Editor's note: This is a guest post from Rafi Khan, an NIO investor, and does not represent the views of CnEVPost.
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Since Henry Ford started selling Model T Fords over hundred years ago, Selling, General & Administrative expenses (SG&A) have been major cost item for Auto OEMs – No company has been able to convert Auto Owners that SG&A generates into Income Producers – Then came NIO!
NIO Q1 2021 SG&A RMB 1197 Million on 20,060 EVs sold 16.2% of RMB 7405.8 Million Vehicle Sales – SG&A equates to RMB 60,000 per EV sold.
Considering NIO EV owners both as expense item (SG&A) AND income source then "effective" SG&A per EV over life of EV should consider both SG&A & income owners generate.
Referral Commissions are as old as sales themselves but Incentivizing potential new Owners to search out existing Owners & pay both higher referral rates & proactively linking new & existing owners to strengthen community is NIO style novel.
Unlike most other Auto Companies, NIO considers owners as integral part of NIO Community / Family with William Li even transferring Billions of Dollars of his personal NIO Stock into Trust for NIO Community.
Ultimate Disruption is utilizing "Existing NIO Owner Asset" generated by 16.2% SG&A into major income source – Disruption & Destruction of SG&A NIO Style
NIO Owners can earn Income to "offset" SG&A expenses for NIO through:
1. Referrals on new NIO EV Purchases
2. Upgrade of existing EV Battery
3. NIO Life Shopping Mall
4. NIO House Purchases
5. Charging / Swapping Services
No one is so naïve enough to think Company Accountants can change current SG&A numbers with future income that will be generated but for Perceptive Investor it may be critical to know that every $ of NIO SG&A generates $3 or more in Income.
How many Retail Longs, NIO YouTubers, NIO Journalists, NIO Analysts have highlighted that NIO makes $3 or more for every $1 SG&A spent (see below) which no other Auto Company is close to emulating.
William Li is too humble to brag in daily tweets. He would rather keep a low profile as he looks to eat the lunch of his competitors in Premium Luxury Space with multiple business models no one is close to replicating or perhaps even understanding until it is too late which may already be the case.
Now here are the numbers:
1. Referral on new NIO EV Purchases
Consider NIO existing owners at YE 2021 to be 160,000
Consider two scenarios for NIO EV Sales in 2022
Scenario A – NIO sells 240,000 EVs in 2022
Even though this scenario is consistent with virtually all NIO Analysts, I personally consider these numbers low.
Aspirations of senior officials in Hefei / Anhui would be much higher than this given China Speed demanded on NeoPark & second JAC Factory / Assembly Plant
Referrals at 70% of 240,000 Sales in 2022 equals 160,000
ET7 sales 75% Profit RMB 180,000 SUV Sales 25% Profit RMB 100,000
Gives Profit per EV of RMB 160,000 in 2022
160,000 Existing Owners refer 160,000 New 2022 EV Sales on which Average Profit is RMB 160,000 (Average one referral per existing owner)
So each existing NIO owner earns NIO Profit RMB 160,000 on just New Referrals dwarfing SG&A expenses RMB 60,000 NIO spends generating that owner.
Scenario B – NIO sells 480,000 EVs in 2022
These numbers, I believe, may be more consistent with aspiration of Hefei / Anhui Government for NeoPark & Second Factory
Referrals now are 320,000 or average of two referrals per existing customer
Then each existing NIO owner "earns" Profit for NIO of RMB 320,000.
2. Upgrade of Existing Battery
70 kWh battery sells for RMB 70,000 or RMB 1,000 per kWh.
Battery price have fallen, but NIO sells 100 kWh for RMB 1,280 per kWh.
Estimate RMB 40,000 Profit for upgrade 70 kWh to 100kWh.
If 50% of existing owners upgrade
Then NIO makes RMB 20,000 per EV for each existing NIO owner.
Some of these Upgrades, or those that do not upgrade, will upgrade when 150 kWh Battery is offered further adding to RMB 20,000 Income number.
3. NIO Life Shopping Mall
Existing NIO owners can be expected to be amongst most active buyers in NIO Life Shopping Mall.
NIO Mall has buyers multiples more than NIO Owners.
Estimate NIO Mall provides RMB 10,000 Profit from owners.
4. NIO House
NIO owners spend at NIO House but there are also expenses
Say income from NIO House is zero.
5. Charging / Swapping Services
Say Income from existing NIO owners is zero.
Income Offset to RMB 60,000 SG&A Expenses per EV from existing owners is as follows:
1. Referral on New NIO Purchase
Scenario A RMB 160,000
Scenario B RMB 320,000
2. Upgrade of Existing Battery RMB 20,000
3. NIO Life Shopping Mall RMB 10,000
4. NIO House Zero
5. Charging / Swapping Zero
Scenario A total offset to SG&A RMB 190,000
Scenario B total offset to SG&A RMB 350,000
Both SG&A Offset Income Numbers earned by Existing NIO Owners are multiples of RMB 60,000 SG&A expended on developing existing NIO Owner
Now how many NIO Investors are considering Offset Income that Existing Owners generate?
- Customers become Friends & Associates
- Purchasers become Community / Family
- Bonds develop between Existing & New Owners
- NIO Community Owners become NIO Income Producers with never before seen Referral Rates that generate Profit for NIO
- Every $ NIO spends finding new Owner, Multiples of that is returned in income to NIO
Disruption & Destruction of SG&A Expenses NIO Style – Make NIO Owner Income Producer – Turn SG&A Generated Existing NIO Owner into Big NIO Profit Center
Not Financial Advisor Nor An Auto Analyst but do love NIO & the way it is Transforming the Auto World JMHO DYODD