Recently, at the opening ceremony of NIO House on Harbin Central Street, NIO’s CEO, William Bin Li, officially responded to the rumors about the NIO Gemini model, stating that Gemini is a new car that NIO will launch next year under the NIO brand.
However, the naming convention for Gemini is vastly different from the ES series SUVs that NIO currently sells and the ET series sedans that have not been delivered yet. Furthermore, JAC Motors’ AGV chassis assembly modification tender announcement for the Gemini model production line indicates that they plan to produce 60,000 cars annually, with a monthly output of 5,000 cars. This is almost double the sales volume of the current ES6/EC6 model.
NIO previously attempted to launch electric vehicle products that were more geared towards the mass market through joint ventures with Changan Automobile and Guangzhou Automobile Group, but did not achieve the expected results.
During the 2020 financial report conference call, Li Bin also mentioned that the proportion of NIO’s holdings in both the Guangzhou NIO and Changan NIO joint ventures has been reduced to below 5%. NIO is actively considering ways to enter the mass market in a more proactive manner, as this is a long-term strategic goal.
This has also sparked a lot of speculation within the industry. Will Gemini be the model that Li Bin referred to when he talked about entering the mass market?
What else did Li Bin say?
To begin, let’s talk about the three different statements Li Bin made regarding the next sedan from three different locations. Firstly, during the third quarter 2020 financial report conference call, Li Bin mentioned that “NIO is entering the sedan market. In addition to an upcoming product that is a sedan, another sedan is also under development.” From this statement, we know that NIO has announced that the ET7 will be released at the 2020 NIO Day, but any other information regarding the other sedan is uncertain.
Secondly, during the 100,000th vehicle offline event, Li Bin said “We have released our first sedan product, and we will definitely release a second sedan product that has more competitive power than the Tesla Model 3.” From this statement, we understand that the second sedan will undoubtedly compete with the Model 3, but the price and size of the vehicle are uncertain.
Lastly, during a media briefing at Beijing’s first second-generation station, Li Bin remarked that “NIO’s battery pack size can fit in a sedan that is similar in size to the Model 3.”Here, the most interesting aspect is the third sentence, where the same battery pack size suggests that the next model can still support battery swapping. Additionally, referring to the length of the Model 3 at 4.69 meters, given the restrictions that swapping poses on the car’s length, I believe that Li Bin’s “approximately the same size” refers to a slightly larger car compared to the Model 3, perhaps around 4.8 meters.
Considering that this length is reasonable, as ES6’s length is actually 4.85 meters, I believe that they have developed an in-house sedan that is similar in size to the Model 3 and supports battery swapping. From Li Bin’s words, it is not difficult to hear that the model he is referring to is more like NIO’s upcoming ET5 model.
So, the question becomes whether the model Li Bin mentioned is the same as the Gemini that Qin Lihong said will be released next year.
What is Gemini?
First of all, according to people familiar with NIO, since the EC6 model, NIO has assigned codenames for new models, such as Fury for the EC6 and Force for the ET7. Gemini is actually just an internal codename for a future NIO product, not the name of the production model.
From this, it seems likely that Gemini is simply the project codename for the ET5 model. If this is indeed the case, then it is unlikely that Gemini will create a new brand and independent sales channels or apps.
There are several reasons for this assumption. Firstly, NIO is currently more focused on and urgently needs to enrich its product line. Secondly, the automotive industry always emphasizes scaling up.
Let’s start with the issue of product lines. As early as the end of 2017, when NIO was still a “darling of the capital,” its internal department was already discussing sedans, and based on a broad definition of the product, estimated a total investment of about 5 billion yuan for a project called ET7.
However, after the delivery of the ES8, there were many negative reports, such as shortened battery life, battery fires, and the company’s founder sleeping on the street, which led to a loss of market and investor confidence in NIO. Subsequently, NIO’s Q1 2019 financial report showed that ES8 deliveries fell from 7,980 in Q4 2018 to 3,989, and during the earnings conference call, Li Bin also confirmed that the sedan project would be delayed.Due to the ambition of launching a new car every year, NIO internally initiated the Fury project with a planned budget of 150 million yuan, which later became EC6. After the release of ET7, Li Bin once admitted that it was a delayed product, and NIO was supposed to launch a sedan earlier. However, in retrospect, it was a good thing because it gave NIO more time to think about the product. Otherwise, if it had been launched at that time, it would have been only a generation and a half product.
But I think that although the delay of the project brought a better product form, on the other hand, it also means that NIO with only SUV models missed the opportunity to enter the sedan market earlier. According to the May 2021 data report from the China Passenger Car Association, the retail sales of sedans were 793,000 units, which is still the largest market in China compared to the SUV market of 736,000 units.
For NIO, relying solely on the positioning of the mid-to-large-sized sedan ET7 is not enough to gain more incremental market share in the huge sedan market. A larger mid-size sedan positioned lower is the core.
Scaling Up
On June 10th, Li Bin mentioned at the 13th China Automotive Blue Book Forum that NIO’s average logistics mileage per vehicle is 901 kilometers, which can save logistics costs of 3,000-4,000 yuan per vehicle compared to the average of BBA.
Moreover, during the conference, Li Bin spared no effort in promoting the investment in the Hefei New Bridge Intelligent Electric Vehicle Industry Park, and the logic behind it is to form a scale effect through an industrial cluster to achieve the gathering of talents, industry chains, and supply chains, so as to achieve the goal of reducing costs and increasing efficiency.
From an industry perspective, the automotive industry is a part of the manufacturing industry, and no matter how it develops, scaling up is still a core underlying competitive advantage. Looking at NIO’s product line, the ET7 that will be delivered soon will inevitably have many non-universal parts with the SUV models currently on sale due to the nature of sedans, which will bring greater supply chain management pressure. From a cost perspective, NIO also needs a more-volume sedan to dilute the supply chain costs together with ET7, especially the four Orin chips and the Lidar from Velodyne.
Of course, these are actions that other automakers will take as well, but for NIO, scalability is not only reflected in manufacturing but also in their power swap and service system, which is also the more critical reason why I believe Gemini will not be an independent brand for NIO.
The End of Wool
First, let’s take a look at their power swap system. Since the second-generation NIO Power Swap station was officially launched on April 15th, NIO has added 52 new power swap stations to a total of 253 as of June 10th.According to information leaked by a NIO power swap technician， the first generation of NIO power swap stations requires a total investment of up to 3 million RMB. The second generation of power swap stations, which saves a lot of costs by eliminating the lifting and 24-hour relocation requirements, still has to face the unavoidable hard cost of 13 batteries. While I am not questioning NIO’s commitment to investing in the power swap system, as the deployment of more power swap stations increases, not only will the investment amount be greater, but the daily operational costs will also continue to increase. Therefore, in my opinion, a sustainable business model must ultimately move towards reasonable profitability, otherwise the road to scaling up will be long and arduous.
In the beginning, NIO’s vision was not just to distribute “wool” through power swap stations. When the power swap stations were first put into operation, the charging fee was as high as 180 RMB per swap, indicating that NIO hopes the power swap stations can sustain themselves. However, in 2019, due to declining sales, NIO had to adopt a more effective method to stimulate sales.
Seen from the policy change in October 2020, where NIO cancelled the unlimited power swap policy for users who purchased vehicles after a certain time and limited the number of swaps to six, NIO is aware of this problem. However, they hope the transition can be smoother.
During this year’s NIO Day, the 4 Orin chips, 300-line lidar and various other features of the ET7 indeed impressed and dazzled me. However, after calming down, I realized that one of the user rights was “lifetime power swap discount”, which is an obvious sign that NIO has figured out that they still need to gradually dilute the free lifetime power swap through vehicle iteration, similar to Tesla’s approach.
Therefore, even if there is a certain discount, power swapping for the ET7 will inevitably be charged, but the positioning and higher price of the ET7 is clearly not enough to support the power swap system to achieve sustainable profitability and rapid scaling.
Li Bin has also mentioned several times publicly that “our power swap system has always been open, and we welcome other car companies to join our power swap system”. This statement also indicates that NIO hopes to build its power swap system into a universal platform.
Therefore, NIO’s system still needs a vehicle model with more sales volume to help the power swap system reach the road of sustainable profitability, so that more densely deployed power swap networks can be deployed and larger scale can be achieved, giving them a better chance of becoming a universal platform. I think this is something they need to do more than operating an independent brand when entering the relatively unfamiliar mass market.
The Reason for Persisting with the “High-end”If NIO needs to make the battery swapping system more scalable, then it will be much simpler to lower the purchase threshold for new cars. Does this mean that the starting price of Gemini will be much lower than the current models on sale? I think it’s unlikely.
Aside from NIO’s treasuring of the brand image they’ve spent a lot of money to build, there are two important factors in their business model: user operations and service system.
Firstly, let’s look at user operations. I believe that the foundation of successful user operations is that the community’s values are generally aligned. For NIO, the product is actually utilizing its price range to form the user hierarchy. This means that if the selling price range of car products is too large, it will be a challenge for community operations.
At present, NIO’s cumulative delivery volume is close to 110,000, and there are already many different voices within the NIO community, such as the “Seat Sound Group” in the NIO App, where inevitably there will be some arguments between users. In the face of the occurrence of such situations, the pressure of user operations is incomparable to before. If the selling price range of the products is too large, it will only further increase the pressure of user operations.
Secondly, let’s look at the service system. NIO’s CEO, Li Hong Qin, once mentioned, “The reason why our service system is losing money now is because our scale is not large enough, and our operations are not efficient enough. Our goal is to achieve a balance of income and expenditure.”
From the perspective of today’s NIO business model, battery swapping and service system are one of its core competitive advantages, and they are also an important manifestation of differentiation from other brands. But in the end, it all comes down to having a sustainable and profitable business model.
And inevitably, it is necessary to mention scale in this regard. From the perspective of operations, this service system is very similar to the modes of Didi and Meituan. Only when the scale comes, can operations become more efficient.
Moreover, with XPeng’s “Yue Peng Service” and Ford Mach-E accessing the NIO Supercharging pile, fundamentally speaking, they are commercial behaviors of selling services without worries about servicing and energy to B. They also indirectly prove that NIO hopes to build itself into a platform-based enterprise.
Since the NIO service package needs to be purchased separately by users, this puts requirements on the spending power of car buyers. Therefore, in the short term, I don’t think NIO will release cars that differ greatly in selling price from current models on sale. Instead, they will continue to target the 300,000-500,000 yuan consumer market. At least until their own business model has formed a sustainable positive cycle, I think this is their top priority.
ConclusionBack to the topic, is Gemini an independent brand model, or is it the next car, ET5, under the NIO brand? Considering that NIO’s business model has not yet fully achieved a benign cycle, I am more inclined to think that it is the latter.
Finally, I want to say that if the price of ET5 is around 320,000-330,000 yuan, plus the BaaS package, which can be picked up for 250,000-260,000 yuan, and the intelligent configuration of four Orin chips and 300-line lidar from ET7 is also moved to ET5, without releasing software updates like version 2.10.1, this car will have strong competitiveness even if the luxury and comfort configurations are relatively reduced, and it can enter the mass market.
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.