Li Bin of NIO: NIO focuses on the market share in the high-end market

NIO released its first quarter financial report for 2021. Data showed that in the first quarter of 2021, NIO achieved revenue of 7.98 billion yuan, a significant year-on-year increase of 481.8% and a month-on-month increase of 20.2%. Although revenue increased significantly in the first quarter, the net loss was 4.875 billion yuan, an increase of 182.96% over the same period last year; the operating loss was 296 million yuan, a month-on-month decrease of 68.2%.

NIO explained in its financial report that in the first quarter of 2021, NIO repurchased 3.305% of the equity of NIO China held by some strategic investors, and thus recognized an increase of 4.4 billion yuan in the redemption value of redeemable non-controlling interests. After deducting this part of the expenses and equity incentive expenses, NIO's net loss in the first quarter was less than 500 million yuan, which was much better than 1.33 billion yuan in the previous quarter.

Compared with the remaining cash balance of 2.397 billion yuan at the end of the first quarter of 2020, NIO's cash reserves have now increased significantly to 47.55 billion yuan.

Source: NIO official

At the same time, in the first quarter, NIO's sales volume, revenue, vehicle gross profit margin, average vehicle transaction price and other data all achieved historical highs. In addition, sales costs decreased and operating losses narrowed. This financial report was also rated by the industry as NIO's "best financial report ever."

Weilai's ambition is also further revealed. Although the sales volume in 2020 is less than 50,000 vehicles, Weilai has set a challenge to sell 1 million vehicles per year. On April 29, the Xinqiao Intelligent Industrial Park planned by Weilai and Hefei with a production capacity of 1 million vehicles officially started construction.

But the road ahead is not smooth. The chip shortage continues to affect NIO. "Considering the current order growth momentum and the volatility of the overall environment, we expect to deliver 21,000 to 22,000 vehicles in the second quarter of 2021," said Li Bin, founder and chairman of NIO.

Average selling price: 434,700 yuan

In the first quarter of 2021, NIO's gross profit margin for vehicle sales reached 21.2%, and its comprehensive gross profit margin reached 19.5%. These two figures increased by 4 and 2.3 percentage points respectively compared with the fourth quarter of 2020. According to Li Bin in the earnings conference call, "This is due to the increase in deliveries in the first quarter and a slight increase in the average transaction price. At the same time, costs have decreased somewhat."

Source: NIO official

Despite a five-day production suspension due to chip shortages, NIO still delivered 20,060 vehicles in the first quarter of 2021, exceeding 20,000 vehicles in a single quarter for the first time, a year-on-year increase of 422.7% and a month-on-month increase of 15.6%. This brought NIO 7.4058 billion yuan in car sales, a year-on-year increase of 489.8% and a month-on-month increase of 20.0%.

In the first quarter, NIO's average selling price was 434,700 yuan, an increase of 4,200 yuan from the average selling price in the fourth quarter of 2020. The transaction price exceeded that of BMW and Audi. According to data from research and consulting firm Wilson, the average price of BMW was 416,700 yuan; the average transaction price of Audi was even lower, at 325,000 yuan.

The increase in average selling price is due to the increase in the proportion of users purchasing optional products, including NIO Pilot and 100kWh battery pack. According to Qu Yu, Vice President of Finance of NIO, the gross profit of 100kWh battery pack is about 5,000 yuan, and the optional rate in the first quarter is 25%; the gross profit of NIO Pilot is about 8,000 yuan, and the optional rate is over 50%. As of April 16, more than 10,000 users have chosen to use 100kWh battery pack. "It is expected that the penetration rate of 100kWh battery pack will continue to increase in the next period of time."

"Because NIO does not cut prices, the current gross profit margin has reached a relatively healthy level," Li Bin said frankly. "Although there is still room for improvement in the future, we should not expect it to increase by several percentage points every quarter like last year."

Source: NIO official

Some people questioned that NIO was too focused on gross profit margin and ignored market share. Li Bin responded that NIO was focusing on market share in the high-end market, just like Porsche, which has annual global sales of less than 300,000 vehicles but accounts for more than 40% of Volkswagen's profits.

We will not blindly pursue market share, nor will we blindly cut prices. Li Bin reiterated, "I don't think it is a good way to increase the so-called market share by cutting prices, and in fact it may not reach the goal." He believes that a reasonable gross profit margin is necessary. NIO will not cut prices, but will use the revenue for user services, including battery replacement facilities, communities and other user rights. "The global high-end (car) market is about 10 million vehicles, and NIO only accounts for a few thousandths, so there is still a lot of room for growth."

"The characteristic of the automotive industry is that there can be no shortcomings"

Since 2021, the smart electric vehicle industry has ushered in a new wave of car manufacturing. Technology giants such as Baidu and Xiaomi have entered the car manufacturing industry; automobile giants such as Volkswagen and General Motors have accelerated their electrification transformation; and "national team" brands such as Lantu and Zhiji have also accelerated their development process.

"The 2021 Shanghai Auto Show has shown us the vitality of China's smart electric vehicle industry," Li Bin said. The high-end brands launched by traditional car companies have some bright spots, but "the characteristic of the automotive industry is that there can be no shortcomings." In terms of intelligence and autonomous driving capabilities, their determination to change may need to be greater.

"In the high-end market, we don't see a brand with comprehensive competitiveness that can compete with NIO." Li Bin said that comprehensive competitiveness includes products, service systems, technology, user experience and user communities.

Part of this confidence may come from the expansion of production capacity.

NIO had previously encountered a shortage of production capacity. On April 29, the construction of Neo Park Xinqiao Intelligent Electric Vehicle Industrial Park began, which may have given Li Bin more confidence.

According to Li Bin, the initial investment in the park is 50 billion yuan, the vehicle production capacity can reach 1 million vehicles/year, the battery production capacity can reach 100GWh/year, and the annual total output value is expected to reach 500 billion yuan. NIO is responsible for manufacturing process, supply chain, and quality control, while JAC and NIO's joint venture Jianglai is responsible for recruiting workers and daily operations management.

Source: NIO official

So, will the 1 million vehicle production capacity and 100GWh battery production capacity all be given to NIO? Li Bin responded that if NIO develops fast enough and can absorb so much production capacity, then the company should lean towards NIO.

Although production capacity is no longer a problem, NIO is still constrained by chip shortages, and its second-quarter delivery guidance has been adjusted from the previous 7,500 vehicles per month to 21,000-22,000 vehicles for the entire quarter. However, this predicament may ease in the third quarter, and may improve overall in the fourth quarter.

The mass production challenges of the highly anticipated NIO ET7 are also considerable. "The mass production pressure of NVIDIA ORIN, a lidar and autonomous driving chip, is very high, but we currently believe that it is possible to deliver ET7 in the first quarter of next year," said Li Bin.

It is worth noting that in the first quarter of 2021, NIO's investment in R&D was not high, at 686.5 million yuan, a year-on-year decrease of 17.2%. "R&D needs to follow the product," Li Bin explained, saying that the mass production of ET7 is in progress, so R&D investment has declined. Starting from the second quarter, the funds for testing, research and experiments related to the mass production of ET7 will increase.