Author: An Gongzi Xing Qinye Se
From January 13th to February 5th, a total of 23 days, this is the first year that NIO has launched its free high-speed battery swap service for the Chinese New Year.
75 battery swaps, 19577 kilometers, this is the longing accumulated over three years by a NIO user who has not been home for the Chinese New Year.
As life gradually returns to normal, road traffic becomes increasingly busy, and the phase-out of new energy subsidies is completed… For every electric vehicle user or potential user, this year’s Chinese New Year is a turning point. What insights has NIO gained from the recent “free” test?
NIO co-founder and president Qin Lihong and senior vice president of NIO Energy Shen Fei provided deeper insights and answers to this question at the 2023 NIO Spring Festival face-to-face media event.
Q1: Why offer a free high-speed battery swap guarantee during the Chinese New Year?
A1: With the increase in NIO service facilities and team layout, we have lacked effective verification in the past two years. In the past two years, the traffic volume in China has sharply decreased, and we have felt that the daily service demand has become increasingly easier to handle. However, this ease may be an illusion. Because the past two years were characterized by insufficient passenger flow, this year’s Chinese New Year should be the first day of collective travel for the whole nation after the epidemic. It is a comprehensive test for the service and guarantee system that NIO has been building for years. At the same time, we regard it as a stress test. In this process, we have gained some achievements, but more importantly, we have gained a lot of insights. Under this pressure, we also see where we can do better.
Q2: Will NIO’s battery swap station construction plan for 2023 change due to this guarantee service?
A2: Brother Bin announced at NIO Day in Hefei on December 24th last year that we plan to add 400 battery swap stations this year, possibly exceeding 1,700 in total. Through the recent Chinese New Year test and user behavior verification, we have a profound understanding of the role of NIO’s battery swap stations in providing user travel guarantees. There will likely be more additions this year compared to the announced 400 new stations at NIO Day, and we are currently conducting nationwide carpet-style address screening as well as financial calculations for site layouts. Our goal is to have a clear plan by February.Q3: What was the initial intention of NIO to propose free battery swapping service for its customers this year? Was the goal of providing service assurance achieved in the end? We also noticed that NIO has been offering free battery swapping service with limited times for car owners. How did we digest such costs?
A3: The idea came up suddenly, as we realized that many people may need to return home during the Spring Festival. Initially, there wasn’t much intention behind it, and we roughly estimated the cost, which we considered OK. However, this kind of innovation at such a time really met the emotional demands that our users have accumulated over the past three years, which aligns with NIO’s values regarding our users. We didn’t plan any specific promotion for this, but simply felt that we should do it, so we made the decision within two days. The effect was good, with considerable pressure added to the service, but the feedback from our users was still positive. As for the extra costs, the main part is electricity fees, and some of our staff may have worked overtime, resulting in additional pay. All in all, the amount is approximately equivalent to the cost of a billboard advertisement at Wangfujing for a year.
Q4: I have two questions. Firstly, I saw that NIO’s service has set a new record again this year, such as offering free haircuts and pet care at customers’ doorsteps. With a significant increase in NIO’s users, will this kind of service continue, and how much pressure does it put on your costs? Secondly, as an old car owner, I noticed that there are doubts about NIO’s new car release schedule among car groups. They think that a release-to-delivery time of six months is too long, and the rate of displaying new cars is slow, so it’s difficult for new car displaysquickly to convert to sales. People feel that NIO cannot break through the sales figure of 20,000 even higher levels due to this factor. Can I ask Mr. Li Hong to comment on this view? Will the speed of product release be accelerated in the future?
A4: When we announced the new heights of our service, a lot of times, I was taken aback, thinking about how we could have this kind of service. It’s really the frontline staff who have proposed and provided these services based on their capabilities, and it’s true that our users have this need. The “one-button swapping” was initially proposed by a user in the app, and gradually the frontline staff, guided by the mindset of serving users well, develop such services based on their expertise. In fact, there are many different services, but they are not standardized or general services. I believe that our entire service will not have too much pressure due to this, but is flexible to respond to local conditions. I see it more as our dedicated colleagues thinking of using their own expertise to provide additional services for users, and as when users have special needs, we also think from their perspective and provide such services.Regarding the release rhythm, I partially agree with the phenomenon and its reasons, but it is not entirely true. NIO does not always take more than six months from release to delivery. For example, our ES7 was released in mid-June last year, and deliveries began in August. Indeed, the last two years, the COVID-19 pandemic and supply chain issues have made some things more complicated and not according to our plans.
Moreover, NIO holds NIO Day every year at the end of the year, which is a tradition for our community. Usually, we release a product on NIO Day at a fixed time, and delivery times can vary from short to long. For example, the ES8 2020 model took four months from release to delivery, while our ET7 model may take more than a year. The duration can be different for each product based on its launch time, preparation status, and product positioning.
In the future, NIO will launch products more frequently, and we will adopt different strategies for each product according to our fixed schedule, preparation status, and product positioning. For example, on December 24th last year, we released two cars in Hefei: the brand-new ES8 and the EC7. However, there may be one or two cars that will be delivered even faster than them, but they have not yet been released today. We hope to have a faster launch process for each product. Therefore, our approach can vary based on the car and situation. We aim to continuously optimize the efficiency of the product launch process, and I appreciate that there is a lot of room for improvement for NIO’s efficiency in the early stages of product launch.
Regarding the question, the answer is yes. The new energy vehicle market will maintain high growth in 2023, and the growth rate will further increase. The challenge we face now is threefold. First, is that consumption is not active at different times. From December to January and before the Chinese New Year, various regions have experienced this situation. Second is that subsidies have been reduced, and this year is the first year that national subsidies have been reduced to zero. Many people had an expectation of the subsidy for new energy vehicles. January 2023 is the first month that subsidies are zero. Some manufacturers, including us, NIO, will introduce policies to extend subsidies, but overall, it is the first month of the subsidy-free era. Last December, for example, the price of a NIO car was on average over 10,000 yuan more expensive than that of January 1st, 2023 due to the subsidy. There was a wave of concentrated consumption release in December 2022. Third, January has the Spring Festival, and there are probably only about 20 working days. However, the entire market was not in good condition for more than ten days.The combination of these three factors caused fluctuations in January’s data this year. As of today, the authoritative January retail data has not yet been released. We estimated that the overall sales volume of passenger cars in January this year decreased by 30% compared with January last year. The first quarter of this year is the most difficult and challenging quarter for the entire automobile and electric vehicle industry in recent years. We must be fully prepared for this. However, it is not contradictory to the significant growth throughout the year. For each company, the strategic arrangements and tactical responses must be appropriate, as short-term fluctuations may lead to a contraction that could result in losing the opportunity for the next step. A long-term perspective is recommended, and it is not advisable to aggressively invest in the short term. Both scenarios will result in risk.
Therefore, in the first half of this year, the word “rhythm” is the most critical keyword, especially on the marketing side, for all automobile companies. Each company is grasping its own rhythm. Some rhythms, such as our NIO’s new car in June, have already been set. Some rhythms require flexibility and tactical adjustments, which should be done actively. I have great confidence in the new energy market this year.
Q6: I noticed that some of NIO’s 2022 ES8, new ES8, and ES6 models (referred to as “886”) have been discounted recently. Is this to speed up the inventory clearance rate and prepare for the replacement of NIO ES8, ES6, and EC6 (referred to as “866”)?
A6: Yes. In addition, recent external discussions mention that the discount for NIO’s “866” has reached RMB 100,000. This statement is somewhat overstated. For example, the subsidy of 20,000 in Jiading District, Shanghai in the first quarter of this year was included in the RMB 100,000, but the number of users who can enjoy this discount is very few. Different conditions, such as long inventory age for display cars, are also different for cars displayed for one month or six months. Recent news reports simply string together the highest value of various discounts, which is not rigorous. We still need to speed up the clearance of current 866 products and prepare for the second-generation technology platform.
Q7: Due to the uncertainty of future economic expectations and the price reduction of several car companies, many users have a wait-and-see attitude. What measures and judgments does NIO have about this? Under the premise of uncertain economy, people’s demand for purchasing cars will be more conservative and rational. Many times, we can see that people will choose some classic models of big brands. How can NIO attract users outside their customer base? Last year, Bin Ge said our goal is Lexus.A7: A7: “A7” refers to the sales volume of Lexus cars, not Lexus itself. Our services during the Spring Festival are designed for those who have already become car owners. However, I believe that our reputation will eventually drive sales, and the impact of reputation will last longer than price and other short-term promotional factors. Our basic strategy of focusing on reputation will not change.
We have not set unrealistic sales goals, such as reaching a certain number of car sales this year. When we talk about “A7” in reference to Lexus, we are actually referring to the sales volume achieved by Lexus last year. Our goal for this year is to meet or surpass that volume. We made this prediction at the beginning of the year and I believe it is still viable today, and the probability of success is quite high.
Currently, we estimate the wholesale sales of passenger cars to be 1.3 million, with retail sales reaching at least 1.1 million. This is our sales volume goal. In the coming months, this number may increase due to factors such as weather, economy, and consumer confidence. If the sales volume exceeds this goal, I think it will still be achievable for the entire year. Our judgment of the macroeconomic situation is that it is indeed a challenge, but opportunities are still important.
In the long-term development of the automobile industry, building a high-end brand is not achieved through quantity over quality, but through making good products, providing high-quality services, and building a well-recognized brand. This is on the level of “Dao” (strategy). On the level of “Shu” (tactics), periodic measures such as the recent clearance by 866 are necessary, and we cannot be too rigid. This is our view of the overall market.
Q8: NIO has built many charging stations on highways, and some enterprises are building super charging piles. Is there an ultimate solution for energy supplement on highways? The second question is about the tactical issue of the entire battery swap system. When batteries are swapped, some batteries remain in the station. How can the amount of batteries to be swapped be properly controlled? If there are more batteries, more electricity, and more charging stations, users may have a better experience. However, the cost will also increase as the number increases. Is there a “vehicle-to-battery ratio” that can achieve a balance between the two sides and is most beneficial for profit?
A8: I would like to share some data with you to illustrate the difficulty of providing service areas during holidays. Generally speaking, the traffic during holidays is 3-5 times the normal traffic, and on the sixth day of a holiday, it can exceed this number. The difficulty lies in whether there are enough charging and battery swap stations on highways. If there are a lot of charging and battery swap stations on highways during normal days, they may be inadequate during holidays. If they are sufficient during holidays, they will have very low usage rates during normal times. Considering that our user base is growing rapidly every year, our primary solution is to build more battery swap stations.### Translation
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## Measures on Improving Service Capacity and Efficiency
The second solution is still an integrated solution. We will combine battery swapping with charging. From the perspective of a single user, the experience of battery swapping is much better, but during high-traffic holidays or festivals, the number of users that can be serviced, whether through charging or battery swapping, depends on how much power capacity that the electric grid can provide. Under the same electricity capacity, there won't be much efficiency difference between the two services. It’s just that the service capacity of a single user is better, and the waiting time will be much shorter. Therefore, our second measure is to increase the number of piles at the battery swapping stations. Originally, four to six poles were commonly seen. But, if conditions permit, we will provide more.
The third measure is that we will lay out more charging stations near highway entrances and exits. During holidays, the difference between peak and usual periods is quite large. For the highways with heavy traffic, some users may reduce your burden by closing off the entrance and exit, preventing users from coming up. I have also experienced this kind of scene myself. Therefore, we will lay out these kinds of stations near the highway entrance and exit locations. Additionally, these stations will simultaneously serve users inside and outside the service area. Overall, through these three measures and an intelligent dispatch system, the higher utilization rate of the entire facility will decrease customer waiting time significantly.
Regarding the battery ratio, we have been fluctuating between 1.5% -3%. Whether it is the current 13 cabins or the third-generation stations, the number of batteries inside our battery swapping stations will always match the station's single volume capacity. As long as the battery can be recycled in time, it can be charged to full capacity within an hour after the first user has swapped the battery, and there is no need to charge it completely. On average, each battery swapping station in the country has eight to ten batteries. We will make some adjustments depending on the holiday traffic.
**Q9: Previously, people judged that the profitability of the new energy vehicle industry would come from three areas: vehicle sales, service, and software. However, looking at the entire industry situation from last year, many piled up inventory, services are becoming more common, and free software is becoming more common. Moreover, R&D expenses are still increasing. As a commercial organization, what is your view of NIO’s profit points and profitability expectations? What is the level of NIO's finance department's voice in your company?**
A9: Intelligent electric vehicles are such a vast industry, and we are still in its early stages of development. I think that doing good groundwork and research and development to obtain reasonable admission tickets for the future is the main theme of this stage. If we are busy reaping profits now, it may be shortsighted. Because it depends on the final judgement of the industry, if we put the new energy vehicle industry into the history books, assuming the moment when it reaches its peak is 100 points, then where are we today?
Our judgment is that today’s situation is less than 20 points. It’s too early to make conclusions about the competition in product forms, marketing concepts, and the amount of retention, and the sales scale of each company. If we focus too much on this judgment today, we may miss out on even greater opportunities in the future. In my opinion, for any company engaging in sufficient competition, profits are the results of doing a series of things right in a reasonably-developing industry, and they are not pursued.
I do not think that we can simply regard a company that is losing more and has poor profitability by its financial data since it may be planning further into the future and may reap the rewards sooner. This is something that only time, perhaps 3-5 years, can tell. Even though many people feel that electric cars are very popular in China, new energy vehicles accounted for only about 1/4 of the entire passenger car market last year. I believe that the final outcome for this industry won’t come to light until new energy vehicles make up more than half of passenger cars.
I often face this kind of problem, and the most intense question comes from the investment industry. In recent months, some internationally renowned long-term funds have been increasing their holdings in our company. While some people in China criticize us for poor sales, we are gradually gaining recognition from top international long-term funds. I think this also shows our shared values.
Profit or loss and time are crucial. To be candid, NIO is currently in a deficit, and our losses are not insignificant. Regarding our profitability, which year are we talking about? If we are discussing the profitability of 2030, I think we might be one of the companies worth investing in. If we are talking about the profitability of 2050, I believe we might be one of the few companies that are thinking ahead this far. Perhaps I am wrong, but I ponder this question every day: what is the final outcome going to be in 20 or 30 years? This question is very important and has been widely discussed. I can only give a philosophical answer.
In addition, you mentioned the finance department. NIO has a healthy and normal finance department, which is just as important as any other healthy company. Our finance department plays a huge role in decision-making, management, and auditing – all for the company’s past, present, and future. However, whether it’s finance, R&D, or marketing, every function in a company must serve the company’s long-term strategy, and the long-term strategy must comply with the objective rules of the industry’s development. This basic logic must be adhered to.Q10: What is the charging time for the 150 kWh battery? Will the benefits of 4 or 6 free battery replacements be reduced, similar to the subsidy for new energy vehicles, including in the new generation of vehicles to be released soon?
A10: The 150 kWh battery should start operating in the first half of this year without any unexpected issues. As for the free battery replacement benefits for 4 or 6 times, we have not discussed changing it for now. It is possible to change it in the future, but it has not reached that point yet.
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.