Article by | Zhang Ruichen
Editor | Wu Xianzhi
On November 10th, NIO released its Q3 2022 financial report, which showed a revenue of 13 billion yuan, a year-on-year growth of 32.6%, setting a new quarterly record for the tenth consecutive quarter of positive growth; gross margin for vehicle sales was 16.4%; R&D expenditure was 2.94 billion yuan, setting a new quarterly record; cash reserves were 51.4 billion yuan. The delivery target for Q4 2022 is 43,000 to 48,000 vehicles, setting a new record high for a single quarter. Revenue guidance for Q4 is 17.37 billion to 19.23 billion yuan, a year-on-year growth of 75.4% to 94.2%.
During the earnings call that evening, NIO’s founder, chairman and CEO, Li Bin, answered questions from analysts, including those related to production capacity, chips, profitability, globalization and comparisons with Tesla. We have summarized the key information as follows:
NIO plans to expand globally, starting with Europe
Regarding the global market, Li Bin stated that NIO’s products and innovative technologies are highly recognized by European consumers, industry experts and professional media. NIO has already built NIO Centers and NIO Spaces in 10 major cities in Europe, and plans to build 20 battery swap stations in Europe by the end of 2022 and 120 by the end of 2023, providing local users with a rechargeable, swappable and upgradable charging experience. In addition, NIO has established a research and development center in Berlin to localize the development and implementation of digital cockpits and intelligent driving assistance systems, continuously improving the intelligent experience for local users.
NIO is optimistic about its long-term profitability, provided that it has vertical integration capability
Li Bin said that the lifecycle of intelligent electric vehicles in China is much shorter than that of traditional gasoline cars. However, the product iteration cycle is fast, and the overall R&D efficiency is relatively high. Assuming that battery prices return to a normal, rational level, NIO can maintain a gross profit margin of 25%-30% in the long run. It is worth mentioning that even if all new energy vehicle companies are added together, the overall gross margin is negative, but BYD has vertical integration of batteries and components and does well. For the mass market, without vertical integration, the gross margin will not be optimistic.
NIO is confident in its production capacity
Li Bin said that short-term fluctuations are difficult to predict, but from the perspective of the supply chain and vehicle production, the entire supply chain capacity can support next year’s delivery target. However, there are still challenges in the supply chain, and delivery data for December will be limited by power semiconductor constraints. NIO’s second advanced manufacturing base, currently working well with Jianghuai, production capacity for vehicles is no longer a bottleneck. NIO has two bases with a total production capacity of 300,000 vehicles per day, which can still meet market demand.
NIO says chip supply won’t be affected
Li Bin stated that Nvidia’s chips mainly involve cloud AI training chips. Currently, NIO has sufficient A100 chips to meet the needs of AI training for a long time. Moreover, NIO is the first automaker in the world to launch the Orin X chip, six months ahead of its peers, and has a very close cooperation relationship with Nvidia. In addition, NIO has been developing the AD chip since last year, and now has a team of 500 people, and progress is smooth. As of now, it is not expected to be affected by the chip problem.
R&D and sales costs increased significantly YoY in Q3
Li Bin stated that the YoY increase in R&D and sales costs is mainly related to R&D investment in development pace, new brands, batteries, chips, and other aspects, as well as increases in personnel, testing, and other expenses. The R&D layout and work have basically been finalized. Overall, R&D costs will remain around RMB 3 billion per quarter in the coming period, and the system efficiency of R&D will continue to improve. Therefore, the increase in R&D and sales costs in the third quarter was expected.
NIO brand can achieve breakeven by Q4 next year
Currently, due to large R&D investment and high gross profit margins due to the inability to achieve economies of scale, China’s new energy vehicle startups are still in a loss-making stage. In Q3 of this year, NIO’s vehicle sales gross margin was 16.7%, a decrease from 18% in the same period last year, but Li Bin still has confidence in the company’s future profitability.
Li Bin stated that based on the current situation, he believes that the NIO brand can achieve breakeven in Q4 of 2023. In addition, R&D, battery, chip, and other new businesses for two new brands, smartphones, and other investments are approximately RMB 1 billion per quarter, with a total of RMB 3 billion to RMB 4 billion per year. For Volkswagen-branded vehicle models, Li Bin hopes that the sales volume of each vehicle can reach 50,000 units. It is indeed challenging to achieve profitability in 2022 mainly due to the price of batteries, but the battery price problem is expected to be solved by Q4 2023.
The main reason for the imbalance of profits and losses is the price of lithium carbonate
As everyone knows, the price of lithium carbonate has remained high recently, with a low of more than 400,000 yuan and currently at around 600,000 yuan, because the price of batteries is closely related to lithium carbonate prices. “If the unit price of lithium carbonate drops by 100,000 yuan, our gross profit margin will increase by 2%. The price of batteries is not a shortage price, and I believe the price of lithium should come down.” Li Bin said. In the past period, there have been some new lithium mines put into operation. By the end of next year, the price of each ton of lithium carbonate equivalent should fall back to the range of 300,000 to 400,000 yuan. If the unit price of the lithium carbonate drops to 400,000 yuan, NIO’s gross profit margin can increase by 4 percentage points.### Five New Car Models to be Launched in the First Half of Next Year, Unaffected by Tesla’s Price Cut
Li Bin announced that NIO will launch five new car models in the first half of 2023. By June 2023, NIO will have eight models for sale, with prices ranging from RMB 300,000 to RMB 500,000. One of which will be the “Model Y”. This can meet the diversified needs of users, but MPV models are not included in this plan. Regarding MPVs, Li Bin also responded, “There is no plan to release MPVs in the short term, but we will continue to pay attention.”
In October, Tesla once again announced a substantial price cut, which Li Bin stated does not pose a threat to NIO. The NIO ET5 and Tesla Model S and Model Y are not in the same price range. NIO is currently focusing on the process of increasing ET5 production capacity and improving its initial delivery quality.
Conclusion
NIO is further investing in and laying out its products, core technologies, battery swap and charging, and sales and service network, laying the foundation for long-term global market competition. Despite being affected by external factors in the development of new energy vehicles, NIO will continue to focus on product and technology innovation, service improvement, cost structure optimization, and operational efficiency improvement to provide better and better products and services for global users.
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.