Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"

  The 2023 Shanghai Auto Show will open on April 18, how can NIO, as one of the three giants of new automakers, miss this long-dormant car “feast”. Pu Yang, assistant vice president of sales operations at NIO, said that the new EC7 and ES8 just released will be officially launched at this year’s auto show, and fast payment will be accelerated; Other new products will also be unveiled and launched in the second half of this year.

  NIO, which is fully prepared for the launch of new products, replacement and upgrading, undoubtedly wants to use the auto show to fight a “turnaround battle”.

  Judging from NIO’s 2022 annual report released on March 1, although revenue continues to grow, reaching an all-time high, losses continue to expand. “In the first quarter of this year, we were really under pressure. Li Bin, founder and CEO of NIO, said on the earnings call that the gross profit margin of vehicles returned to 18%~20%, and achieving breakeven is still the goal of this year.

  Zhang Xiang, dean of the New Energy Vehicle Technology Research Institute of Jiangxi New Energy Technology Vocational College, told IT Times Reporter, it takes at least 3~5 years for Wei to achieve breakeven, and it will take longer to completely turn losses into profits.

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"
Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

Selling One Loses 120,000 Yuan

  According to the financial report, NIO’s total revenue in 2022 was 49.269 billion yuan, a year-on-year increase of 36.3%, and its total sales volume was 122,500 vehicles, of which the fourth quarter revenue was 16.06 billion yuan, a year-on-year increase of 62.2%, a month-on-month increase of 23.5%, achieving positive growth for 11 consecutive quarters.

  In terms of revenue and sales, NIO has reached a record high, and at the same time, losses have also reached a record high. In the fourth quarter of 2022, NIO lost 5.87 billion yuan, a year-on-year loss of 169.9% and a sequential loss of 40.8%; For the whole year, the net loss reached 14.437 billion yuan, an increase of 259.4% over the same period last year.

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"
Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

  If this loss amount is spread across annual sales, roughly calculated, NIO will lose 117,900 yuan per car sold in 2022, nearly 120,000 yuan.

  In terms of gross margin, NIO’s gross margin in the fourth quarter of 2022 was only 3.9%, whether it was 17.2% in the same period last year or 13.3% in the previous quarter, compared with a significant decline, and the gross margin for the whole year also fell from 18.9% in 2021 to 10.4% in 2022.Specifically, the gross margin of vehicles in the fourth quarter was only 6.8%, compared with 20.9% and 16.4% in the same period last year and the previous quarter, which was also a serious decline.

  ”In terms of the first quarter, NIO will face more pressure on vehicle gross margin. Li Bin said frankly in the conference call that NIO is still in the platform conversion period from NT1 to NT2, coupled with the withdrawal of national new energy subsidies, the preferential subsidies for inventory clearance of old “866” models and exhibition vehicles, and the factory to prepare for the second-generation platform models, resulting in higher amortization costs per vehicle and affecting the overall gross profit margin.

  On the other hand, the BBA (Mercedes-Benz, BMW, Audi), which has been used by NIO to benchmark, is relatively good in 2022. On March 17, Audi announced its fiscal 2022 results, showing sales revenue of 61.8 billion euros, a year-on-year increase of 16.4%; Operating profit of 7.6 billion euros, a year-on-year increase of nearly 40%; Operating sales margin was 12.2%, up from 10.4% in 2021.

  Mercedes-Benz’s annual turnover in 2022 will be 150 billion euros, a year-on-year increase of 12%; EBIT rose significantly by 28 percent to EUR 20.5 billion. BMW’s total revenue for the whole year of 2022 exceeded 142.6 billion euros, a year-on-year increase of 28.2%; Total vehicle sales were approximately 2,399,600 units, of which 215,800 were pure electric models, a year-on-year increase of 107.7%. Pre-tax profit amounted to approximately EUR 23,509 million, an increase of 46.4% compared to 2021.

  Loss is the only way for car companies to grow, how to quickly find a way to stop loss, and develop their own characteristics into a “winning magic weapon”. Zhang Xiang told IT Times Reporter, the profitability of new energy vehicles mainly relies on economies of scale, generally speaking, traditional car companies have to sell 200,000 vehicles a year to reach the level of economies of scale. Based on this standard, NIO, which sold 122,500 units last year, still has a certain gap. In addition, the development of domestic new energy vehicles can also refer to Tesla’s history.

  Founded in 2003 and listed in 2010, Tesla did not really turn around until its global sales reached 500,000 vehicles in 2020. NIO, founded in 2014, has only been 9 years ago, but it is facing the fierce status quo of Tesla alone, serious involution of new forces, and the influx of traditional car companies into the new energy track. “While NIO is progressing, other car companies are also improving, and I am optimistic that it will take at least 3 to 5 years for NIO to break even, and it will take longer to turn a profit.” Zhang Xiang said.

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"
Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

Power Exchange, Exchange High Cost for Competitive Barriers

  When it comes to NIO’s core competitiveness, the battery swap model is “unacceptable”. “I chose to buy NIO just for the power exchange. Ms. Chen, the owner of NIO in Jiading Jiangqiao, told reporters that she often goes to Fengzhuang Tea City to change electricity, the fastest 5 minutes, if you queue up can also be done in 30 minutes, the key is that you can change the electricity 6 times a month for free, saving home electricity bills.

  Up to now, NIO has built a total of 1,320 swap stations and 2,369 charging stations across the country, becoming the “champion of battery swapping” in the domestic automotive industry. But NIO’s power exchange ambitions do not stop there, in the recently announced “distribution point” wish list of power exchange stations, more than 130,000 wish addresses for power exchange stations involve 334 cities across the country, and adding 1,000 new power stations is this year’s goal. On March 28, NIO’s first batch of 10 third-generation replacement stations will also be officially online.

  The battery swap mode has undeniable advantages such as high efficiency and improved battery life, which is NIO’s biggest selling point, but the high cost has also become a “burden” for NIO to become profitable.

  At present, the replacement station is facing a series of cost problems such as construction costs, land rent, battery equipment, labor costs, etc., and the fixed cost of mainstream small and medium-sized replacement stations in the market is about 200~5 million yuan. NIO plans to add 1,000 substations, which means that it needs to invest 20~5 billion yuan; If you add the completed exchange station, it needs 4.64~11.6 billion yuan.

  ”Cost is only one of the obstacles, and the development of common standards is the key to the future of battery swap models.” Zhang Xiang told the reporter, at present, based on their own commercial interests, each car company is unwilling to open the power exchange interface as a unified standard, which is the reason why the power exchange mode is difficult to popularize. In the future, whoever can take the lead in becoming a “standard setter” will become the “master” of the exchange station.

  On the other hand, NIO mobile phones have also recently seen new trends. At the end of January, Qin Lihong, co-founder and president of NIO, said that NIO’s mobile phone will open internal testing in the second quarter of this year and is expected to be officially sold to the public in the third quarter of this year.

  In order to build such a mobile phone exclusive to the owner, NIO also invested a lot of costs. Last August, IT Times report “NIO’s New Story: Mobile phones look up, cars look down” wrote that NIO not only invested 100 million US dollars to establish Mobile Technology Co., Ltd., but also recruited people in OPPO, Huawei, Meitu, Xiaomi and other mobile phone manufacturers on the condition of a salary increase of 30%~50%.

  ”I think that NIO’s mobile phone is expected to become the same core competitiveness as battery replacement. Zhang Xiang said that the connection between mobile phones and cars is the future development direction and a hot spot in recent years. If NIO can provide users with a good experience through mobile phone and car connection, it will drive car sales and increase market share.

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"
Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

A Sinking Market That Cannot Be Escaped

  The new energy vehicle market is actually the same as the pyramid, the high-end market is located at the top of the tower, and the economic benefits are high, but the market capacity is relatively small. In the 9 years, NIO, which benchmarked against BBA, won a place in the high-end new energy vehicle market through two “formations” of “775” (ET7, ET5, ES7) and “866” (ES8, ES6, EC6), and the high-end market was also saturated.

  Apparently NIO is aware of this as well. In February, IT Times reporter visited NIO’s offline stores in Shanghai and found that NIO’s preferential subsidies for specific models reached up to 70,000 yuan. Although NIO has not admitted it, this is the largest price reduction in NIO’s history.

  According to the latest media news, the NIO sub-brand “Alps”, which focuses on the mid-range mass mainstream market, will adopt an 800V solution for all models, and will also share the use of the third-generation replacement station, which is scheduled to be launched in 2024. Positioned below 200,000 yuan and facing the low-end market, the “firefly” was exposed as early as last year. This structure is similar to Toyota’s “Suzuki, Toyota, Lexus” ladder product positioning.

  In addition, in the 2023 substation construction plan, NIO will also focus on some third- and fourth-tier cities and counties that have a user base but have not swapped stations. A downward expedition that had to be carried out was underway.

  On the other hand, NIO’s overseas market has not yet become a climate. Zhang Xiang told reporters that NIO’s current exports have not reached a certain scale, and sales cannot rise temporarily, which cannot provide substantial help for turning losses into profits. Moreover, the infrastructure construction such as exchange stations and charging piles in the European market is not perfect. According to statistics, NIO has only 12 exchange stations, 6 supercharging stations, and 18 supercharging piles in Europe. “NIO is still an emerging brand for the European market, which is dominated by traditional old car companies, and it will take a long time to cultivate foreign markets. Zhang Xiang said.

Selling a Car for a Loss of 120,000 Yuan, NIO "Sinks"
Selling a Car for a Loss of 120,000 Yuan, NIO “Sinks”

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