NIO attacks profitability "Shangganling"

Author | Chai Xuchen

Editor | Wang Xiaojun

Under the public opinion spotlight, Nio has delivered its strongest financial report card.

On the evening of March 21, Nio announced its 2024 annual report. From the core data, the annual revenue grew by 10 billion to reach 65.7 billion yuan, marking the highest revenue year in history; the gross profit margin increased by 4.4 percentage points year-on-year to 9.9%, with the automotive gross profit margin recorded at 12.8%, an increase of 2.8 percentage points year-on-year.

In the fourth quarter, revenue reached 19.7 billion yuan, making it the highest revenue quarter for the company; the overall gross profit margin was 11.7%, up 1 percentage point from the third quarter. At the same time, due to the continuous improvement in the scale and profitability of after-sales services, other sales achieved positive quarterly gross profit.

From this perspective, it was a year of record revenue and year-on-year improvement in gross profit for Nio. However, in this year, Nio also spent more money, with a net loss of 22.4 billion yuan for the year. The positive side is that the growth rate of losses has significantly narrowed, with 2023 at 43.5%, while 2024 is only 8.1%.

It is important to note that 2024 is a period of expansion for the company. In addition to the expansion of the main brand and battery swapping and service systems, Nio has also launched the Aito and Firefly brands, which will inevitably increase investment in research and development and channels under the multi-brand strategy. However, based on the sales scale in the first two months of this year, Nio seems to be facing an imbalance between input and output.

This year coincides with the industry's accelerated clearing, as various companies rush to lock in key moments for volume and win rates. Whether Nio's substantial investments in research and development and service systems can achieve "monetization" is crucial to the fate of this new force.

In response, Nio Chairman Li Bin reiterated the goals of doubling sales by 2025 and achieving profitability in the fourth quarter during the earnings call. His confidence stems from the "Four Big Years" plan, with this year being Nio's "Product Big Year," "Technology Big Year," "Battery Swapping Station Construction Big Year," and "Internationalization Big Year."

In 2025, Nio's multi-line product technology will come to fruition. Starting in April, important models from Nio, Aito, and Firefly brands will be launched in succession; the fully functional SkyOS Tian Shu vehicle-wide operating system, intelligent driving chips, and end-to-end urban intelligent driving supported by world models will be delivered successively; the construction of battery swapping stations will sprint towards "county-wide coverage"; and overseas expansion will target 25 markets for growth.

Li Bin once again filled Nio with imagination, and the breakthrough in scale will be of utmost importance.

During the earnings call, Li Bin revealed that this year will see the layout of 9 new vehicles. Among them, the ET9 will be delivered next week; the 2025 models ET5, ET5T, ES6, and EC6 will all be released in Q2. In the second half of the year, the Nio brand will also launch a new vehicle.

Regarding sub-brands, the Aito brand will have two new vehicles, with the L90 set to be released in the second quarter and delivered in the third quarter; the third model will be released in the fourth quarter; the first model of the Firefly brand will begin delivery in April.

With a full lineup of product reinforcements, the market is concerned about whether these new products can become bestsellers, as the lessons from the Aito L60, which bears the heavy responsibility of volume, are still fresh in memory "The sales of Leida this year have indeed not met internal expectations." At the earnings call, Li Bin candidly reflected on the issues facing Leida, believing that the reason lies in the brand's awareness being far lower than its competitors. After digesting existing orders, it also faced the impact of public opinion, which Li Bin stated affected Leida's order volume by 30-40%.

The competition in the mid-to-large SUV segment where the Leida L60 is located is indeed exceptionally fierce. In the first quarter of this year, the updated Model Y, XPeng G6, and G9 were launched, becoming Leida's most direct competitors. However, Leida's design gross margin is only between 10-15%, making it difficult to quickly lower prices in response to competitive pressure in the context of "consumption downgrade."

Li Bin is determined to go full throttle and cut through the various accumulated issues.

During this year's Spring Festival, Leida began to increase its brand marketing investment, including placing targeted advertisements in high-speed train stations and residential elevators to enhance brand awareness; increasing investment in sales networks and personnel training; and increasing the number of battery swap stations compatible with Leida.

At the same time, on the sales front, Li Bin is exploring an internal incentive system through the NIO and Leida brand sales teams, allowing sales personnel from both brands to sell each other's vehicles. Pilot programs have already begun in some stores. Additionally, the earlier issue of insufficient battery supply for Leida models at battery swap stations has also been resolved, with the number of compatible battery swap stations now exceeding 1,500.

The effects of the large-scale optimization are gradually being released. Li Bin revealed that in 12 sales regions, Leida's sales have surpassed NIO, and the L60 has become the product with the highest customer satisfaction within the company.

Li Bin, who is in a historically low period, has not shied away but has instead quickly conducted an internal "system OTA" to prepare for volume production ahead of the arrival of new products. However, to completely dispel external and consumer doubts about NIO, Li Bin must answer another critical question concerning the company's survival—can it stop losses and turn a profit?

Achieving profitability and cost reduction is an important aspect.

NIO CFO Qu Yu introduced that since last year, NIO has implemented a series of cost-reduction measures, including increasing the commonality rate of vehicle parts. Currently, NIO and Leida share a seat frame platform, which can reduce costs by 10%; unifying smart hardware interfaces can lower costs from 2,000 yuan per vehicle to 1,000 yuan per vehicle; using self-developed Shenqi smart driving chips can reduce costs by 10,000 yuan compared to using four Orin chips.

Qu Yu stated that through these measures, NIO has already achieved a 10% reduction in the BOM (Bill of Materials) for vehicles in 2024. This has provided NIO and Leida with a crucial gross margin safety cushion to cope with the unpredictable price wars in the market.

At the same time, NIO has also made a series of adjustments to its system recently. Since January of this year, Li Bin has initiated a CBU (Cost Settlement Center) operating mechanism internally: each major department establishes an independent cost settlement center to calculate the costs already incurred and to be incurred on different projects, and to clarify ROI indicators and performance reward and punishment systems.

The era of the "big pot rice" budgeting system among departments is no longer, and teams must carefully allocate operational goals, being responsible for sales and profits.

The implementation of CBU is progressing quickly. A month ago, NIO announced an organizational update, merging the delivery channels of NIO and Leida brands, with some sales supervisors in remote areas of Leida also concurrently serving as NIO regional general managers; in the R&D team, the controversial mobile phone business team has also been integrated into the digital cockpit team, significantly reducing redundant positions At the same time, Li Bin is taking decisive action against the supply chain, participating in negotiations for the prices of core components such as batteries. Insiders reveal that the commonality and reusability of components in Nio's models will be significantly enhanced; shortly after, he led a team to visit Luxshare Precision to learn from them, demanding that all cost expenditures at Nio be considered rational only if multiplied by one million.

Consolidation and focus are the "efficiency success" slogans that these new forces have been emphasizing, and Li Bin has finally made the tough decision to implement them thoroughly, which is exactly what Nio urgently needs at this moment.

Li Bin stated that the effects of this series of changes will be reflected in the second quarter financial report. Qu Yu added that in the fourth quarter, the gross margins for Nio and the Lido brand will aim for 20% and 15%, respectively, contributing to turning a profit in the fourth quarter.

It is evident that Nio is internally shifting its approach to find a more efficient survival formula. This company has finally begun to adopt a manufacturing mindset for accounting and reform. In fact, from Tesla to Li Auto and Leapmotor, all have gradually found the threshold for profitability through a series of transformations and bold bets. Li Bin has also stated that he is the kind of person who can pull himself back from the edge of a cliff.

However, the unyielding Li Bin must truly win the current "table battle" by implementing his plans and promises one by one, putting the slogan of "building strong fortifications and fighting a steady battle" into practice