Editor's note: This is a guest post from Rafi Khan, an 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.

Summary

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