For NIO's habitual losses, we can only wish it the best

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Not long ago, NIO released its second-quarter financial report.

The numbers are impressive:

Revenue reached 17.45 billion yuan, an increase of 98.9%; in terms of deliveries, 57,373 vehicles were delivered, an increase of 143.9%; gross margin was 12.2%, a surge of 6 percentage points.

In summary, revenue, deliveries, and gross margin all increased significantly.

Impressive, right?

However, unfortunately, NIO is still losing money.

In the second quarter, it incurred a net loss of 5.046 billion yuan.

Looking at historical financial reports, it seems that losing 5 billion yuan per quarter has become NIO's norm.

It's strange that despite nearly doubling revenue and a significant increase in gross margin, why is NIO still losing money?

The norm of losing 5 billion yuan

In simple terms, the cost is high.

NIO's sales costs have been increasing every year. Taking 2023 as an example, NIO achieved revenue of 55.6 billion yuan, but its sales costs were also 52.5 billion yuan, almost approaching revenue. In the second quarter of this year, revenue was 17.4 billion yuan, but sales costs were also 15.8 billion yuan. For comparison, Lixiang delivered 31.7 billion yuan in the second quarter, with sales costs of 22.5 billion yuan.

What can one say about this?

Moreover, NIO invested 3.2 billion yuan in driving and research and development of new models, but at the same time, R&D investment was below the market's expected 3.4 billion yuan.

Furthermore, due to factors such as the addition of new stores and sales personnel by the subsidiary brand NIO Life, NIO's selling, general, and administrative expenses were also 3.8 billion yuan.

Adding these up, it's no wonder that NIO is losing money.

A quick calculation shows that NIO, founded in 2014, is now 10 years old.

Lixiang, which was founded just half a year later than NIO, has already achieved profitability, while NIO's losses remain significant among new energy vehicle companies.

Why does NIO keep losing money?

In simple terms, its operations are too extensive.

NIO's battery swap service, a costly endeavor

When it comes to NIO, the first feature that comes to consumers' minds is service, and the second is battery swap.

This is a good thing, as it provides a distinct market positioning and recognition.

But how much has NIO invested in this?

According to data, as of August 20th, NIO has deployed 2,480 battery swap stations nationwide. Based on third-party estimates of 3 million yuan per station, NIO has invested almost 7.5 billion yuan in its battery swap business.

Note that this 7.5 billion yuan does not include the operational and maintenance costs of the swap stations.

According to Li Bin, "Our battery swap stations can achieve breakeven with just 60 swaps per day, and 20% of our stations have already reached this standard."

In other words, 80% of the swap stations are unable to break even, and NIO ultimately needs to subsidize these losses.

Moreover, Li Bin also stated this year that NIO aims to make battery swapping available in every county in the future.

The industry has expressed concerns about NIO's loss-making battery swap model.

In terms of this model alone, battery swapping does not have a significant advantage in the consumer vehicle market. One reason is that 800V fast charging is rapidly gaining popularity and the time difference with battery swapping is narrowing. Another reason is that if there are breakthroughs in battery technology, NIO's battery swap service could become even more awkward.

Even in terms of convenience, the extended-range mode has an advantage over battery swapping.

So, how can NIO reduce losses or achieve profitability while continuing to invest in battery swap infrastructure?

NIO first established a battery swap alliance, bringing in manufacturers such as FAW, Changan, GAC, Geely, Chery, JAC, etc., hoping to increase revenue from battery swaps by increasing the number of swap-enabled vehicles.

However, we have yet to see specific models launched after such a long time.

This adds uncertainty to NIO's goal of spreading the cost of battery swapping across more vehicles as soon as possible.

Uncertainty remains regarding the success of subsidiary brands

NIO's large-scale investment in battery swapping requires a large number of vehicles to spread the costs.

The emergence of NIO Life fits this need perfectly. On the 19th, it launched its first product, the NIO Life L60, with a starting price of 206,900 yuan and a battery leasing option starting at 149,900 yuan. Li Bin expressed his intention to compete with Tesla's Model Y in this price range.

To this end, NIO has even established a new sales system and over 100 stores for NIO Life.

It can be said that NIO Life embodies NIO's aspirations to increase sales, improve gross margins, and turn a profit.

However, whether these aspirations will be realized remains uncertain.

After all, the 200,000 yuan price range is fiercely competitive, with traditional automakers like Mercedes-Benz and BMW, as well as new energy vehicle companies like Xiaomi, ZEEKR, and Xpeng, all vying for market share.

Interestingly, while the fate of NIO Life remains uncertain, NIO's second subsidiary brand, Firefly, is also on the horizon.

Positioned as a premium compact car similar to the MINI, Firefly is expected to start deliveries in the first half of 2025, with a price range above 100,000 yuan.

From the price ranges, it seems that NIO has covered all bases, from 100,000 to 300,000 yuan, in a comprehensive strategic layout.

However, this strategy seems to continue NIO's pattern of stretching its operations too thin. With NIO Life's foundation still shaky, the introduction of a third brand, Firefly, adds another layer of complexity.

It raises the question: if both NIO Life and Firefly fail to meet sales expectations, is NIO psychologically prepared?

Given its penchant for spending, does NIO really have endless resources?

In today's market, where nearly every automaker is striving to cut costs and increase revenue, NIO seems compelled to continue its spending spree due to Li Bin's ideals.

Let's start with some financial report data.

As of the end of June, NIO had cash and cash equivalents of approximately 24.7 billion yuan, 8.3 billion yuan less than at the beginning of the year. This figure includes 11.6 billion yuan in short-term investments.

For comparison, NIO has 9.5 billion yuan in borrowings, and its cash can barely cover the interest on these borrowings.

However, NIO's trade payables, notes payable, and related party payables total 24.9 billion yuan.

This means that to maintain cash flow balance, NIO's sales cannot falter, and financing must continue uninterrupted. Otherwise, NIO may indeed face a liquidity crisis.

Therefore, while NIO is a large and established company, it is not in a position to act recklessly.

It is worth mentioning that there was a minor incident related to NIO's financial position recently.

A while ago, rumors circulated that NIO was facing bankruptcy. Although NIO quickly denied the rumors and reported the rumor-mongers to the police, it at least reflects some market sentiment and distrust towards NIO's persistent losses.

But in reality? NIO's losses show no sign of abating.

NIO is losing money for Li Bin's ideals.

It's not easy.

Let's wish them the best.