Li Bin leads the team to break into the "Year of Pure Electric Heavy Trucks"

Author | Chai Xuchen

Editor | Wang Xiaojun

The dawn is breaking, perhaps the best reflection of Nio's recent status. From the successful market opening of the second brand, Le Dao, to the strong demand for Nio's flagship models, and the company's gross margin recovery and rising stock price, the profit target seems to be within reach.

Once upon a time, losses and fluctuating sales put Nio under pressure, and its founder, Li Bin's insistence on long-termism was viewed by some as "out of touch with reality." Now, with the turning point in the pure electric large three-row SUV market emerging, this "stubborn persistence" has finally paid off.

On September 3rd, the day after the impressive second-quarter report was released, media outlets such as Wall Street Watch conducted an in-depth exchange with Li Bin. He comprehensively reviewed how Nio won this uphill battle with the strategic determination of "change and constancy."

Moment of Return

In Li Bin's view, Nio indeed entered a new cycle in the second quarter, as both sales and operational conditions have returned to an upward trajectory. Specifically, looking at the delivery volume, over 31,000 units were delivered in August, setting a historical record, which is a miracle created by the synergy of three brands. The Le Dao L90 alone set a record of over 10,000 deliveries in its first month.

On the other hand, Nio's profitability has also returned. The gross margin in the second quarter returned to 10.3%, while the gross margin of other businesses reached around 8% for the first time in history. Li Bin stated that with the increasing sales proportion of high-margin products like L90 and ES8, the gross margin in the fourth quarter is likely to return to 16%-17%.

Living within means, Nio's improvement is not only about opening the "source" valve but also beginning to show results in "throttling" operational efficiency.

Li Bin mentioned that R&D investment in the past few years has generally been at a high intensity of over 3 billion per quarter. Since the implementation of the CBU operating mechanism in the first quarter of this year, the efficiency of spending has greatly improved. "We are confident that we can control R&D expenses to 2 billion; in the fourth quarter, we are confident that we can control sales management expenses to within 10% of sales."

A series of positive signals have led the market to have higher expectations for Nio to achieve profitability in the fourth quarter.

On-site, Li Bin began to calculate, "If we multiply gross profit sales by gross margin and subtract expenses, if our fourth-quarter sales can reach 150,000 units, there is still a chance to achieve NON-GAAP profitability."

However, Li Bin candidly stated that this challenge is very significant. To meet the target, average monthly deliveries in the fourth quarter need to exceed 50,000 units, and the entire quarter must achieve a record sales scale of 150,000 units. Fortunately, the current hot sales of L90 and ES8 have given Li Bin great confidence. He revealed that there are currently four models waiting for production and delivery, "In addition to L90 and ES8, the demand for Le Dao L60 and Firefly is also very strong."

Li Bin provided a specific breakdown: L90 aims to sprint to 15,000 in October; ES8 will increase production capacity to 15,000/month in December. "By December, Le Dao and Nio will each contribute 25,000, and Firefly will contribute 6,000 units." It can be said that the spring of pure electric vehicles has truly arrived.

"This year is considered a turning point because the experience benefits users gain from pure electric technology are increasing. In July of this year, pure electric vehicle sales grew by 24.5% year-on-year, while range-extended vehicles declined by 11.4%. Among the pre-orders for the all-new ES8, owners of range-extended and fuel vehicles account for 80%, and everyone has recognized its value."

Li Bin revealed that last year when he went to Kashgar, he found that range-extended players were also laying out charging piles there, and their preparation for pure electric charging infrastructure exceeded Li Bin's expectations. "This shows that charging is indeed much more convenient than before this year, and at this time, the cost advantage of electric vehicles becomes apparent."

Therefore, Li Bin reiterated that the golden age of range-extended large three-row SUVs is coming to an end, and the era of pure electric large three-row SUVs is approaching.

However, to be fair, it is not easy to persist until today in such a fiercely competitive market. "This transformation from quantitative change to qualitative change is due to NIO's unwavering commitment to its technological route, insisting on a pure electric technology route that is chargeable, swappable, and upgradable. After enduring the low valley, we have now seen the dawn."

Change and Constancy

"The most difficult thing about running a business is knowing what to persist in and what to change; this is actually an eternal topic for entrepreneurs." Li Bin stated clearly, reflecting on the fundamental reasons why NIO has managed to reach the dawn.

First, Li Bin insists on two constants. "What NIO did ten years ago is not much different from what we do today," Li Bin said, noting that NIO has not engaged in back-and-forth runs; it has remained steadfast in its technological route and product planning, sticking to its path without wavering.

"The recent hot sales of NIO's vehicles prove that although the technological route did not yield the expected benefits due to external reasons over the past three years, today, at this turning point, its competitiveness is evident," Li Bin stated frankly.

He believes that competition in the automotive industry mainly comes from products, and the competitiveness of products stems from three levels: the foundational technological route, the next level is product planning, and the highest level is product definition.

"In the industry, many times, the approach is that speed is the only way to break through, and much of the reflection is summarized at the product definition level, but there is relatively little discussion at the technological route and product planning levels." Li Bin said this is a significant difference between NIO and its peers. Under the self-research on the cold bench, NIO's front cabin and spaciousness provide a high perception for everyone.

From product to brand, the industry is now very clear that NIO's rising sales are largely due to multiple teams working simultaneously, but there is also a complicated story behind this.

In fact, Li Bin had already established two joint ventures in 2017—Changan NIO and GAC NIO. Changan NIO is now known as Avita, and GAC NIO became Hozon after Li Bin exited.

This was an initial attempt at NIO's multi-brand strategy because Li Bin knew that the coverage of high-end brands was limited. However, Li Bin later realized that the efficiency of the joint venture model was relatively low, so in 2020, he made the decision to do it himself, leading to the creation of the brands Lido and Firefly.

But in the past few years, the investment in sub-brands has been very heavy. "Building R&D and brand also requires money, and with NIO's own sales not meeting expectations, the financial pressure is very high." Li Bin said that at that time, there were several options: pause the sub-brands and focus on strengthening the NIO brand first, but internally, the choice was still to grit their teeth and persist It has been proven that Li Bin was right. "Now we can see the synergistic advantages among these three brands beginning to emerge. The company's R&D line is now very flat, with one team supporting three brands, and the motors and electric drives are highly reused; the nationwide sales team for Firefly has increased by 31 people, and the entire team for LeDao is also very compact."

The insistence on key strategies has given Nio the capital to turn things around later, but Nio is not stubborn about everything.

Li Bin stated, "What we need to listen to and learn is product definition. The L90 and L60 now both have single motors, and we are also launching refrigerators, color TVs, and large sofas. If our peers have configurations recognized by users, then we will learn from them. Product definitions must keep pace with the times. We will meet user needs, and that is our motivation for change."

At the same time, Nio's organizational structure is undergoing continuous transformation. From fully implementing CBU to optimizing and adjusting the senior team, and then to organizational streamlining, the effects of these changes have been validated by the hot sales of the LeDao L90 and Nio ES8.

"I think we got through the bottom from 2019 to 2020 a bit by luck, with user support and help from Anhui. But this time, we need to rely on our capabilities to come out," Li Bin told Wall Street Insight.

Below is the transcript of the conversation with Nio Chairman Li Bin:

Q: The external technical service revenue mentioned in yesterday's conference call has also increased a certain gross margin. What does this external technical service revenue refer to?

Li Bin: Our main shareholder, Abu Dhabi, acquired McLaren, and we have a deep technical cooperation with McLaren. We have some technical outputs, and the main revenue comes from this. However, this revenue is unstable, sometimes more, sometimes less.

Q: Next year, will the battery swap business usher in large-scale profitability?

Li Bin: Large-scale profitability from battery swapping will take a long time; it is a revenue from the retained volume.

Battery swap stations have several functions: first, the revenue from battery swap services, which can earn money with an average of 60 orders per day, and we are currently at 20% of this level; second, it can help sell cars. This year, there is a mechanism where regional companies fund the construction of battery swap stations, and one battery swap station can help sell about 10 to 20 cars a year, so it won't lose money; third, the brand's promotional needs will be funded by the brand.

We are now arranging the ROI for these battery swap stations, building over 10,000 points nationwide from high to low. There are many battery swap stations with ROI greater than 3 or 4.

Q: The financial report mentioned that quarterly R&D investment has decreased from over 3 billion to around 2.5 billion. What areas have seen reductions?

Li Bin: The reductions are in personnel and projects. We made a lot of optimizations in the first and second quarters this year, and there were also significant one-time severance payments. Additionally, we decided not to pursue unprofitable projects. So this does not affect our competitiveness; 2 to 2.5 billion can achieve the same output as our previous 3 billion.

Q: Because competitors have recently spent a lot on buying cards, will this be a major expense in the future?

Li Bin: We used to buy a lot of cards, but later we realized that having more cards does not necessarily mean a better model, as proven by DeepSeek. It still depends on the output. We are now very strict about computing power; we rent it when needed, and everyone is currently counting costs Question: With the ES8 switching to the third generation, how can you ensure that each generation of models can achieve profitability given such frequent changes?

Li Bin: The past three generations involved some underlying technology expenditures that are not necessarily related to the models. About 60-70% of Nio's R&D expenses are related to underlying and platform technologies rather than specific models. In fact, Nio's current teams support rapid iterations of so many models across three brands, and the overall R&D efficiency is higher than many might expect.

Question: If the launch of the ES8 severely squeezes the ES7 series, will you still pursue the strategy of increasing features while lowering prices?

Li Bin: The new ES8 is a benchmark model; the first generation was a benchmark model with the highest sales and best gross margin. In the second generation, we deviated from this benchmark, and costs in various aspects rose to over 50%. Recently, we made the 100 kWh battery standard on the 5566 to readjust the pricing and technology platform for all products.

Question: How long will the transition from the original 5566 sales base to the current ES8 last?

Li Bin: Next year, we will have the ES9 and ES7, which are both large vehicles. In China, there are similar incentive policies for large vehicles, and the gross margin will be much better. Objectively speaking, the gross margin of the 5566 is definitely still lower compared to the new ES8. Therefore, during this period, large vehicles that can make money will take priority, and from a volume perspective, we can achieve a reasonable scale.

So, I think that's why we refer to the all-new ES8 as a brand benchmark model. In the second generation, we moved away from this benchmark position, and now we have returned to it. In terms of volume, price, and competitiveness, we will return to the benchmark and back to the center stage.

Question: With so many SUVs planned for next year and such rapid iterations, how does Nio think about the increasing number of "wait-and-see" consumers?

Li Bin: The high-end market indeed has stronger demands for product personalization. Brands like Mercedes and BMW have over fifty models in China; we cannot have that many. Currently, our matrix is about this size.

Different stages have different focuses. LeEco currently has only two models, and with the addition of the L80, we have basically established the SUV product line, which is still relatively restrained. The Firefly has only one model.

However, from an industry perspective, there are indeed many models, and iterations are indeed fast. If "wait-and-see" consumers do not have immediate vehicle needs, then waiting is also fine. This is a problem faced by the entire industry, and we are also participating in this game; we cannot opt out. Everyone hopes a car can sell for five or six years, but that is not possible.

Question: You previously mentioned that entrepreneurs should have a sense of crisis. Why wait until such a tense point in 2025 to take action?

Li Bin: All CEOs hope that once a command is given, everyone will execute it. The entire organization needs to form a consensus, and then it must be transformed into a new process and mechanism; cultural adjustments are not easy. In 2022, we did not come close to achieving our annual operational goals, and everyone tends to attribute this to external reasons while overlooking internal factors. Forming this consensus is not easy, as Nio is also a company with tens of thousands of employees This requires a consensus from the headquarters to the management team and to the frontline colleagues, and it also needs some external pressure to push this matter forward. Generally, it's easier to make poor decisions during the best times, while during the tough times, relatively better decisions can be made. This reflects the evolutionary process of the organization. We at Nio have already gone through two organizational changes, which can reflect the resilience and learning capability of this organization.

Q: What does profitability in Q4 mean for Nio?

Li Bin: Everyone is still very concerned about our sustainability, as it will affect sales, user conversion efficiency, recruitment, and supply chain relationships. I think it's quite important to prove that we can achieve this at the right time, not just for others to hear. One is the actual operational need, and the other is that after investing so much money, if we can achieve a scale of 150,000 vehicles this year and still cannot be profitable, it indicates there is a problem, either with management or strategy. This is a comprehensive test.

Q: What are Nio's thoughts on change and consistency moving forward?

Li Bin: I have always talked about the principle of original intention; values certainly cannot change. For example, starting from the user's interests and communicating honestly with users are all written into the company's DNA. There are indeed commercial decisions involved, such as whether to raise or lower prices, and how to adjust benefits. We must consider the operational goals at different stages; these cannot remain unchanged. If sustainable operations encounter problems, then the interests of all users will be affected.

Q: Do we have plans or measures to continuously produce hit products?

Li Bin: Continuously producing hit products is something every automotive company CEO dreams of.

Sometimes a product can be a hit, and sometimes it cannot. At times, it may not start off well, but as your organizational capabilities improve, it will return to an expected level. The competitiveness of the product determines the upper limit of sales. Internally, we refer to this as the 6P capability: pricing level, sales, channel, consultant capability, and marketing platform capability, which ultimately determines how much you can deliver. Therefore, sometimes a good product may not necessarily sell to the expected volume.

The L60 is quite interesting; it has consistently ranked among the top three pure electric SUVs priced between 200,000 and 300,000 this year, and its sales are increasing. This indicates that its product competitiveness is quite good. If the L60 were to carry the Tesla brand, how many units could it sell? It can be swapped for batteries and is four to fifty thousand cheaper than Tesla, with more space and similar efficiency, plus a large freezer.

To sustain this, we must continuously refine ourselves. Our marketing organizational transformation is very significant; it can be said to be a complete overhaul. For example, comparing April and May for the L60, the number of people decreased by 40%, while sales increased by 40%. We just focus on working hard and not getting distracted; that’s the mindset we adopt.

Q: Has Nio summarized a formula for creating hit products?

Li Bin: First, you need to know your target market and who you are making it for. If the target market is too small, it certainly won't work. Based on the price and the ultimate car-buying demand, we need to clarify how many user groups are in this market and then look at what their needs are I don't think it's that complicated. The biggest challenge is whether to enter this market and whether the judgment about this market is correct, as well as the development trends in the coming years. Because when it comes to cars, we need to look at the trends over the next three to five years, which is the most important.

The reason why we decided to make such a large front trunk and rear storage space for the L90 is that we recognized the unmet pain point of users of large three-row SUVs who need to fit in but cannot store enough.

In terms of product definition, Nio used to be in a situation where everyone was talking about us being buried in the rice, lacking visible value. We spent a lot of money on these invisible implicit values. In fact, with the third-generation ES8, we have deeply addressed this issue.

Q: What is the margin for error regarding profitability in Q4?

Li Bin: Overall, it is still based on the parts we can control to make estimates and set goals. There are indeed some external macro factors that we cannot control, which I think were not in our expectations, and this is certainly a risk.

Q: How is the preparation for production capacity going?

Li Bin: The main change in production capacity is to adapt to the current changes in smart electric vehicles. The demand for newly launched products is very strong, then it will decline for a period, and then stabilize again. So how to match the supply chain is becoming more and more like consumer electronics; we need to stock up first, but this comes at a cost. Stocking three to five thousand cars means a capital occupation of 2 billion to 1 billion. Some discussions may be held with the supply chain, and some parts also need to be stocked in advance.

Now, on the night of the ES8 and L90 launch, we started to pull the supply chain. We are all direct sales, and the booking volume reflects demand quite accurately. For the ES8 and L90, we have meetings late at night to see which areas need to increase procurement and which need to stock up in advance. By December, raising the entire supply chain capacity to 15,000 was already a result of our efforts. Our supply chain is still very willing to support Nio, and this process does not significantly affect gross margins because when the volume is large, everyone is happily troubled, which should be positive.

Q: How many people believe in Q4 profitability today, and how does the internal team withstand the pressure?

Li Bin: For a company to form a consensus, there needs to be some internal and external joint efforts. Nio is not encountering a crisis for the first time; many colleagues experienced tougher times in 2019. These external pressures make all our colleagues in the company aware that we must complete this mission. All colleagues in R&D, sales, and supply chain manufacturing are busy with this matter internally, knowing that there are new cars to be launched this year and that we need to make these new cars well. Perhaps starting from the L90, everyone feels that Nio still has a chance, and the spirit of the entire company is supported by this group of colleagues.

Q: The turning point for pure electric vehicles has arrived, but competitors will definitely respond quickly. Has Nio built up some barriers?

Li Bin: We are not just talking about electric vehicles as a technical route. For example, BYD's DMI, which insists on a technical route, reflects its competitiveness at a certain time point. In terms of intelligence, we have already established a very systematic foundation, with chips, soul, and intelligent chassis. The reason we can efficiently and quickly launch products with such high reusability is that the foundation is well built, supporting three brands and multiple platforms There are also some minor points related to the technical route, such as how to establish a close relationship between autonomous driving and safety, and how to connect with insurance companies. These will require some long-term thinking. It's hard to say which aspects others cannot do, but when you put this matter together, it's a long-distance run. The initial start may be a bit slow, but it will become easier as you run.

My mindset is different. If in the future there are only three to five companies, the mindset won't be the same as it is now. If I believe there are ten to fifteen companies, then I will focus on doing my own thing well. In terms of electric vehicles, I believe in separating the vehicle and battery, with options for charging and swapping; battery leasing is the ultimate solution. These advantages have not yet been fully realized, which will affect many things.

We have many long-term competitive advantages in terms of technical routes, which are just beginning to show. We are not trying to cater to a short-term benefit; our advantage lies in systematic efficiency. To understand Nio, one must look at our systematic thinking, not just from a single point but from a systemic perspective. This is a distinction we may have from others.

There are two types of thinking in the world: one is breakthrough at a single point, and while many successful companies rely on this, there are also those that think systematically with a long-term perspective. Before I joined Nio, I spent three years thinking about many details.

Q: How many quarters do you think the profit trend will continue?

Li Bin: Next year, Q1 will be very challenging for everyone due to the reduction in purchase tax, which is very real. Therefore, the concentrated release at the end of this year is significant. Achieving half of this year's Q4 in Q1 next year would be good. There isn't any particularly good method; mainly, if we are lucky enough this year, we might increase some orders for Q1 next year, which would be quite fortunate.

Q: How does Nio consider globalization?

Li Bin: We have paid a lot of tuition for globalization. In 2021, we went to Norway and Europe because our cars are positioned in the high-end market. From the perspective of the global high-end market, China, the United States, and Europe account for over 90%, while other places are relatively scattered.

At that time, we went all out to go overseas, building battery swap stations and factories, and established over 60 battery swap stations, along with our direct sales system, etc. However, we underestimated the changes in the international political environment. Later, Europe raised tariffs on imported cars from China by 30%, and the cost of charging increased significantly.

We realized that global development cannot simply use China's model. In the next two years, we will still prioritize China and approach the global market through local partnerships.

Now we have the Firefly and the Le Dao, and we have lower-priced cars that can enter the global market. The reason the second-generation ES8 was conservatively sized was that we considered global market demands too early; European cars were too large for anyone to buy. However, in the past two years, Aito and Li Auto didn't consider these issues at all.

We overthought some things but also had unexpected surprises, such as the ET5T and Firefly, which were originally designed mainly for Europe. The ET5T unexpectedly became the number one travel car in the global new energy sector and ranked among the top three high-end travel cars globally. The Firefly was something we originally thought we could sell three thousand units in China and would be quite happy, but it actually exceeded our expectations, so there are benefits as well Question: Since last year, Nio has mentioned profitability and has also carried out vigorous reforms. How has the morale changed?

Li Bin: The morale of our entire team is getting better and better. Adjustments are painful for the whole company, but everyone knows it is the right thing to do. I say don't waste this opportunity; it's a chance to improve skills. You are participating in the organizational transformation and the growth process of coming out of the trough. Joining such a fiercely competitive industry and relying on your own abilities to emerge from the low point is still very meaningful.

Question: Why did you dare to choose Shen Fei as the number one position in Ledo at that time?

Li Bin: What is the purpose of me, Shen Fei, and all our colleagues? It is to transform this company into a competitive organization.

At that time, Ledo was also in a difficult situation, with many negatives and low internal morale. Choosing Shen Fei to bear this burden faced a lot of external doubts. We believe that to move forward, it is actually the same as the whole Nio; we need to establish a system suitable for Ledo. Ledo is aimed at family users, and how to establish an efficient system from communication, brand communication to sales service on the ground is an important consideration when selecting the person in charge.

Shen Fei is a colleague with very strong system-building capabilities in our entire company. Our entire system of being rechargeable, replaceable, and upgradeable actually requires a very comprehensive approach from R&D to supply chain, to operations, site construction, and operation. I think he has done very well.

He will not waver; now he is firmly implementing the marketing paradigm, and he has very detailed thoughts on execution. At least now it can be considered stable, but the road is long. In the long term, Ledo will definitely bear the largest task, so the pressure on the entire Ledo team is also very significant