Writing | Bo Renhui

Editor | Zhou Changxian

At NIO Day 2022, NIO founder and CEO Li Bin made a stunning statement and listed many pieces of data as evidence. Among them, the most noteworthy is that NIO ES8 has surpassed BBA’s high-end models in Beijing, Shanghai, Guangzhou, and Shenzhen, four cities with significant influence.

In fact, Li Bin stated at NIO Day 2021 that NIO aims to turn “BBA” into “NBA.” At the Chengdu Auto Show at the end of August this year, Qin Lihong, NIO’s president, predicted that “NIO ET5’s sales will exceed BMW 3 series in one year.” Although this statement caused a lot of controversy at that time, it is now becoming a reality.

“We still have some historical orders in hand. If we look at the cities in the east, we can basically see a rule that the cities we gradually surpass are proportional to the level of economic development, per capita purchasing power, and consumption concept progress.” Qin Lihong believes that the more influential the place, the more likely it will be taken first. That’s why Li Bin can talk about this at NIO Day.

Indeed, data does not lie. Whether it is the sales of NIO ES8 surpassing BMW X7 and Mercedes-Benz GLS in four first-tier cities or the delivery growth of ES7, which competes with X5L, it sends a clear message:

New energy vehicles have started to confront traditional fuel vehicles in the high-end market.

“It is not luck or accident. This is a trend.” Qin Lihong believes that the so-called trend is something that may not be seen today but will definitely happen in the future.

For example, Li Bin’s prediction that “although there is a bit of a distance from BBA’s fuel vehicles, next year’s sales target will exceed Lexus.”

Data shows that in 2021, Lexus sold a record high of 227,000 vehicles in China. In fact, according to the data from the China Passenger Car Association, NIO’s 14,153 deliveries in November had already surpassed Lexus’s 12,643.

Once NIO successfully surpasses Lexus, it means that NIO will once again break through the annual sales target of 200,000 vehicles. In this way, only BBA will remain among the luxury brands that are challenging NIO.## Only BBA in Front

“We are still very confident.”

What is the logic behind the statement made by the composed duo of Li Bin and Qin Lihong known for their calmness?

Today’s automotive market is no longer a playground for individual players.

Sales volume of China’s passenger car market in the first ten months of last year was at a level of 18 million units, and the volume remained the same during the same period this year, with structural adjustments being the only difference. Of over 18 million units, over 5 million units were new energy vehicles, of which 3.8 million units were pure electric vehicles. The penetration rate of new energy vehicles has increased to around 27\%, compared to 17\% for the whole year of last year and 5.6\% for the year before that.

“This is a value that we, as practitioners, dared not hope for three years ago,” Qin Lihong said at a media briefing two weeks ago. Such a huge change has only taken two years.

In fact, the speed of production of NIO’s 300,000-unit mass-produced vehicle can also reveal the trend that NIO mentioned is accelerating.

On December 12th, NIO’s second advanced manufacturing base produced its 300,000th production vehicle. This Aerospace Blue ET5, as the representative model of the 300,000 units produced, is not a stock model but has orders and has been paid for by customers. The representative model of 200,000 units produced a year ago was the ET7. From 200,000 units to 300,000 units, it took NIO more than 7 months, while it took 35 months and 12 months to achieve the first and second 100,000 units, respectively.

The expansion of the model matrix and the acceleration of delivery speed show a trend, which is the trend of gradually increasing sales volume, as well as the trend of demonstrating NIO’s product capabilities and platform advantages in many ways.

“866 is a platform of one and a half generations, and 775 is already a platform of the second generation,” Qin Lihong shared a NIO family photo taken at the entrance of NIO Center in Hefei at a media briefing on December 12th.

Pointing to this family photo, he made a promise to complete the iteration of the entire series of models to the second generation platform within six months. “When taking the family photo next time, I don’t think the first-generation platform car will appear again.”After Li Bin and Qin Lihong upgraded the product matrix, they repositioned their competitors. These positions were not blind, but were based on feedback and data gathered over the past year in the frontline of the market.

For example, in the 300,000 to 400,000 RMB pure electric vehicle market, NIO held about 40% of the market share. In November, in the high-end pure electric market above 400,000 RMB, NIO’s market share was already over 70%, and the trend of “oil to electricity” next year is unstoppable. As we all know, mid-to-large-sized cars have always been the BBA brand’s strong suit.

The ES8 is like a sharp sword that has penetrated the stronghold of petrol-fueled high-end cars, surpassing BBA in the four first-tier cities. In Shanghai, during the 48th and 49th weeks, the number of ES8s sold surpassed BMW’s X5L. “The more indicative a place is, the more likely it is to take the lead,” Li Bin said. Expanding further to the Yangtze River Delta, NIO has achieved its goal of surpassing BBA in many cities, including some quasi-first-tier cities. He admitted that in terms of sales, market participants or consumer attitudes, everything has come a little earlier than expected.

In recent years, we have often discussed what exactly constitutes a “high-end” car. Some people believe it should be above 300,000 RMB, others say above 350,000 RMB, some use US dollars to calculate, and some believe it should be over 200,000 RMB. Qin Lihong believes that consumers are the most practical and the price range they vote with their feet is close to 400,000 RMB.

Currently, NIO’s average transaction price for its vehicles is 466,000 RMB. In fact, NIO’s car models have surpassed BBA’s in several developed cities in East China and Southeast China. During the sharing session, Qin Lihong also did a bit of self-promotion, saying, “Apart from the ET5, NIO no longer has any models priced below 400,000 RMB.”

“The number of cities that are close to achieving this goal is increasing, so it has become a trend,” Li Bin has always likened car-making to running a marathon, and he believes that this trend is the leading force of the first echelon in the marathon. Among them, electric car companies have already emerged together and are starting to lead the global industry. NIO, who from the beginning has aspired to be a luxury electric brand, is also a force driving this trend. “Without this trend, our company would be just a small player in the industry,” Qin Lihong said. Currently, NIO’s deliveries have exceeded 100,000 vehicles from January to November.And, what makes Li Bin and Qin Lihong happiest is that more and more people are beginning to use the term “struggle” to describe the battle between NIO and BMW, Benz, and Audi.

“The trend is obvious, and we’re catching on,” Qin Lihong believes that at present, the entire market is undergoing structural adjustments in terms of energy form, high-end penetration, vehicle type preferences, city distribution, and user needs.

Of course, they also recognize that BMW, Mercedes-Benz, and Audi have many models with sales of over ten thousand units each, while NIO delivers over 10,000 vehicles in a single month, there are still many more to surpass. However, they are not just looking at the numbers, but hoping to analyze some patterns.

“How many cities have lost gasoline cars? And who did they lose them to?”

The rules behind this phenomenon are crucial to the two camps of electric vehicles, represented by NIO and gasoline vehicles. In a head-to-head confrontation, who will come out on top?

Li Bin admits that there have been some challenges in benchmarking against BMW, Benz, and Audi, including developing consumer trust in electric cars and weathering this year’s NIO product iteration fluctuations.

Qin Lihong calls this fluctuation period a “turn.” “I feel like the turn is coming to an end,” he said. “Once the iteration from generation one to generation two completes, and the production capacity iteration ends, we will steer out of the bend and head towards a new race, which should be in the second half of next year.”

The new track he refers to is akin to a “breaking the wall” campaign against traditional gasoline vehicle markets, including surpassing Lexus’ sales targets.

As the saying goes, Xiang Zhuang wu jian, yi zai Pei Gong. In fact, Lexus is not considered a competitive opponent pinned down by NIO, but rather a passerby in the chess game against BMW, Benz, and Audi.

So, what is NIO’s core competitiveness in daring to struggle with BMW, Benz, and Audi and becoming a leading company in the era of intelligent electric vehicles?

Compass, the compass reappears

On December 5th, 2021, at the communication meeting before NIO Day 2021, Qin Lihong presented a compass chart that revealed NIO’s bottom-up logic – building competitive power structure.

Little-known fact is that Li Bin and Qin Lihong came up with the idea for NIO’s model names on a high-speed train from Beijing to Hefei in September 2014. This was also one of the eight slides in NIO’s A+ round financing PPT that outlined the company’s future. See “How Did NIO Escape the Brand Black Hole? | in Depth](https://www.42how.com/article/4723).”

Qin Lihong believes that “the core question that a company must answer is not about grabbing market share from others, but about how to take up a percentage from the market.”

“What to rely on” is the completeness of the system, and it is the key for NIO to participate in the competition and fight against BBA. The same answer can also explain why NIO can become a leading company in the era of intelligent electric vehicles.

Looking back at NIO’s compass chart for 2021, it is a concentric circle divided into three layers and four quadrants. Qin Lihong said that the strategic compass represents NIO’s judgment on the entire smart electric vehicle racetrack and endgame, and it is a problem that will continue for 30 or even 50 years, when the industry’s strategic direction changes. “With this overall picture, we won’t lose our way.”

Around this overall picture, NIO has evolved and improved in technology, platform, product, user, and other areas, striving to be better in every way.

Standing at the level of enterprise managers, both Li Bin and Qin Lihong have the same feeling that they need to be clear about what must be done and what will not be done. For example, battery swapping, community services, internationalization, etc. are things that must be done, although the industry consensus had not yet formed at that time. Qin Lihong believes that “let’s build these long-term defenses first.”

One thing has not changed. For the past eight years, NIO’s strategic framework has remained unchanged, with 80% of the strategic direction and at least 50% of the specific layout and ideas deviating within ±20%.

Those who have followed NIO for a long time know that NIO’s system-building compass is continuously adjusted in practice each year, with some additions and some experimental adjustments.

In other words, the underlying strategy remains unchanged, and tactics are adjusted dynamically.

Qin Lihong admitted that the core management team has faced immense pressure during NIO’s ups and downs over the past few years. However, he was gratified that in the internal communication meeting before this year’s NIO Day, NIO was more adept at choosing the new compass picture.The words in the center of the compass last year were rather casual, such as HR and research and development capabilities. Now three words have been added: strategy, business model, and core competence. With a few changes to the words, the compass has become more mature in direction and strategy compared to last year.

“This is our original intention,” said Qin Lihong. This is what NIO has been working on all year.

By 2022, with the full launch of NIO’s new round of strategic expansion, the core framework around capital markets, fully self-developed, integrated packaging, going global, subscription models, new brands, and new categories has been largely completed, establishing a competitive system that covers products, services, digital touchpoints, and lifestyles.

It can be said that the new compass is the best interpretation of NIO’s current competitive strength.

During the process of adhering to the “original intention”, NIO also set itself a long-term goal of redefining the user experience in four areas, namely, “cars, services, digital experiences, and lifestyles that go beyond cars”.

For electric cars, NIO has three defining words: intelligent, electric, and car, all of which are indispensable. Qin Lihong has a vivid metaphor for this: “It’s as if the market had three locks, and bringing only one and a half keys won’t work. Some companies build great cars, but maybe not great electric cars, and some companies do well in electrification, while others excel in intelligence.”

“We believe that these three aspects are indispensable, and must move forward together. This is what the future of electric cars should look like,” said Qin Lihong. “Moving forward together” is the fundamental principle for NIO to become a leading company in the era of intelligent electric vehicles.

At the same time, NIO is exporting its pride and joy – its system competitiveness – to overseas markets.

“NIO has entered Europe on a relatively large scale this year. The way to enter is not through finding dealers to sell cars, but by bringing the company’s system competitiveness to Europe, and cars are only part of it,” Qin Lihong said. “We still need to proceed with these things very steadily and slowly.”

“We don’t want to be outsiders or oddities in Europe. We want to integrate into the mainstream consumer market and mainstream ideas, and in doing so, we strive to gain more recognition and selection from people. It’s like ripples spreading out in circles instead of smashing waves with a big rock and running away.”## 解析PAODING 解构「competitiveness of the system」

As we welcome the new year and refer to the New Compass, let’s look back on how NIO performed in terms of product strategy, R&D system effectiveness, vertical integration of industrial chains, and strategic determination in 2022.

In terms of product strategy, as a key weapon NIO will rely upon in future competition, new cars built on the NT2 platform have entered a period of intensive deployment. The most obvious feature of products on the NT2 platform is the integration of entire vehicle architecture, chassis systems, core components, and intelligent platforms, as well as compatibility with battery swapping stations, which addresses the issue of “flattening” of intelligent technology.

This year, three new car models, ET7, ES7, and ET5, built on NIO’s second-generation technology platform, have been delivered and delivery volumes have steadily increased. At NIO DAY, NIO released two new cars, EC7 and the all-new ES8. In addition, NIO plans to launch five new models in the first half of 2023.

“Next year will be a year of sales and demand release for the second-generation platform,” Li Bin said. “We can see the market competitiveness of second-generation products in the fourth quarter of next year.”

“We have turned in a qualified answer,” Qin Lihong said, expressing satisfaction with the performance of NT2 platform models. In November, NIO’s sales of high-end electric vehicles above ¥400,000 accounted for 77.6\%.

“NIO’s platformization should be the best in intelligent electric vehicles. Because there are only a few companies that specialize in intelligent platformization. And it is done step by step with planning. New cars have iterations, and old cars are still managed,” Qin said. But he added, “NIO has no miracles.”

As far as NIO’s current product combination is concerned, Qin believes that what NIO can do is to grow together with the trend. “Apart from jointly advancing and retreating with the market, we actually have limited ability to compete. This is good news, but it is also a strategic challenge that we need to overcome.”

The solution, as known to everyone, is to create a sub-brand for the mid-range mainstream market. As a whole, NIO now has a brand new growth engine.

Some people in the market have questioned whether NIO’s current system capabilities can support two brands. We can see that NIO is making efforts in at least two areas.

First, further improve R&D system effectiveness and, through more rational efficiency management of complexity, achieve the ultimate. It must be said that in today’s trend toward homogenization of intelligent vehicles, NIO’s philosophy is worth learning from for some brands.Here comes the translated text with Markdown preserving the HTML tags:

For example, NIO has battery packs of the same size, and all first-generation platform cars use the same intelligent system. Li Bin said, “Others can at least make some differences. We are all the same, with more than 1000T of computing power and more than 30 sensors.”

In terms of product thinking, Li Bin hopes that every car will have very high performance and a very high level. Personalization is achieved in the design, space, and other aspects to meet individual needs.

Meanwhile, NIO continues to vertically integrate in the industrial chain and continuously expands the scope of the full-stack self-developed system. It is understood that NIO’s first domestically produced full-stack self-developed intelligent chassis domain controller, ICC, has now started to take effect.

According to the financial report, NIO accumulated a net loss of as much as CNY 8.3 billion in the first three quarters of this year, of which CNY 6.85 billion was spent on R&D. Apart from vehicle R&D, a large part of it was invested in areas that support NIO’s vertical integration development.

“Many aspects are involved in the CNY 3 billion. It covers the entire vehicle, intelligent system, the three-electric systems, the R&D of battery-swapping stations, the R&D of energy clouds, and the R&D of applications,” Qin Lihong said. NIO will keep a quarterly R&D expenditure of CNY 3 billion, and in addition to investing in the automotive business, it will also conduct R&D in multiple businesses such as batteries, chips, and mobile phones.

He revealed that “we are also developing the self-developed four-piston high-performance fixed calipers. These small things are also in development. Another major development is NIO’s intelligent system. So far, we have three generations of intelligent systems, Baiyang, Chiyang, and Rong.” In addition, independent departments have been set up to operate the three-generation systems within NIO.

Specifically, NIO’s intelligent system mainly includes five aspects: a complete set of intelligent hardware for vehicles, including lidar, millimeter-wave radar, cameras, chips, and more. Second, it includes whole-vehicle computing, which differs between 1016Tops and 2.xTops cars. Third, intelligent algorithms, fourth, intelligent applications, and fifth, the operating system OS.

Qin Lihong joked that although NIO is a loss-making company, it is the R&D that is losing money, “R&D is for seeking tomorrow’s possibilities,” “and the results of these R&D efforts are the key to achieving scale.”

If we have to find an essential reason why NIO is competitive, it must be its strategic determination. Although the original market structure is being broken by NIO and its peers, the turning point for electric vehicles has not yet come, and NIO has just passed the corner.“`

As one of the long-term observers of NIO, we have found that the two executives of NIO value the four words of “Long-termism” the most.
As Li Bin said, “Even at the end of 2019, we were very close to bankruptcy, only a day or two away. Yet, we were still discussing long-term issues, discussing five-year and one-year plans. It sounds ridiculous, but that is NIO.”

“To maintain long-term competitiveness, we are investing in research and development, in investment, and in some vertical industrial capabilities. For example, we will invest in exploration companies in the lithium mining industry.” Li Bin believes that this is important for the company’s long-term competitiveness, but there will be a process. “Because, after all, there are many places to invest, and we need to control the rhythm and the allocation.”

Qin Lihong added, “The theme of NIO Day this time is that we want to see light, and we want to see light in any cold and depressed situation. But we cannot be blindly optimistic; we need to be rational, based on solid plans and resolute actions.”

Conclusion:

In the view of “AutocarMax”, the battle between NIO and BBA can also be understood as NIO’s offense against BBA’s defense.

Regardless, it’s a battle between masters. Whether it is for the development of China’s auto industry, or for the accumulation of classic business cases in business schools and media, there are great benefits. Of course, the greatest beneficiaries are users.

For BBA, competing with new competitors on the same stage, playing to their strengths and overcoming their weaknesses, is a storyline that has repeatedly appeared in the long history of their brand.

Qin Lihong believes that the next 1-3 years is an important window to refresh the market landscape. Whoever seizes it will be the one to win in the future.

Thirty years east of the river, thirty years west of the river. Perhaps in 2025, this battle, which BMW sees as a “decisive victory or defeat”, will begin to take shape.
“`

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.