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Author: Roomy
As Toyota steers Lexus and Audi serves as Volkswagen Group’s “development brain,” can young NIO handle the challenge of managing a new brand?
On August 12th, during NIO’s conference call for Q2 financial report, founder Li Bin admitted for the first time that a new brand will be launched. The question then arises around this new brand that follows Volkswagen’s path.
“Similar to the relationship between Audi and Volkswagen, Lexus and Toyota, the NIO brand and the new Volkswagen brand in the market will offer better products and services at lower prices than Tesla,” Li Bin said. After this statement, the launch of the new brand was confirmed, and the brand direction of NIO is clearer when compared to Tesla’s.
“Promote the ‘Volkswagen’ brand to counter Tesla.”
Such an ambitious goal became the focus of headlines that day. Most people believed that Li Bin’s purpose in launching the new brand was to challenge Tesla with a more varied product matrix and price system. “Tesla is NIO’s biggest opponent,” has always been a consensus.
However, in NIO’s strategic planning, it is not as simple as “countering Tesla,” but rather aiming to make NIO the most powerful player in the field of electric vehicles, similar to how BMW, Mercedes-Benz, and Audi dominate the traditional luxury car market.
In April, Li Bin expressed this goal at the 100,000th vehicle offline ceremony for NIO. He said that to achieve a market share of one-third with BBA, 800,000-900,000 vehicles per year would be necessary. NIO has the opportunity to achieve the goal of over 1 million vehicles for a single brand in the Chinese market.
“Last year, the high-end market sold almost 3.5 million vehicles, and it is still growing. If we make a slightly cautious and optimistic prediction of reaching 4 million vehicles, achieving a market share of 25% means 1 million vehicles. If we can reach a 30% market share, we can achieve over 1 million vehicles.”
With an ambition of a million vehicles, how great is this goal?
To put it in perspective, Mercedes-Benz and BMW, after more than 20 years of cultivation, finally achieved the breakthrough of selling over 700,000 vehicles in 2020 with their mainstream models. Audi, which has been determined to maintain its top position in the Chinese luxury car market for over 30 years, set their sights on the same goal and established SAIC Audi.
For years, the three luxury car makers competed with each other, but still, no brand has an absolute and leading advantage to reach one million vehicles in the Chinese market.
Li Bin’s other goal is to occupy over 25% of the share of the electric vehicle market.If we focus on the Chinese market, only Volkswagen has a solid market share of over 20%, beating many traditional luxury brands. To achieve a 25% market share in the EV market, NIO needs to overcome not only new players such as Tesla, XPeng, and Li Auto, but also Volkswagen and BBA, who are playing a full range of electrification cards.
Currently, data shows that NIO has already surpassed nearly half of the market share in high-end pure electric SUVs. Li Bin also admitted that in tier one cities, NIO’s market share in the first half of this year was close to 14%. However, in the upcoming Volkswagen brand field, competitors have already reached a market share of nearly 10% to 20%. And with Baidu, Xiaomi, and Foxconn joining in, it has become more difficult to achieve Li Bin’s goal of 1 million vehicles.
To seek more room for survival, NIO’s goals must be long-term. As for how to achieve the 1 million vehicle target, the new brand will undoubtedly play a critical role.
“The Volkswagen market brand will be a long-term strategic consideration. Its R&D speed and efficiency will only get faster on the basis of NIO.” Li Bin has always maintained a clear head. As he said before, he is thinking about the strategic layout three to five years ahead.
However, the current situation is not optimistic.
Earlier, Tesla officially announced that the price of Tesla Model 3 had been reduced, bringing another price impact to the competition of smart electric cars. At the same time, NIO’s official data showed that the average selling price of its models is 4.37 million yuan, even higher than BBA.
NIO CEO Qin Lihong previously stated that due to factors such as the average selling price and user preferences, there is not too much competition between Tesla’s Model 3 and Model Y, which are currently the main products, and NIO’s products.
“From the perspective of positioning, what the Volkswagen market really lacks now is very competitive intelligent electric products.” NIO wants to take on this big task.
Li Bin also made it clear at this financial report meeting that “our new brand will not enter the sub-segment market of Wuling Hongguang.” The new brand will focus on product and user satisfaction and will have corresponding business goals.
“Preparations for NIO’s entry into the Volkswagen market have also been accelerated. We have established a core team and taken an important step towards entering the Volkswagen market through the new brand.”In July this year, the former WeWork GM of Greater China, Tiecheng Ai, joined NIO as the Vice President of Strategic New Business, reporting directly to Li Bin. The focus of this new business is a mass-market brand with prices set between 150,000 and 250,000 RMB, which is the main battlefield for companies such as Volkswagen, Geely, Great Wall, and BYD.
The mass-market brand will operate independently from NIO, which will continue to position itself as a high-end brand. This includes independent sales networks and apps.
However, for Li Bin, who lacks experience in running multiple brands, the challenge is how to balance service and product advantages in the face of cost and pricing constraints, and how to manage the relationship between users and the brand. This is his new challenge.
What Cards Does NIO Hold?
When faced with a new challenge, it is important to explore whether NIO has the necessary confidence and strength to solve it.
First and foremost, the question is whether NIO has enough money.
NIO’s CFO, Yu Qu, said: “NIO’s R&D expenditure in Q2 was 880 million RMB, an increase of 28.7% from the previous quarter. Cash reserves were 48.32 billion RMB.” NIO now has nearly 50 billion RMB in cash, enough to make other new challengers jealous.
In addition, NIO has released some other data. Revenues of 8.45 billion RMB achieved a year-over-year increase of 127.2% and a quarter-over-quarter increase of 5.8%. The gross profit margin for vehicle sales is 20.3%, and the comprehensive gross profit margin is 18.6%. In Q2, the net loss was 587 million RMB.
Overall, the Q2 financial report shows that NIO has entered a relatively stable stage, with stable delivery volume, reduced net loss, positive gross profit margin, and improved ability to generate cash. Behind these figures are improvements in NIO’s R&D capabilities, capital efficiency, and system competitiveness.
The improvement of the value system chain is one of the reasons why Li Bin confidently proclaimed at the 100,000th car delivery ceremony that he aims to deliver one million cars.
Do you remember on the Q1 earnings call when Li Bin said: “The delivery guidance will be maintained at 21,000 to 22,000 new cars.” The second quarter also proceeded smoothly according to this rhythm. NIO has now launched three car models, with cumulative deliveries exceeding 100,000 vehicles, and a total of 21,896 cars were delivered in Q2, driving revenue growth.According to the data of the first half of the year, NIO’s sales volume was 41,000 vehicles, XPeng’s was 31,000 vehicles, and Li Auto’s was 30,000 vehicles. NIO maintained its leading position. To continue its advantage, NIO has set a short-term goal in the Q2 report, with an expected delivery volume of 23,000 to 25,000 vehicles in the third quarter, and a revenue of CNY 8.91 billion to 9.63 billion.
However, due to the uncertainty of the global supply chain, NIO’s supply chain capacity can only be maintained at around 7,500 vehicles at present. Looking at the sales volume in July, Li Auto delivered 8,589 vehicles, XPeng had 8,040, and NIO only delivered 7,931, a drop from June, which is already an omen.
“Reaching 8,000 vehicles is difficult, but we will do our best.” Li Bin said that NIO has made plans to expand production capacity with JAC Motors.
In May, NIO renewed its manufacturing agreement with JAC Motors. Until May 2024, JAC will continue to produce ES8, ES6, EC6, ET7, and other NIO models. It is reported that JAC Motors will increase its annual production capacity to 240,000 vehicles to meet the growing demand of NIO.
At the Q2 earnings conference, Qiu Yu, NIO’s deputy CFO, also confirmed this. CNY 50 billion in cash flow will be mainly used for the construction of new factories, the expansion of sales and service networks, and infrastructure deployment.
In addition, with intensifying competition, the room for maneuvering is no longer as flexible, and the development of new products has to be expedited.
“As the global electrification rate of automobiles begins to reach a critical point, we believe that it is necessary to accelerate the launch of new products, provide more high-quality intelligent electric vehicle products for the growing global market, and provide better overall services.”
The acceleration of new product development is also reflected in the Q2 report. According to the plan, NIO will deliver three new models next year.
“The NT2.0 will be first used in the ET7, and the development of NAD poses great challenges. At present, the research and development work is going smoothly, and we are confident that we will deliver it on schedule. The other two new models will be announced at the appropriate time. One of the models will be priced slightly lower than all current products and will be NIO’s lowest-priced model.” Li Bin once again clarified the progress of NIO’s product planning.With the delivery of ET7 in the first quarter of 2022, NIO will have a relatively rich product lineup including ES8, ES6, EC6, ET7, ES7 and ET5, with a plan to update its product line and shorten the depreciation period of existing products. “Continuous investment in research and development is one of our key strategies,” said Qu Yu.
“R&D will speed up starting from the second quarter, and the design and development cost of new products and technologies will also increase,” Li Bin expected R&D expenditures to reach 5 billion yuan for the year.
NIO has solutions for production capacity, R&D, and vehicle layout. However, without a new model launched this year and the challenges posed by the supply chain, it is not an easy task for Li Bin to maintain its lead in the new car-making force and achieve the delivery target for the third quarter.
Previously, Qin Lihong stated in an interview that the foundation for the new plant manufacturing base has been successfully laid. But before the official production, the pressure of the three new car models to be delivered in 2022 will still be concentrated on the first factory of Jianghuai Automobile.
There is a speculation that in the year without new products entering the market, NIO is counting on the sales growth brought by the electric swap station construction. Offline, NIO is indeed increasing the construction of its sales and service network. Qin Lihong revealed that by the end of 2025, the total number of NIO swap stations worldwide will exceed 4,000, of which about 1,000 are outside of China.
Despite seemingly having everything in place, how to maintain competitiveness in the high-end new energy vehicle market before the arrival of new brands and new products is still an inevitable issue for NIO.
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.