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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NIO's battery rental service BaaS (Battery as a Service) deserves two mentions:
1. BaaS #1
BaaS adoption reduces price entry by RMB 128,000 for 100 kWh EV. Also in Premium Luxury Segment only Battery Swap EVs (NIO) are eligible for Govt. RMB 18,000 subsidy. So BaaS creates Price Entry Reduction of RMB146,000 – NO First Major Adopter of Disruptive Price Entry Business Model.
2. BaaS #2
Battery Swap makes NIO EVs Upgradeable & subject to less depreciation as most expensive EV Battery component is not purchased resulting in higher resale values relative to purchase price especially as NIO is the only EV with Aluminum Body – NIO First Major Adopter of Upgradeable Battery Business Model.
3. ADaaS (Autonomous Driving as a Service)
For ET7 NIO will charge monthly subscription of RMB 680 for Level 4 Autonomy. Capitalizing these monthly payments equates to RMB 50,000 Value for NIO. Monthly Payments for AV Software dramatically increases Vehicle Profit Margins – NIO First Adopter of Software Monthly User Premiums Business Model.
4. No Factory No Vertical Integration -- No Problem. Focus on Software
Hitherto Assembly Plants have been considered an essential component of being Auto OEM.
Return on Investment: Factory Vs Software.
Factory: NeoPark Phase 1 will cost RMB 50 Billion to produce One Million EVs.
Equals RMB 50,000 per EV capacity.
City of Hefei / JAC may get paid RMB 3,000 to 5,000 per EV Produced.
Hefei Government cost of monies deployed is under 1% so even such returns are acceptable given Employment, Economic Growth & Taxes such projects generate.
Software: NIO R&D Expenditures in FY 2020 were RMB 2487.8 Million.
Say Total RMB 2000 Million on ET7 AV Software (too high a number).
Note NIO R&D includes New EVs, Power Train, Power Swap Stations, New Battery Technologies as well as AV development.
Revenue from 500,000 ET7 at RMB 50,000 equals RMB 25 Billion.
Factory Cost RMB 50 Billion Vs AV Software Cost RMB 2 Billion (Software Cost 96% less).
Factory Return 2022/2023 (12 month period) on 500,000 ET7 RMB 2.5 Billion.
Software Return on ADaaS Software RMB 25 Billion (Software Profits 20 times more).
You spend 96% LESS & make 20 times MORE on Software
No wonder Google, Apple, Huawei are queuing up to make AVs but even they may already be too late to beat NIO in Premium / Luxury Segment.
A lot of same NIO software is also being used in Robo Taxis & other NIO EVs.
Further Increasing Software ROI.
Optimum deployment of capital & resources is critical in Factory Vs Software debate.
NIO needs One Million Annual EV capacity just for ET7.
Would it have been smart for NIO to wipe out all its cash reserves to build factory such as NeoPark?
Are we truly capable of challenging NIO & William Li decision on that?
So who wants to laugh first when any NIO Analyst says NIO not being vertically integrated & owning its own factory is a problem.
Is "No Factory & Focus on Software" problem or major Business Model advantage for NIO?
NIO regards No Factory as No Problem – NIO First Major Adopter of No Factory Business Model Policy.
5. Let the Force be with You
NIO looked at Old Auto OEM Sales Policy Manual & threw it in the Garbage.
In FY 2020 SG&A was RMB 3932.3 Million to sell 43,728 EVs – RMB 90,000 per EV
In Q1 2021 SG&A was RMB 1197.2 M to sell 20,060 – RMB 60,000 per EV
SG&A rapidly falls when Existing Owners do bulk of your selling.
NIO's primary competitors Mercedes, BMW & Audi have been outselling others for past 20-40 years based on Brand Status, Brand Loyalty, Engineering Superiority, Performance Superiority, Dealer Network & Professional Sales Teams.
NIO has already smashed through the Brand, Engineering & Performance Barriers.
NIO has lower price entry, NOMI AI, better user experience, superior range, better performance, higher efficiency next gen. power train, better autonomy, more features, greater safety, more luxury which is how NIO has already smashed through the Brand, Engineering & Performance Barriers of MB, BMW, Audi & Rest of Premium / Luxury Auto World.
In place of Dealer Network NIO has chosen Direct Sales
Existing NIO owners are NIO's Primary Sales Tool – NIO is First Major Adopter of Existing Owners as Primary Sales Force Business Model.
Consider Impact of making your existing owners primary Sales Tool
- Existing Owner costs RMB 60,000 per EV (see above).
- NIO earns RMB 80,000 (number going up as sales increase) when "creating" that owner through profit on EV Sale so net cost of new NIO owner is Zero.
- On average that Owner will sell 1 to 2 New NIO EVs primarily ET7 in 2022.
- Profit on ET7 may be RMB 190,000 & average Profit on NIO EV in 2022 may be RMB 160,000.
For every RMB 60,000 you spend on getting new EV Owner, NIO earns.
a) RMB 80,000 (or more) selling owner that EV.
b) RMB 160,000 to 320,000 when that owner refers/ sells another NIO EV.
NIO earns profits of $3 to $6 on every $ spent on SG&A – NIO is First Major Auto OEM with such Sales Force Business Model producing wondrous Profits from Existing Owners.
6. NIO Balance Sheet – Like no Auto Company ever
a) Fixed Assets – William Li does not believe in personal Material Asset Ownership & NIO also does not seem to believe in Fixed Asset (Factory, Plant, Equipment) Investment. Even Power Swap Stations / Batteries owned by NIO Power.
b) Inventory – NIO prefers to produce EVs against specific sales orders. Little Company Inventory.
c) SG&A – Rapidly falling & even actual SG&A number is dwarfed by Profits earned from Existing Owner Sales Referrals.
d) R&D – NIO's passion & focus.
e) NIO Biggest Asset – NIO Community / Family may produce RMB 80 Billion in Profits in 2022/2023 (12 months) just from selling 500,000 NIO EVs &This Asset is carried on NIO Balance Sheet at ZERO.
7. NIO Owners are For Life
After you buy NIO EV you become Member of NIO Community / Family for Life "Till Death Us Do Part".
NIO Life Time Warranty, NIO Day, NIO Houses, NIO Spaces, NIO Points, NIO Referral Fees, NIO Food, NIO Apparel, NIO Pollution Credits, NIO Wines the list is endless – Above all you are primary Income / Profit Earner for NIO.
If you sell NIO EV, often to buy new NIO EV, NIO most likely is large shareholder of Used Car Company that transacts your NIO EV Sale & Transfers your EV QR Code.
Net Effect of NIO's Unique Disruptive Business Models
Ultimate proof of Disruptive Business Model is Revenue & Market Share Growth, Profit & Margin Growth plus the destruction of existing norms.
We will consider the effect on ET7 as Sedans are expected to be more than 75% of EV Sales once ET7 is launched.
- BaaS reduces Entry Price
- BaaS allows Upgrade from 100 kWh to 150 kWh & profits on Upgrades
- ADaaS allows potential of capitalized RMB 25 Billion of Revenues on 500,000 ET7 Sales in 2022/23 (12 months)
- BaaS, ADaaS give ET7 potential for 50% Gross Margins unmatched numbers in EV Industry – Customer pays RMB 380,000 whilst NIO gets additional RMB 190,000 from NIO Power, capitalizing ADaaS & Pollution Credits which largely will flow through to Profits
- No Factory saves NIO RMB 50 Billion in Phase 1 alone of NeoPark
- For every $ spent on SG&A NIO may anticipate to make $3 to $6 on Income generated by NIO Owners that SG&A created
In 2023 NIO's Unique Disruptive Business Models could yield One Million EVs sold for Profit over $20 Billion making NIO most profitable Auto Company & going forward with Existing Owner Sales Force of 1.5 Million.
Meteoric rise from first sales in 2018 to NeoPark operating at full capacity in 2023 will further encourage additional Infrastructure support (more NeoParks) from Nation thirsting to be Global Hub of Automotive Excellence.
Not a Financial Advisor Nor Auto Analyst but do love NIO JMHO DYODD