Nio reported its second-quarter earnings on Thursday Beijing Time and held an analyst call to unveil some key plans for the future.
The company aims to deliver three Nio Technology Platform 2.0-based products in 2022, including its flagship sedan, the ET7, which was announced earlier this year.
These products include an entry-level model, which will be the lowest-priced model under the Nio brand.
Nio also confirmed that it will launch a brand for the mass market, that preparations for this have been accelerated, and that a core team has been established.
Li said the brand Nio will launch hopes to be lower in price than Tesla, but the experience will surpass the latter.
Here are the key takeaways from that conference call.
Three models will be delivered next year
In 2022, Nio will deliver three new models based on the NT2.0 platform, including the ET7, with two more models to be introduced in due course, Li said.
Nio's first prototype of the ET7 rolled off the production line in May to begin testing. Development of the next-generation autonomous driving system, NAD, is progressing well and the company is confident that the ET7 will be delivered on schedule, Li said.
The cost of batteries has come down quite a bit in recent years, so next year Nio will release a model, offering better products and services at a lower price than Tesla, Li said.
Entering the mass market via a new brand
Nio will enter the mass market through a new brand, preparations for which have been accelerated and a core team has been established, Li said.
"Although it is for the mass market, we will not enter the market of Wuling Hongguang Mini EV. The relationship between the Nio brand and this new brand is similar to that between Lexus and Toyota, Audi and Volkswagen," he said.
Li said the brand Nio will launch hopes to be lower in price than Tesla, but the experience will surpass the latter.
The average price of all Nio models currently on sale is around RMB 400,000, much higher than Tesla.
The launch of the new brand means that Nio will compete head-to-head with Tesla. The price of Tesla Model 3 has now entered below RMB 250,000.
Vehicle margin reached 20.3 percent in Q2
Nio's gross margin was 18.6 percent for the second quarter and vehicle margin was 20.3 percent.
The vehicle margin decreased by 1 percent due to the increased share of sales of the ES6 with low ASP and low gross margin compared to the first quarter, while the cost per vehicle also decreased.
Nio will release three new models next year, so it shortened the amortization depreciation cycle of current products, which led to an increase in amortization depreciation per vehicle and had a 2 percent impact on the overall vehicle gross margin in the second half of the year, according to Stanley Qu Yu, the company's vice president of finance.
Other parts of the gross margin increase are expected, including revenue from BaaS battery upgrades, Nio Life, carbon credits, and subscription fees for NT2.0 using the ADaaS model, Li said.
The NT2.0 model will see an increase in gross profit, which is planned to be 25 percent, and ET7 has already reached that figure, Li said.
The impact of Nio Pilot on gross margin is 3-4 percentage points on average. It is included in the price of the car, so there is no detailed gross margin calculation, according to Qu.
Capacity impacted by global supplies
Li acknowledged that capacity in the second quarter was impacted by fluctuations in chip supply, and said Covid-19 and extreme weather since July have created ongoing challenges in the global supply chain.
The cap on third-quarter deliveries was impacted by supply chain availability, such as a supplier of interior panel parts in Nanjing, China, which has been shut down due to Covid-19, Li said.
Covid-19 caused some chip factories in Malaysia to shut down production, and flooding in Germany affected some parts production, both of which had a manageable impact, Li said.
Demand for battery capacity will be stronger than this year with the release of new models, and CATL will remain the dominant supplier, Li said.
Total deliveries in Q3 expected to exceed 23,000
Nio's monthly new orders continue to grow, with the upper end of deliveries influenced by the supply side, and total deliveries are expected to reach 23,000 to 25,000 units in the third quarter, Li said.
The ES8 has increased its share in the mid-to-large premium SUV market and the ES6 in the mid-to-high-end SUV market. In Shanghai, Nio reached 13.7 percent market penetration of all premium SUVs in the first half of the year.
Nio says it has more than half of the premium electric SUV market, with players including Audi, BMW, Model S, Model X, and the premium version of Model Y.
Ambitions in European market
The first Nio ES8s are expected to arrive in Norway in mid to late August, with pre-orders and deliveries opening in September. The Nio App, Nio Life, Nio House, Nio Power, and Nio service and delivery centers will all be available in Norway.
Nio already has a team of 40 people in Norway, Li said, adding that the company's deliveries in Norway will not be large in Q3 and throughout the year.
Citing the early UAB (User Advisory Board), Li said users in Norway are very excited about battery swap stations and BaaS.
Nio says it adheres to global pricing principles, although prices will vary by region given tariffs and tax and subsidy policies.
The company will enter other countries and regions in Europe, so it is currently starting hiring efforts in Amsterdam, said CFO Steven Feng Wei, adding that Nio will launch BaaS in overseas markets.
Nio's CEO in Europe is already on board and is assembling a team across Europe, and the company will enter more markets, including Germany, Feng said.
Except for the ES8 sold in Norway, the company's models sold in Europe will be based on the NT2.0 platform, Feng said.
More investment in R&D
By the end of the second quarter, Nio had RMB 48.3 billion in cash reserves and will focus on research and development of new products and technologies, Qu said.
The full-year capital expenditure guidance is around RMB5 billion, mainly for new factory construction, sales and service network expansion and battery swap station construction.
Nio's AD (Autonomous Driving) related team now stands at 500 people and will increase to 800 by the end of the year. Over the past year, Nio has been supplementing its research and development staff mainly with perception algorithms.
Starting in the second quarter, Nio's R&D will begin to ramp up as three models are due for delivery next year and more the year after, Li said.
Starting in the third quarter of this year, Nio's R&D spending will increase significantly, and by the end of the year the R&D staff will be about twice as large as it was at the beginning of the year, Feng said.
Nio's full-year R&D spending is about RMB 5 billion, and SG&A will be higher than RMB 6 billion. In the second half of 2022, the scale effect will cause the SG&A ratio to drop again, Feng said.
Steady rise of Nio Pilot take rate
The company will continue to optimize the NT1.0 platform to strengthen the market competitiveness of its three existing models. Nio OS 3.0 will be released in August, offering more new features, Li said.
In the second quarter, Nio Pilot's take rate exceeded 80 percent. BaaS take rate exceeded 60 percent in July and continues to rise, Li said.
Changes in stores
Nio has 25 Nio House, 243 Nio Space, 36 official service centers and 171 authorized service centers in China.
Nio said it will continue to strengthen its Nio House, Nio Space and service centers to expand its sales network coverage and penetrate second- and third-tier cities in China faster.
From the second half of 2019 to the first half of last year, some Nio Spaces were operated cooperatively, but starting from June this year, these Nio Spaces will gradually be transformed into directly operated stores. The Nio House and Nio Space that opened after Q3 last year are all directly operated.
After the release of three new models next year, the existing Nio Space may not be able to show all six models at the same time, and the stores will use some digital technology to show or show vehicles in turn, Li said.
NT1.0-based models will remain on sale for the foreseeable future, and next year's three models will not involve iterations of existing models, the company said, adding that it will upgrade existing products to NT2.0 as quickly as possible.
Nio said it plans to have more than 700 battery swap stations in China by the end of this year and more than 4,000 worldwide by the end of 2025, and this year Nio Day 2021 will be held in the city of Suzhou in eastern China.
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