Author | Xiao Ying

Editor | Qiu Kaijun

On March 1st, NIO released its Q4 and full-year 2022 financial report.

A key highlight is that “NIO delivered a total of 40,052 new cars in Q4 2022, achieving a quarterly delivery record of over 40,000 vehicles for the first time.”

The biggest pain point, however, is the large loss and low gross profit margin. In Q4 2022, “NIO’s quarterly net loss expanded to RMB 5.79 billion, while the gross profit margin of car sales dropped to 6.8%.”

However, NIO founder Li Bin is confident about 2023. He believes that with the delivery of five new cars this year, “we will achieve the goal of monthly deliveries of 30,000 vehicles, and by Q4 2023, the gross profit margin will recover to the range of 18%-20%.”

If more optimistic, “NIO is expected to achieve break-even in Q4 2023.”

For automakers, sales volume is the starting and finishing point of all planning. In 2023, the most important work for NIO is to systematically deliver the 5 new cars and further open up the market.

Full-year Loss Doubled

Overall, NIO’s sales volume and operating performance in 2022.

In 2022, NIO delivered a total of 122,486 vehicles, a year-on-year increase of 34%. Among them, a breakthrough was achieved in Q4, which delivered 40,052 vehicles.

However, the “spurt” in sales volume at the end of 2022 also brought certain side effects, putting pressure on NIO’s sales volume in early 2023. “In January, sales volume dropped to 8,506 vehicles, and only increased to 12,157 vehicles in February. Looking ahead to Q1 2023, NIO expects to deliver 31,000 to 33,000 new cars.”

In terms of production capacity and delivery, NIO still faces some pressure in Q1 2023, mainly due to the switch from the NT 1.0 platform to the NT 2.0 platform for the main selling model. Factory production lines need to be adjusted and prepared, affecting production capacity and delivery.

In terms of revenue, NIO’s total revenue for the year was RMB 49.269 billion, a year-on-year increase of 36.3%. The growth rate of revenue is basically the same as that of delivery.Full year net loss amounted to RMB 14.437 billion, a year-on-year increase of RMB 4.016 billion from 2021, and the loss situation can be said to have worsened significantly.

At the same time, the gross profit margin in 2022 is also not optimistic, falling from 18.9% in 2021 to 10.4%. The gross profit margin of car sales fell from 20.1% in 2021 to 13.7%, especially in the fourth quarter, the gross profit margin of car sales was only 6.8%.

In response, Li Bin explained that due to the continuous delivery of new ES8 and ES6 models in the second quarter of 2023, there are policies such as clearing inventory, subsidies, and financial support for the old 866 model, which will have a certain impact on short-term gross profit. In addition, the low gross profit sales growth of ET5 in the fourth quarter of 2022 also affected overall profitability. This influence is expected to continue until the first quarter of 2023, and with the consecutive delivery of new models in the second quarter, it will improve.

NIO will deliver five new cars this year, including the all-new ES8, EC7 launched at NIO Day at the end of 2022, and the all-new ES6, all-new EC6, and ET5 hunting version launched this year.

Li Bin said that the original plan was to deliver all five new cars in the first half of this year, but considering more time for each new car to better grasp the marketing rhythm, the fifth car is currently planned for delivery in July.

With these new cars gradually released this year, the overall profitability of NIO will be improved from the product portfolio level. At the same time, the price reduction of battery raw materials will also contribute to the growth of NIO’s gross profit.

NIO CFO Feng Wei said that if the price of lithium carbonate drops by RMB 10,000 per ton, NIO’s gross profit margin of car sales will increase by 2\%. He expects the price of lithium carbonate to fall to RMB 200,000 per ton this year. In November 2022, the price of lithium carbonate rose to a high point of RMB 570,000, raising prices across the entire EV industry. At the beginning of this year, the price of lithium carbonate fell to RMB 400,000 per ton.

Based on these two factors, Li Bin stated that he is confident that the gross profit margin of car sales will be restored to the range of 18\%-20\% in the fourth quarter of this year.

Monthly Sales Exceed 30,000 with Profit Achieved in Q4

Based on the NT 2.0 platform, a set of “combination punches,” Li Bin is quite confident about 2023. He expects to deliver all five new cars and achieve monthly sales exceeding 30,000 units.

Where will the 30,000 units come from? Li Bin did some calculations.

He mentioned that after all the products based on the second-generation technology platform are launched, NIO’s products will be classified into three clusters:

The first cluster is the main sales-contributing models, including the ET5, the all-new ES6, and the ET5 Hunting Version. Li Bin expects these three models to contribute to monthly sales of 20,000 units.

The second cluster of models will be positioned at a higher price range, including the ET7, ES7, and the all-new ES8. He believes that the monthly sales of these vehicles will range from 8,000 to 10,000 units.

Further up are the EC7 and the all-new EC6, two models that pursue personalized styles. Li Bin mentioned that they will be more niche, with monthly sales of about 1,000 to 2,000 units.

Achieving the goal of 30,000 monthly sales means tripling the current monthly sales. Li Bin believes that NIO’s sales growth has three driving forces.

The first driving force is product power. In the first half of the year, NIO will complete product switching, and all five models will be based on the second-generation technology platform. NIO will enter a strong product cycle. He said that after the product switch is completed, NIO’s product portfolio will be able to cover 80% of the main sales market of BBA, and each segment market has certain advantages in product power.

The second growth drive is NIO’s unique battery swapping system. Recently, NIO announced that it will add 1,000 new battery swap stations this year to cover more markets in third- and fourth-tier cities. Li Bin believes that in addition to the first-tier cities, there is a larger market space to be explored. The construction of the battery swapping system is providing support for NIO’s car sales.### Third Growth Driver: Forward-Looking Technology Strength Enabled by the Second Generation Platform

As a new generation technology platform, NIO reserved abundant configurations, including four Orin chips and a LiDAR, on the hardware front. On the software front, NIO officially released NOP+ in December 2022. This is a fully self-developed result from sensing, planning, control, and other aspects, based on the NT2.0 platform. It also means that NIO’s shortcoming in intelligent driving has been compensated for, and NIO’s product competitiveness will be further enhanced.

Based on this logic, Li Bin said, “If raw material prices continue to decrease according to the current trend and do not consider investment in innovative businesses, we may still achieve profitability in Q4 this year.”

R&D Investment Reaches Historical High

It can be seen that while promising profitability, Li Bin added a critical limitation: not considering investment in innovative businesses. However, innovative businesses are also the focus of outside attention and concern.

In 2022, NIO was exposed to have launched multiple new business layouts, including two new car projects with internal code names “Alps” and “Firefly,” as well as core component R&D projects such as batteries and chips, and even a mobile phone project.

Facing profitability pressure in core businesses, coupled with the simultaneous advancement of numerous new projects, it is inevitable to worry about the financial situation of NIO.

At this earnings conference, Li Bin did not mention new business development progress too much. He just mentioned that an investment scale of 4-5 billion yuan per year would be put into new businesses, which is about 10 billion yuan per quarter.

The R&D investment of new projects has already been reflected in the financial statements. According to the 2022 financial report, NIO’s annual R&D investment reached 10.8 billion yuan, constantly increasing from the first quarter to the fourth quarter, with the R&D investment in the fourth quarter reaching a historical peak, close to 4 billion yuan.

Facing many new projects and heavy financial pressure, Li Bin stated that reducing costs and increasing efficiency is also the key task of NIO this year. He further talked about the logic of reducing costs and increasing efficiency, which would not include cutting staff or shutting down projects, but to improve human efficiency. Meanwhile, NIO will also re-evaluate project priorities.

# Uneceasing pressure on NIO’s finances, but management remains relaxed

NIO has long been perceived to be under significant financial pressure, particularly compared to its neighbor, Li Auto. However, the company’s management seems to take a more relaxed attitude towards this matter.

NIO’s CEO, William Li, spoke about the company’s spending logic, saying that NIO’s gross profit from car sales should roughly equal its administrative and marketing expenses, and that the loss mainly comes from research and development expenses, which can be solved by financing. He believes that this principle is in line with the development logic of a growing technology innovation company.

Taking a comprehensive view, NIO’s business layout strategy actually aims to have a balanced layout across all automotive technologies and related fields, in order to seize future opportunities early on, even at the cost of loss in the early stage.

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.