Author: Xiao Ying Andy
I also read NIO’s Q3 press release and conference call transcript. I found a few interesting points:
NIO aims to accelerate again. Originally, NIO was the leading benchmark for new car development in China, but it is gradually being caught up by IDEAL and XPeng. NIO must make efforts to invest in factories, research and development, stores, and battery swapping… Therefore, NIO increased its revenue in Q3, but its loss continued to expand.
NIO still has a thirst for capital, but is experiencing slight blood loss. Its cash and short-term investments in Q3 were RMB 47 billion, which is RMB 1.3 billion less than in Q2. In terms of capital inflows and outflows, on one hand, NIO raised 1.2 billion USD through the issuance of new shares on the U.S. stock market; on the other hand, it spent RMB 2.5 billion to repurchase NIO China shares from Anhui Provincial Investment Fund, which increased its equity ratio by 1.418%. NIO undoubtedly also wants to go public on the Hong Kong stock market, but there may be two obstacles, one is the User Trust Fund, and the other may be the investment of Anhui Provincial Investment Fund. NIO’s second repurchase of NIO China shares has a very limited increase in share ratio, but it may be to solve the obstacles to listing on the Hong Kong stock market. Previously, NIO had a significant advantage in financing, but now it has relatively more difficulties.
NIO made RMB 517 million by selling NEV credits in Q3, with 200,000 credits sold. Based on this calculation, NIO sold one NEV credit for RMB 2,585.
NIO has succeeded in doing high-end cars, but can its advantages continue with new brands? There is not much information about new brands in this Q3 communication. We heard of its internal code name, “Alps” project. In addition to ET7, NIO will also launch two new products based on the NT2.0 technology platform next year. We do not know if they are new brands. Some people said early on that NIO was copying Tesla’s homework. Tesla had a Master Plan a long time ago and planned to move toward the civilian route, so it has been following the route of reducing costs through technology and scale. NIO’s route has always been high added value. How to integrate them remains to be seen.
Li Bin and NIO are still optimistic. Pessimists are often correct, while optimists often succeed. I hope so.
If entrepreneurship is like a roller coaster ride, then NIO is currently in a low valley.
In the past six months, NIO has had almost no major positive news. Instead, one difficulty after another has come one after another.
First of all, it encountered obstacles in listing on the Hong Kong stock market. In comparison, its two competitors, XPeng Motors and LI Auto, have successively listed on the Hong Kong Stock Exchange in July and August this year, raising HKD 11.6 billion and HKD 14 billion, respectively.
Immediately afterwards, a NIO ES8 owner’s fatal accident involving the Automatic Driving System caused widespread public concern. While the safety of the technology raised widespread questions, NIO’s public relations also caused strong dissatisfaction among its users. NIO, which claims to put users first, was almost bitten back by its own user’s dissatisfaction.The recent negative comments about NIO are based on its October sales figures. Despite attributing the decrease in delivery volume to production capacity adjustment, it was met with skepticism. In October 2021, NIO only delivered 3,667 vehicles and has fallen to fifth place on the list of new car-making forces. Although NIO has explained that the decrease in delivery volume is due to upgrading the production line to meet new products, outsiders are still skeptical. Under these pressures, NIO announced its Q3 earnings report. For Q3 2021, NIO’s overall performance was good, with total revenue at CNY 9.805 billion, up 116.6% YoY and 16.1% QoQ. The revenue from car sales was CNY 8.637 billion, up 102.4% YoY and 9.2% QoQ. The net loss was CNY 835.3 million, dropping 20.2% YoY and increasing 42.3% QoQ. The gross margin for NIO’s vehicle business was 18% in Q3, 20.3% in Q2 2021, and 14.5% in Q3 2020. The comprehensive gross margin was 20.3%, 18.6%, and 12.9% for the same periods. In terms of sales, NIO’s total deliveries for Q3 increased by 100.2% YoY and 11.6% QoQ, reaching an all-time high. As of September 30, 2021, the company had cash and cash equivalents, restricted monetary funds, and short-term investments totaling CNY 47 billion. Looking to the next year, NIO’s founder, William Li Bin, believes that the company will continue to improve and move up to the next level.First of all, Li Bin announced that NIO will simultaneously release three new cars in 2022, one of which is the previously unveiled ET7, and the other two are also new models based on the NT2.0 platform.
Li Bin had high hopes for the ET7. Currently, the trial production of this car has been completed, and it has undergone full-process production testing in preparation for mass production, which will officially begin delivery in the first quarter of next year. “In terms of financial gross profit calculation, the performance is still very good.”
This will boost NIO’s overall vehicle gross profit margin. In 2022, NIO’s goal is to achieve a vehicle gross profit margin of 20%.
In the long term, as new products based on the NT2.0 technology platform are launched, NIO hopes to achieve a vehicle gross profit margin of around 25%. This means that the annual production of NT2.0 platform products needs to reach 300,000 vehicles.
Meanwhile, NIO’s overseas market business has made new breakthroughs. Looking forward, Li Bin hopes that NIO’s sales in markets outside of China will reach 50%.
He introduced that in September of this year, the first NIO HOUSE in Norway officially opened, and the current demand for Norwegian orders is higher than expected. Deliveries will begin to accelerate starting in November. Among all orders, 92% of users chose the BaaS model.
In 2022, NIO will continue to vigorously promote the layout of the global market. Preparations in other European countries are also actively underway. NIO will enter at least 5 European countries, including Norway, next year. NT2.0 products will be directly provided in other European countries, while the first-generation ES8 will only be available in Norway.
Regarding more ambitious goals, Li Bin stated, “From a globalization perspective, we have always hoped that NIO can become the most satisfying brand for users around the world.”
As for the progress of deliveries and the secondary listing in the fourth quarter, NIO gave a relatively conservative plan.
NIO expects to deliver 23,500 to 25,500 vehicles in the fourth quarter of 2021, which is not an optimistic number. Li Bin attributed this to limitations in battery supply. NIO released a 75 kWh battery pack in September of this year, but it won’t be available on their vehicles until late November. It is expected that all production capacity will not be fully released until the first quarter of 2022.
He discussed that battery supply is currently a major constraint on delivery volume. “Our batteries are exclusively supplied by CATL, who has also invested a lot in increasing our production capacity. But overall, battery supply is really the ceiling for our deliveries.”
Regarding the issue of obstacles to the secondary listing in Hong Kong, Li Bin did not respond directly, only stating that “we will make the most suitable choice for investors and maintain an open attitude towards all possibilities.”NIO’s CFO Feng Wei mentioned that NIO has explored various possibilities to list on the Hong Kong stock market and will make necessary evaluations and negotiations in the future.
After the financial report was released, NIO’s founder, chairman and CEO Li Bin, CFO Feng Wei, and VP of finance Qu Yu attended the subsequent conference call to interpret the financial report and answer questions from analysts.
The following are some core operating indicators, business indicators based on financial report information and conference calls, as well as the latest technology, product, and production capacity information.
Operating Indicators
Total Revenue: The total revenue for Q3 2021 was RMB 9.805 billion, a YoY growth of 116.6% and a QoQ growth of 16.1%.
Revenue from Sales: The revenue from car sales was RMB 8.637 billion, a YoY growth of 102.4% and a QoQ growth of 9.2%. The growth in revenue from car sales was mainly due to an increase in car shipments.
Other Sales revenue was RMB 1.169 billion, an YoY growth of 350.8% and a QoQ growth of 117.9%.
Other sales revenue mainly came from new energy vehicle credit trading and battery upgrade services, with credit sales revenue of RMB 517 million. Qu Yu stated that NIO completed most of the new energy vehicle credit revenue in Q3, and it is not expected to have a lot of revenue in this area in Q4.
R&D Expenses: R&D expenses were RMB 1.193 billion, a YoY growth of 101.9% and a QoQ growth of 35%. The YoY and QoQ increase in R&D expenses was mainly due to the increase in expenses for new product and technology development, as well as the increase in R&D personnel.
Sales Costs: Sales costs were RMB 7.812 billion, a YoY growth of 98.3%. This was mainly due to the increased sales network and service system construction with the growth in sales volume.
Gross Profit: The gross profit was RMB 1.993 billion, a YoY growth of 240.3%. The gross profit margin for Q3 2021 was 20.3%. In comparison, the gross profit margin for Q3 2020 and Q2 2021 was 12.9% and 18.6%, respectively.
The gross profit margin for cars was 18%, whereas it was 14.5% in Q3 2020 and 20.3% in Q2 2021.
R&D expenditures: R&D expenditures were RMB 1.193 billion, an YoY growth of 101.9% and a QoQ growth of 35.0%. The growth in R&D expenditure was due to an increase in R&D personnel costs and an increase in design and development costs for new products and technologies.
Loss: The operating loss was RMB 0.992 billion, an YoY increase of 4.9% and a QoQ increase of 29.9%.The net loss was RMB 835 million, a decrease of 20.2% compared to the same period last year, and an increase of 42.3% compared to the previous quarter.
The net loss attributable to ordinary shareholders of the Company was RMB 2.859 billion, an increase of 140.7% compared to the same period last year, and an increase of 333.6% compared to the previous quarter.
Cash status: As of September 30, 2021, NIO held a total of RMB 47 billion in cash, cash equivalents, restricted cash, and short-term investments.
NIO expects total revenue in the fourth quarter of 2021 to reach between RMB 9.376 billion and RMB 10.106 billion, an increase of approximately 41.2% to 52.2% compared to the same period in 2020, and a decrease of approximately 4.4% to an increase of about 3.1% compared to the third quarter of 2021.
In 2022, NIO’s goal is to achieve a vehicle gross margin of 20%. In the long term, with new products based on the NT2.0 technology platform, NIO hopes to achieve a gross margin of about 25%, which means that the annual production of NT2.0 platform products needs to reach 300,000 units.
Operating Metrics
Sales: In the third quarter of 2021, NIO delivered 24,439 vehicles, an increase of 100.2% year-on-year and 11.6% quarter-on-quarter. Among them, 5,418 ES8 models were delivered, 11,271 ES6 models were delivered, and 7,750 EC6 models were delivered. The delivery guidance for the fourth quarter of 2021 is 23,500-25,500 vehicles.
According to Li Bin, from September 28 to October 15, in order to further increase production capacity and prepare for the introduction of the ET7 new product, NIO carried out phased upgrading and transformation of the JAC NIO Hefei manufacturing base as planned. As a result, sales in October were 3,667 vehicles, and normal production has been resumed in the latter half of October.
Sales network: NIO currently has 32 NIO Centers and 285 NIO Spaces, covering 132 cities in China, and will continue to increase and optimize the layout of NIO Centers and NIO Spaces, allowing the NIO brand to penetrate more second- and third-tier cities. Currently, there are 43 NIO service centers and 181 authorized service centers in 141 cities in China.
Charging and swapping stations: As of now, NIO has built 608 battery swapping stations, 360 supercharging stations with 2,690 chargers, and 560 destination charging stations with 3,155 chargers in China. Among them, in the third quarter of 2021, 217 battery swapping stations, 175 supercharging stations with 766 chargers, and 159 destination charging stations with 882 chargers were built.In the 608 battery swap stations, there are currently 127 high-speed swap stations. During this year’s Mid-Autumn Festival, NIO released a layout plan for the high-speed battery swap network in the “Five Vertical Three Horizontal Four Major Metropolitan Circles,” which is planned to be completed before the Spring Festival in 2022.
In September, NIO opened NIO HOUSE in Norway and the current demand for Norwegian orders has exceeded expectations, so deliveries will speed up starting in November. Among all orders, 92% of users chose BaaS.
In 2022, NIO will continue to vigorously promote the global market layout. Preparations in other European countries are also actively underway. Next year, NIO will enter at least 5 European countries, including Norway. In other European countries, it will directly provide NT2.0 products, and the first-generation ES8 will only be available in Norway.
Product Capacity
In September, the ET7 prototype has been officially offline, completed the trial production debugging of the fully processed production, and began to prepare for final mass production. The ET7 needs to be delivered in the first quarter of next year, and plans to arrange real cars entering the showroom around the Spring Festival, and follow-up deliveries will also be carried out.
In addition to the development of the two new models based on the NT2.0 platform, which are progressing according to plan, it is expected that they will be delivered to users in the second half of next year. More information on new products will be released in NIO DAY.
To prepare for the introduction of new products, NIO made a long stop in late September and mid-October, which greatly affected the delivery volume in October.
Li Bin introduced that there will be a small amount of renovation for the production line in the future because the introduction period of the product still needs time, but it will not have as much impact on the production rhythm as this time. In addition, some new models next year will be produced in the second factory of the Xinqiao Park, which will also reduce the impact on the existing production line.
In terms of production capacity, in addition to the upgrade and renovation of the JAC-NIO factory, the construction of the second production base located in the Hefei Xinqiao Intelligent Automobile Industry Park is also proceeding as planned. Equipment installation will begin at the end of November, and it is expected to be officially put into production at the end of the third quarter of next year. The maximum production capacity can reach 600,000 under the situation of double shifts combined in the two factories.
Regarding the demonstration of autonomous driving functions, Li Bin believes that there are now many companies doing road demonstrations for autonomous driving, and NIO is more concerned about mass production. Currently, NIO has built a full-stack software and hardware technology and will gradually release autonomous driving capabilities in terms of regulations, safety, availability, and reliability. This will be a long process.
Regarding the 150 kWh solid-state battery pack, Li Bin stated that NIO is still developing with its partners as planned and plans to provide services in the second half of next year or the fourth quarter of next year.
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.