When will NIO turn profitable, and what is the key to success? | Jianzhi Research

On the evening of June 6th, NIO released its financial report for the first quarter of 2024. Due to price reductions and poor sales volume, NIO's first-quarter revenue fell short of market expectations, and gross profit margin also returned to a downward range. However, in terms of performance outlook, the company provided strong guidance for sales volume and gross profit margin in the second quarter. NIO emphasized that second-quarter sales volume is expected to increase by around 130% year-on-year, and the automotive gross profit margin will also return to double digits.

Furthermore, NIO's highly anticipated new brand model, the L60, is about to be launched, with the potential to bring growth in sales and profitability.

Among the key indicators of focus, NIO's first-quarter revenue was 9.91 billion RMB, a decrease of 7.2% year-on-year and 42.1% quarter-on-quarter, lower than the market's expected 10.75 billion RMB; net loss was 5.18 billion RMB, a significant increase of 9.4% year-on-year and a slight narrowing of 3.4% quarter-on-quarter; gross profit margin increased by 3.4 percentage points year-on-year but decreased by 2.6 percentage points quarter-on-quarter to 4.9%.

1. Weak Sales Growth in Q1, New Brand L60 Seen as Key to Turning the Situation Around

In the first quarter of this year, NIO delivered 30,000 vehicles, a decrease of 3.2% year-on-year and 40% quarter-on-quarter, falling short of the company's previous delivery guidance of 31,000 to 33,000 vehicles.

In the second half of last year, NIO, known for never lowering prices, was also forced to join the price reduction trend.

In the second half of 2023, NIO implemented a 30,000 RMB discount on all models, lowering the starting price of the ET5 to below 300,000 RMB for the first time. This discount helped NIO's sales return to a peak of 20,000 vehicles per month. However, against the backdrop of many new energy vehicle companies lowering prices for promotions, the lasting effect of NIO's price reduction was not sustained. In the first quarter of 2024, NIO's monthly sales volume once again dropped to around 10,000 vehicles.

Luxury car brands need a stable pricing system, and NIO's main brand is unlikely to continue significant price reductions. For the sales expectations in the second quarter of 2024, NIO is relatively optimistic, expecting deliveries to reach between 54,000 and 56,000 vehicles. However, NIO's annual sales target is 230,000 vehicles, with the highest expected total sales in the first half of the year being only 86,000 vehicles, achieving a completion rate of only 37%. To achieve the annual target, the second brand L60 may be the key.

NIO's main brand models are mostly priced above 300,000 RMB, which is a significant difference from the first model of the L60 brand, priced at 219,900 RMB, avoiding intense internal competition. In the current pure electric high-end market above 300,000 RMB, NIO's market share has actually dropped from over 60% to below 50%. Considering the short term, NIO's main brand will not launch new models, while the second model of L60 will continue to be introduced next year, and NIO's third brand, Firefly (priced between 100,000 and 200,000 RMB), will also be launched and delivered in the first half of next year. Subsequently, NIO's model sales structure may shift from the pure high-end market to some extent to the mass market

2. Gross Margin Declines Again, Single Vehicle Revenue Drops Back to the 2 Era

In the first quarter of this year, NIO's gross margin once again saw a significant decline, dropping by 2.6 percentage points to 4.9% compared to the previous quarter. There are two reasons behind this: a decrease in single vehicle revenue and a rise in single vehicle costs, leading to a decrease in NIO's profitability.

In the first quarter of this year, NIO continued to implement last year's price reduction strategy, with significant intensity. After releasing the 2024 new models for the entire lineup in February, discounts on old models ranged from 24,000 yuan to 48,000 yuan.

Furthermore, NIO further increased the discount by adjusting service benefits. The price of cars that choose the standard endurance battery pack and adopt the BaaS model was reduced by 70,000 to 128,000 yuan. Due to the price reduction and inventory clearance of old and new models, NIO's single vehicle revenue fell back to below 300,000 yuan after four quarters, decreasing by 29,000 yuan to 279,000 yuan compared to the previous quarter.

However, NIO's single vehicle costs did not decrease by the same magnitude. In the first quarter of this year, NIO's single vehicle cost was 254,000 yuan, a decrease of 18,000 yuan compared to the previous quarter.

Mainly because NIO's sales in the first quarter saw negative growth rates for the first time, the dilution of single vehicle depreciation costs was lower than in the past. In addition, in the first quarter of this year, the prices of raw materials such as lithium carbonate rose again from below 100,000 yuan per ton to around 130,000 yuan per ton, naturally leading to a rise in NIO's single vehicle costs.

Fortunately, NIO has obtained the qualification for independent car manufacturing and acquired some of JAC Motors' production plant assets. According to NIO CEO William Li, after NIO fully transitions to self-made cars, the future manufacturing costs will decrease by 10%.

Furthermore, NIO's performance in other businesses is also unsatisfactory. NIO's other businesses include battery service packages, accessories, charging piles, and energy solutions. Due to poor sales, and the reduction of battery monthly service fees (75kWh and 100kWh batteries) by 25.7% and 32.9% in 24Q1, other business revenue decreased by 8.2% to 1.53 billion yuan compared to the previous quarter, with a gross margin still far from turning positive at -18.4% However, currently NIO's overall cash reserves remain adequate, benefiting from recent new external investments (NIO Energy received 1.5 billion RMB, as well as investments from Middle Eastern capital). As of the end of the first quarter of 2024, NIO's cash and cash equivalents, restricted cash, and term deposits amounted to 45.3 billion RMB, an increase of 7.5 billion RMB year-on-year, and a decrease of 11.7 billion RMB quarter-on-quarter.

3. R&D and Sales Expenses Not Increasing Rigidly

Apart from the updates in intelligent driving technology and the launch of NOA, NIO has reduced some non-core business R&D, such as self-developed power batteries and mobile phone business. At the same time, the NIO main brand will not launch new models in the short term, and the second model of the NIO brand will be released next year.

Therefore, NIO's R&D and sales expenses growth rate in the first quarter of this year has retreated. In the first quarter of this year, NIO's R&D expenses were 2.86 billion RMB, a decrease of 6.9% year-on-year and 27.9% quarter-on-quarter. Currently, NIO's R&D focus has basically shifted to the field of intelligent driving. NIO's intelligent navigation assistance system NOP+ has covered 99% of prefecture-level cities and counties in mainland China, with a total of 726 cities, closely following XPeng and Huawei-related car companies in the first echelon of intelligent driving.

As for sales expenses, in the first quarter of this year, NIO's sales expenses were 3 billion RMB, an increase of 22.5% year-on-year, but a decrease of 24.6% quarter-on-quarter. The year-on-year increase in NIO's sales expenses is still related to the expansion of the sales network and charging facilities. In the first quarter of this year, NIO added 91 new battery swap stations to a total of 2,397 stations, and added 153 charging stations to a total of 3,747 stations.

In conclusion, the issue of poor NIO sales volume is expected to be improved through the listing of the mass-market brand NIO Life. However, the decline in gross profit margin and unit price should be taken seriously. In the future, whether increasing sales of NIO Life brand models can strengthen revenue scale to continue amortizing R&D and sales expenses will be an important condition for NIO's successful turnaround