin’s view, the long-term competition in the automobile industry is about ensuring that there are no weak links. The systematic value behind a car product will gradually become more evident. For NIO, the advantage lies in the synergy between its brand, products, technology, service system, user experience, operation, and community, developed over six years of hard work.
From NIO’s organizational structure, we can discern some clues. The top two executives with the highest decision-making power in the management – the CEO and the President – are in charge of the large R&D system and the large user system, respectively. All ten VP-level executives of NIO’s different R&D departments report directly to the CEO Li Bin, while the brand, service, operation, and community all report directly to President Qin Lihong.
The organizational structure of traditional automakers naturally compartmentalizes various departments, resulting in competition among them. In contrast, NIO’s systematic capability, which is built around the user experience forces the company’s departments to work together.
During NIO’s financial report conference call on April 30, Li Bin mentioned that the advantage brought to NIO by this systematic competitiveness would become increasingly stronger in the long run. The company might not have substantial competitors in the future.But we want to touch on some sensitive topics within the NIO system – despite NIO’s long-standing claim to its comprehensive independent research and development capabilities, its intelligent development always seems to be somewhat inferior to that of Tesla and XPeng. At least, it isn’t quite as satisfactory.
We still have to mention the NIO ET7. Before that, the StarCraft Channel has already talked about ET7 several times, and this model is so important that we cannot avoid mentioning it in many NIO-related topics.
The ET7 has made many advanced designs compared to NIO’s previous SUV products, such as intelligent frameless power-suction doors, a 1000W, 23-speaker sound system, and a 480 kW SiC electric drive system. But there is only one truly important change: the NAD autonomous driving system.
NAD carries four NVIDIA Orin chips, which are currently the only mass-produced computing platform in the industry with a computing power of over 1000 Tops. In addition, eleven 8 million-pixel cameras and 300-line Lidars are also at the forefront of the industry.
However, the real value of NAD lies not in the stacking of these high-performance hardware, but in the “I have what others don’t.” All of the above hardware has a prefix word called “first launch.”
If it were not for NIO, the mass production pace of NVIDIA Orin chips and the Innovusion Lidar would not be so aggressive. Li Bin expressed his willingness to be the leader in an interview: “The pace of each company is not on the same rhythm. NIO hopes to mass-produce products as early as possible, but other companies may not be ready. In this case, we will definitely not wait, afterall, the market is everchanging.”
Li Bin hopes to strengthen NIO’s autonomous driving capability in one fell swoop, at the cost of partnering with suppliers at a higher cost to advance the mass production of core components. There can be no weak points in building NIO’s autonomous driving capabilities. Li Bin cannot afford to lose.
Another impressive technological innovation from NIO comes from the battery field. At NIO’s earnings conference, an analyst asked about rumors of NIO testing lithium iron phosphate battery packs, and Li Bin did not respond positively to this question, but simply mentioned that “the cost advantage of lithium iron phosphate is unquestionable, but before cost, solving user experience is the premise of NIO’s use of lithium iron phosphate.”
In April 2020, NIO’s Assistant Vice President of Battery Systems, Zeng Shizhe, confirmed in a speech that NIO is pushing forward with the research and development of lithium iron phosphate battery packs.For the accuracy of SOC, different chemical battery systems have different requirements. The SOC accuracy of ternary batteries is relatively easy to achieve, and it can reach 1% under mild conditions. However, how to achieve accurate SOC estimation for lithium iron phosphate batteries remains a challenge for NIO.
What is SOC? Why is it difficult to estimate SOC for lithium iron phosphate batteries?
The estimation of SOC (state of charge) is one of the most critical issues in battery management systems of electric vehicles. Engineers can develop corresponding strategies based on SOC to accurately display the remaining power and reduce users’ range anxiety. The SOC estimation method is usually based on current integration + open circuit voltage (OCV) calibration.
The steeper and more sloping the OCV curve is, the more accurate the SOC estimation is, and the estimated remaining mileage will be more stable. However, the OCV-SOC curve of lithium iron phosphate batteries is very flat. In particular, the curve is almost a straight line in the usage range of 20%-80%, which poses a significant challenge to SOC estimation.
This is also why we used to see many electric vehicles with lithium iron phosphate batteries suddenly dropping from 30% to 0 in terms of remaining power or experiencing significant decay just after the delivery. These were caused by the problems in the SOC estimation algorithm of lithium iron phosphate batteries.
How does NIO solve this problem?
On April 23, the State Intellectual Property Office publicly released a patent titled “A Battery System, a Method for Its SOC Estimation, a Computer Device, and a Medium.” One of the patent authors mentioned above was Shi Zheze.
In simple terms, NIO’s idea is to simultaneously arrange ternary lithium battery modules and lithium iron phosphate battery modules in a battery pack, connect them in series, and map the upper and lower limits of SOC of ternary lithium to the SOC range of the entire battery system, with a proportion of 1:5 for the quantity. This allows NIO to achieve accurate SOC estimation for lithium iron phosphate batteries while scaling up their use, using ternary lithium batteries.This approach has forced NIO to make many innovations that previous companies had not achieved, such as managing both ternary and lithium iron phosphate batteries through a single MPU, and balancing the attenuation of the two types of batteries throughout their entire lifecycles. However, the result is that NIO has the opportunity to make the best-ever user experience with lithium iron phosphate batteries, which is difficult to not be anticipated.
The last link in the systematization of NIO’s abilities is called Neo Park.
The relationship between NIO and Neo Park has caused quite a bit of confusion: if Neo Park belongs to NIO, why is it not called NIO Park directly? If Neo Park does not belong to NIO, why is it Li Bin and not another entrepreneur from Hefei who is overseeing the entire groundbreaking ceremony? Li Bin’s statement that “without a doubt, NIO will be the most important company in Neo Park” seems unable to fully explain this contradiction.
We may find the answer by looking at Tesla.
If we look at Tesla’s Giga 1 factory in Nevada, which began construction in 2014, Reno suburbs were no longer exclusive to Tesla. Around Giga 1, Tesla attracted a large number of suppliers, including well-known Tier 1 Faurecia and H&T, a metal/plastic precision molding parts supplier.
The positioning of Reno suburbs is no longer a single Tesla super factory, but a smart electric vehicle industry cluster.
Today’s NIO is very similar to Tesla in 2014. Through stable and sustained demand and continuously improved products and services, Tesla and NIO have both demonstrated their ability to establish a new brand in the high-end market. But Tesla did not stop there, and neither will NIO.
In order to more thoroughly promote their mission on their official website, they need a much larger customer base to achieve their dreams.
Neo Park is NIO’s super factory industrial cluster, and the growth of NIO’s production capacity will attract a large number of upstream suppliers to settle in Neo Park.
Tesla’s super factory has a distinctive feature of eliminating traditional warehousing workshops. All semi-trailers enter the factory area and directly dock with the containers and factory channels, with the containers playing the role of warehousing workshops. The advantage of this design is that it cuts out middleman and improves operational efficiency.
NIO has made a more radical design in Neo Park. According to Li Bin’s introduction, NIO will integrate the battery workshop, seat workshop, and vehicle workshop, and the batteries and seats produced online will be transported directly to the vehicle production line through a conveyor belt. This highly vertically integrated intensive design will greatly reduce the logistics costs of parts and improve production efficiency.
Lastly, let’s talk about the two “100”s, planning to achieve annual production capacity of 1 million cars and 100GWh battery capacity. Currently, the largest single automobile factory in the world is the Volkswagen factory in Wolfsburg, Germany, which reaches a peak annual capacity of 1 million cars, while the largest single battery factory in the world is Tesla’s Gigafactory in Nevada, USA, with an annual capacity of 35GWh.
NeoPark hopes to rise or tie as the world’s number one in these two dimensions, which is probably what Li Bin meant by NIO’s survival, “with even greater courage”.
Caution – Quality Comes with a Cost
An army must march on its stomach, as a prerequisite for all expansion is a solid financial foundation.
In the magical year of 2020, NIO almost madly issued 7 rounds of convertible bonds/financing, and by the end of 2020, NIO had raised a total of RMB 43.915 billion in a year. After that, NIO issued convertible bonds due in 2026 and 2027 on January 19, 2021, raising an additional USD 1.5 billion.
By the end of Q1 in 2021, NIO’s cash reserves had reached an unprecedented RMB 47.5 billion, while NIO’s cumulative financing amount was only RMB 82.646 billion. Therefore, more than half of NIO’s raised money has not yet been spent.
For emerging companies in the high-speed growth stage, this seems somewhat inappropriate. This issue is obviously in Li Bin’s focus as well. When asked by the media, for a moment, Li Bin seemed to forget dozens of media were present across from him: “It turns out that spending money too fast means that now there is money that can’t be spent, which is a bit anxious. Efficiently spending money on business operations puts a lot of pressure on”
At the financial results conference, Li Bin “soothed” investors who were not very satisfied with the research and development investment in Q1: Starting from Q2, NIO will accelerate its research and development investment on NAD, software, comprehensive basic technology, NT 2.0, and even the next-generation NT3.0. “We still have a large number of products under parallel development, starting from Q2, everyone will be able to see a significant increase in research and development costs.”
ET7, NAD, NT 2.0 technical system, and Neo Park are all big spenders, and according to Li Bin’s plan, NIO hopes to invest RMB 5 billion in research and development this year.
From yesterday’s strategic plan in Norway, we can further see NIO’s caution.NIO Energy Service System covers battery swapping network, one-click charging, supercharging network, and destination charging piles, which is a service system strongly correlated with operational efficiency and scale. In the early stage when the scale was the smallest, to ensure user experience, service resources were often severely redundant and operational efficiency was the lowest.
An interesting perspective is that when NIO launched its first overseas campaign, it did not choose Germany, the UK or North America where NIO’s R&D institutions have already settled, but landed in the Nordic small country, Norway.
There are, of course, many reasons for choosing Norway, such as Norway’s huge new energy policy resource tilt and convenient conditions for pure electric vehicle use, but for NIO, the controllable market size of Norway’s market may be the most important factor.
According to NIO’s plan, in 2020, NIO plans to lay out four battery swap stations in Norway and increase them to 16 by 2021. The scale of the Norwegian team will also increase to around 50 people from the current 15 people.
What kind of pressure will such early investment bring to NIO’s finances? According to Qin Lihong, “just in Shanghai, NIO plans to build 30-50 battery swap stations this year, and (Norway’s volume) is equivalent to two prefecture-level cities in China, which is still okay overall”.
As early as November 2018, NIO signed a strategic cooperation agreement with the Norwegian Electric Vehicle Association. In the same year, Li Bin made a bold statement of “1,100 battery swap stations in three years” which he still occasionally uses to self-deprecate until today. Compared with the long contemplation of overseas expansion of 16 stations today, NIO’s changes are somewhat elusive.
As Li Bin said, “the biggest difference between us now and before is that the quality of money spent has increased a lot. We must spend where we should spend, and not spend a penny where we should not. The balance in the middle is still well done.”
In addition to services, NIO’s product and service system, built in China for six years, is incredibly complex. Will NIO insist on entering a completely unfamiliar market in the form of direct operation?
Should NIO’s online community NIO App go overseas? Should NIO’s center NIO House go overseas? Should BaaS battery swap rental service, and NIO Lifestyle brand NIO Life go overseas?
Li Bin’s answer is I want them all.
Unlike the conventional approach taken by Chinese car companies to enter overseas markets through dealers, in order to directly provide a closed-loop user experience, NIO will duplicate the entire NIO China to NIO Norway, from strategy to service to users. As Qin Lihong puts it, “we will adopt the same approach in different countries, but make certain modifications based on local market regulations, local customs, and cultural influences.”# Li Bin’s obsession with user-centricity has undergone a stress test.
In 2019, when all the negative news about NIO was concentrated and no investors were willing to intervene, it was precisely the new orders from car owners that provided NIO with the much-needed cash flow, which made NIO more resolute in its belief in user-centricity.
In 2020, two emerging Chinese automotive brands offered 4.9% of their shares as user benefits, and “the originator” of this practice was Li Bin. After his peers followed suit, Li Bin took a step forward in establishing an emotional connection with users.
On April 30th, NIO announced that the first Extraordinary General Meeting of shareholders will be held since its listing on June 3rd, in which an important part is optimizing the board structure and adding members to the board of directors.
Li Bin’s NIO User Trust, which owns one-third of NIO’s shares, has the right to nominate a director. Li Bin stated in the financial report that “at the right time, users should have a certain level of participation in the company’s long-term strategic decision-making, which is of great significance to further living up to user-centricity.”
Never before has the status of a brand’s users been elevated to unprecedented heights like NIO car owners today.
Today’s NIO is filling its shortcomings, has a lot of cash on hand, and is more concerned about the quality of its spending than ever before, but Li Bin doesn’t seem to feel completely secure.
When asked by a media outlet what NIO’s ultimate dream is, Li Bin gave this response:
“Before all the stress tests in 2019, we said internally that we wanted to enter the qualifying round. It might be a qualifying round from 2019 to 2024. I don’t think we have the qualifications to compete in the final yet, and I don’t think so today. Maybe we’ve only played two matches, with the first match being 0:5 and the second match being 5:0. Now many powerful peers have joined the game, and this industry is becoming more and more interesting. The competition would surely be more and more intense, and the dimensions of the competition would surely be deeper. It is an endless game for enterprise competition. Failing to advance is the most basic truth of running a business.”
For NIO’s rivals, it’s a tough nut to crack.
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.