Under the luxurious exterior, there are "lice", is Nio still worth loving?

In Dolphin's analysis of the new energy industry in the first part, "New Energy Vehicle 'Warlords' Battle: The more they fight, the more scattered, is 2024 destined to be 'tragic'?", Dolphin identified two major price band opportunities in terms of new energy vehicle penetration rate, competition intensity, supply-demand matching, and market size: a) 50,000-200,000 RMB; b) above 300,000 RMB.

In the price band of 50,000-200,000 RMB, which accounts for more than half of the sales volume, due to users being more price-sensitive, Dolphin tends to see it as a competition based on cost scale effects. The core strong target is still BYD, which maintains cost leadership advantage through vertical integration.

However, in the price band above 300,000 RMB, Dolphin believes that what is needed more is a combination of product strength and brand strength (differentiated positioning of product strength + brand recognition). Strong brand strength means enjoying pricing advantages while having the brand's space to explore the market by downward dimension reduction.

After the reshuffle of high-end new energy vehicles, the current market structure has become relatively stable, especially in the high-end pure electric segment. With the sinking of pure electric brands and models, the main price band is above 300,000 RMB in the high-end pure electric market, with only Nio remaining. The competition intensity has significantly decreased compared to the 200,000-300,000 RMB pure electric segment, and there is still a high possibility of opportunities emerging in 2025.

In this situation, Dolphin will explore the controversial company Nio today to see if it has a chance to turn things around. Dolphin's research on Nio will focus on the following questions:

1. Can Nio's main brand sales stabilize and continue to increase?

2. How is the sales growth potential of Nio's sub-brand Leda? Can it help Nio achieve break-even?

I. Can Nio's main brand sales stabilize and continue to increase?

To answer this question, let's first look at the overall market in the price band above 300,000 RMB where Nio operates:

a. Car owners with a preference for high-end vehicles support the market

From the chart below, we can see that in the past five years, although the overall passenger car market has shown very weak growth, the structural performance clearly shows that the market for passenger cars priced above 300,000 RMB has almost not grown, still resisting the downward economic pressure and showing some growth potential.

In the price band above 300,000 RMB where Nio is located, there is still some growth potential, driven by several factors:

① China's passenger car market is gradually entering a stock era, with the demand for new purchases/replacements bringing about a "consumption upgrade" in the car circle: From the perspective of sales structure, the proportion of first-time buyers' demand continues to decrease, while the proportion of additional purchases/replacements increases year by year. The replacement cycle is the main reason driving the upgrade of car consumption in the circle.

The underlying reason behind this is that there is still a significant sense of face in China's car consumption. Initially, people may buy something that is functional, but when it comes time to replace the car, the majority of consumers are looking to buy something better. According to Roland Berger's statistics, over 80% of car buyers follow the logic of consumption upgrade, meaning that after purchasing or replacing a car, the price of the new vehicle is not lower than the current one.

In fact, Dolphin has also seen this pace of consumption upgrade in the mobile phone market: during the popularization stage of increasing smartphone penetration, many people buy cheaper smartphones, but once the penetration rate is reached and the demand for replacement dominates sales, the trend towards high-end products becomes very apparent.

Returning to the automotive industry, the slowdown in economic growth does not affect the upward trend in car prices, the only difference being that consumption during this upward trend will be more rational.

② The total number of high-income individuals is increasing, and they have a stronger ability to withstand economic fluctuations:

Bain's research shows that the proportion of potential car owners with a budget of over 300,000 RMB has increased from 20% in 2021 to 30% in 2023, mainly because the high-end car consumer group has a stronger ability to withstand economic fluctuations, and the consumption resilience of high-end cars is higher than that of mid-to-low-end cars.

Let's look at the penetration rate of new energy vehicles in the price range where Nio is located:

① First, looking at Nio's own vehicle structure, Nio clearly first establishes a high-end luxury brand image through high-priced models (first launching the highest-priced model ES8-priced at 498,000-598,000 RMB) to set the brand tone, and then lowers prices to increase sales volume.

Currently, Nio's main price range has gradually dropped to 300,000-400,000 RMB, with the proportion of models priced between 300,000-400,000 RMB increasing year by year, reaching 89% in January-August 2024. Therefore, Dolphin focuses on the 300,000-400,000 RMB market, which is the foundation of Nio's sales volume.

② Looking at the overall penetration rate of new energy vehicles priced above 300,000 RMB where Nio is located, the penetration rate of new energy vehicles priced above 300,000 RMB has already exceeded 40%, and there may be relatively less room for further increase in overall penetration rate.

However, looking at the penetration rates by energy type, the main driver of the increase in penetration rate of high-end new energy vehicles from January to August 2024 is the increase in penetration rate of high-end plug-in hybrids, with Aito and Li Auto being the main beneficiaries.

While the penetration rate of pure electric vehicles above 400,000 yuan is almost zero, and the penetration rate in the 300,000-400,000 yuan price range is even declining instead of increasing. From January to August 2024, compared to 2023, it dropped by 2 percentage points, mainly because it is difficult for pure electric vehicle models in this price range to become bestsellers, and high-end pure electric vehicle companies have chosen a strategy of lowering prices in order to pursue sales volume.

However, this has also led to the fact that the penetration rate of high-end pure electric vehicles is still at a low level. From January to August 2024, the penetration rate of pure electric vehicles in the 300,000-400,000 yuan/above 400,000 yuan price range is only averaging less than 15%, far below the overall penetration rate of 26%.

But looking at the competitive landscape of the mid-to-high-end pure electric vehicle market, although the high-end pure electric segment is not growing, the good thing for Nio is that new competitors cannot enter, and old competitors are lowering prices. Nio's market share in this segment is actually increasing:

Rapidly increasing since April 2024, by August 2024, Nio's market share in the mid-to-high-end pure electric vehicle market has increased to 55%, almost dominating this segment.

Nio's main models have seen a more astonishing increase in market share in the 300,000-400,000 yuan price range, reaching 68% in August 2024, meaning that Nio has almost achieved a "monopoly" status in the 300,000-400,000 yuan market.

Combining the phenomenon of the overall penetration rate of pure electric vehicles in the 300,000-400,000 yuan range declining while Nio's market share in the 300,000-400,000 yuan pure electric vehicle market is rapidly increasing, there are mainly two reasons behind this:

① From an industry perspective, it is difficult for high-end pure electric vehicles to become bestsellers, leading pure electric vehicle companies to choose a strategy of lowering prices, weakening the competition in the high-end pure electric vehicle market that Nio faces:

For high-end pure electric vehicle models to establish themselves in the price range above 300,000 yuan, they need to convert highly brand-aware BBA customers, requiring both product strength and brand power.

However, as competition among pure electric vehicle models becomes increasingly homogeneous, with most 200,000-300,000 yuan pure electric vehicle models equipped with 800V+ advanced intelligent driving systems as standard, coupled with Tesla's price anchoring effect, pure electric vehicle models relying solely on product strength find it difficult to stand firm in the price range above 300,000 yuan. There is still a soft threshold of brand awareness that is difficult to overcome above 300,000 yuan.

This has also led to the fact that most companies that previously attempted to upgrade their brands to promote high-end pure electric vehicles have basically faced failure, and some high-end competitors (such as ZEEKR, etc.) have started to choose a strategy of lowering prices to pursue sales volume in 2024, while newly launched pure electric vehicle models are mostly concentrated in the 200,000-300,000 yuan price range At present, there is only one pure electric vehicle manufacturer with a main price range above 300,000 yuan, which is Nio. The competition Nio faces in the high-end pure electric market is weakening, but as the price range of high-end pure electric models decreases, the overall space in the high-end pure electric market is also shrinking.

② Nio's BaaS model price reduction effectively drove the growth in sales volume and market share of Nio:

Unlike last year when Nio reduced prices across the board by 30,000 yuan due to the unbundling of battery swapping rights, which only led to a short-lived increase in sales volume and market share for 1-2 months, this year, the adjustment of rents under the new BaaS model launched by Nio in March effectively drove the increase in sales volume and market share of Nio, and this improvement is sustainable. Currently, Nio's sales volume still maintains at the level of 20,000 vehicles per month.

After the reduction in BaaS model rents, the adoption rate of BaaS has also increased from the previous 20%-30% to 60%-70%, indicating that the rent adjustment is the main reason for promoting the recovery of Nio's sales volume.

As for whether Nio's main brand sales volume can stabilize and continue to increase, Dolphin Jun will look at the following dimensions:

① Nio has already established certain competitive barriers in the high-end pure electric field

Currently, with the weakening competition in the high-end pure electric market, Nio is almost dominant in the 300,000-400,000 market segment. Other car manufacturers still need to overcome the "brand recognition" soft threshold to enter the high-end pure electric market, and Nio has established certain competitive barriers in the high-end pure electric field by leveraging circle marketing, comprehensive services, and battery swapping to build a high-end brand.

② However, the current market space for high-end pure electric vehicles is still limited, and it is difficult for brands and vehicle structures to move up

Although the competition in the high-end pure electric market has weakened as car prices have decreased, there is also a phenomenon of overall market space shrinking. Currently, the overall pure electric sales volume in the industry in the 300,000-400,000 price range has dropped to less than 30,000 vehicles, and Nio's market share in this price range is already high. The space for further increasing market share has become limited.

If Nio wants to continue to increase the sales volume of its main brand Nio, it can first choose to increase prices and occupy the market above 400,000 yuan. However, the market above 400,000 yuan is still "niche", although the overall market space has room for improvement, the monthly sales volume fluctuates around 10,000.

Looking at the current top-ranking pure electric models above 400,000 yuan, they mainly fall into two categories: 1. With the parallel development of pure electric and plug-in hybrid models, the overflow effect brought by the popularity of plug-in hybrid models, such as the pure electric version of Aito M9 and the plug-in hybrid version of Xpeng D9; 2. The introduction of high-end pure electric MPV series by car manufacturers, such as ZEEKR 009 and Li Auto Mega Apart from these two types of vehicles, it is difficult for car manufacturers to achieve breakthroughs in sales with independently launched pure electric SUVs/cars, such as the Enjoy S9 from Huawei and BAIC (priced at 399,800-449,800 yuan), but both the production volume and sales are lower than expected.

Nio's vehicle structure has been showing a downward trend, with the proportion of existing models priced above 400,000 yuan dropping to only around 10%, making it difficult to shift the model structure upwards.

③ The continued room for sales growth may still rely on the expansion of the high-end pure electric market

In a situation where it is difficult for brands and model structures to move upwards, the continued room for sales growth may still depend on the expansion of the high-end pure electric market.

The expansion of the high-end pure electric market comes partly from the expansion of the high-end passenger car market brought about by additional purchases/swaps. This trend, based on the above analysis, is believed to be sustainable by Dolphin Jun. According to Roland Berger's data, 80% of high-end new energy vehicle owners are additional purchase/swap users, and additional purchases/swaps will also increase the penetration rate of new energy vehicles in the high-end market.

However, the penetration rate of new energy vehicles priced above 300,000 yuan has already exceeded 40%, and the overall room for further penetration may be relatively limited. The penetration rate of pure electric vehicles remains low, mainly because users prioritize plug-in hybrid models when making additional purchases/swaps. The shift in user mindset (from plug-in hybrids to pure electric) is crucial for increasing the penetration rate of high-end pure electric vehicles.

Whether it is the failure of the pure electric Mega model launched by Li Auto or the sales gap between high-end pure electric and extended-range models introduced by car manufacturers (Huawei M9/Tesla D9), we can conclude that the core contradiction of high-end pure electric models compared to plug-in hybrids still lies in user range anxiety.

However, range anxiety exists in electric vehicles at different price points, so why is it more pronounced in high-end pure electric vehicles?

Dolphin Jun compared the range of pure electric vehicles priced above 300,000 yuan and those priced above 200,000 yuan and found that even with large batteries (75-100kWh) as standard, the range of pure electric vehicles priced above 300,000 yuan is generally lower than that of those priced above 200,000 yuan. The fundamental reason is that vehicles priced above 300,000 yuan are generally larger in size and space, with higher electric motor power, resulting in higher energy consumption and shorter range, making range anxiety more pronounced in high-end electric vehicles.

However, users in the price range above 300,000 yuan have more diverse needs: they need to consider daily travel for families with multiple children, outdoor off-road scenarios, high-end business receptions, etc. The "bug" in the range of high-end pure electric vehicles is more pronounced, leading to a narrower range of applications for high-end pure electric vehicles compared to plug-in hybrids

And there are two ways to solve the range anxiety:

① Increase the battery capacity to improve range: Currently, the maximum battery capacity carried by high-end pure electric vehicle models is around 100kWh. Nio's self-developed semi-solid-state battery has a capacity of 150kWh and a range of over 1000 kilometers. However, due to production cost issues (battery cost is about 300,000 RMB), it is difficult to implement in the short term.

② Improve charging convenience by increasing supplementary energy infrastructure: The failure of the release of the Ideal pure electric product MPV Mega, in addition to pricing and positioning issues, was also significantly attributed to insufficient investment in supplementary energy facilities. (Only 300+ supercharging stations were invested in during the Mega product release).

Li Xiang has also stated: High-end pure electric vehicle users do not want to spend time charging, nor do they want to queue at public charging stations. The best solution to these two problems is the construction of supercharging stations and battery swapping stations, which need to be numerous, dense enough, and only open to owners of the brand.

However, this model has inherent illogicality. Supercharging stations (especially suitable for 800V vehicle models with high-power supercharging stations) and battery swapping stations to some extent are considered heavy asset investments (for example, the construction cost of an Ideal supercharging station reaches 3 million RMB/station, similar to the cost of Nio's third-generation battery swapping station). Increasing the quantity and density requires more upfront capital investment, and it is necessary to dilute the upfront capital investment through sales volume and asset turnover.

High-end pure electric vehicles already belong to a relatively "niche" market. The number of existing owners of high-end pure electric vehicles from a single brand is not large. It is even more difficult to achieve a balance of profits and losses through opening up to third-party use (such as most current car manufacturers' charging stations are open to third parties), making it difficult to achieve exclusivity (only open to owners of the brand). The demands of high-end pure electric vehicle owners are difficult to meet.

However, due to the adaptability of batteries/vehicle bodies, the higher cost of transformation, and the greater difficulty in opening up to third parties, battery swapping is more difficult. Therefore, in the early stage, with the characteristics of short supplementary energy time and only available for Nio owners, it meets the demands of high-end pure electric vehicle users. At the same time, battery swapping also establishes a certain high-end brand differentiation advantage and moat for Nio due to a. providing multiple supplementary energy solutions for customers who cannot charge at home; b. infinitely extending battery life and increasing the resale value of used cars.

However, battery swapping stations also face challenges such as a. insufficient density: currently, the ratio of Nio's existing models to battery swapping stations is 228:1, and most battery swapping stations are located in first-tier cities, indicating that the density is still insufficient; b. poor economic viability (Dolphin will provide calculations on battery swapping stations in the following text), raising doubts about whether the business model can be sustainable.

In summary, Dolphin believes that the high-end passenger car market will benefit from consumer upgrades as a major trend. However, the expansion of the high-end pure electric vehicle market will still be limited by the inability to effectively address the range anxiety of high-end pure electric vehicles. The trend of plug-in hybrids leading the penetration of high-end new energy vehicles may be difficult to change in the short term.

Nio has already established certain competitive barriers in the high-end pure electric vehicle market. Dolphin expects the main brand's sales volume to remain relatively stable, but the possibility of a significant increase in the short term is not high.

According to management estimates, Nio's main brand is expected to achieve an annual sales volume of 250,000 vehicles by 2025, equivalent to around 20,000 vehicles per month, which is basically consistent with Nio's current monthly sales trend and Dolphin's assessment.

However, for Nio, the demand for breakeven based on sales volume is higher compared to other similarly positioned high-end brands (such as Li Auto). Nio has previously indicated that the NIO main brand's breakeven point requires a monthly sales volume of 30,000 vehicles and a gross profit margin of 20%.

The main reasons behind this are as follows:

① Impact of heavy asset depreciation model on gross profit margin:

Comparing the depreciation/amortization to total revenue ratio between Nio and Li Auto, Nio's ratio reached 6.1% in 2023, which is 4.6 percentage points higher than Li Auto!

Specifically, the proportion of depreciation/amortization allocated to sales costs by Nio in 2023 also reached 3.6%, which also has a significant impact on the gross profit margin.

Comparing the fixed asset structure of Nio and Li Auto:

We can clearly see that the main difference in fixed assets between Nio and Li Auto lies in the initial investment in charging and swapping equipment, with Nio's initial investment in charging and swapping equipment reaching 6.4 billion RMB.

When we combine the investment in charging infrastructure in Xiaopeng's fixed assets, which was only 390 million RMB by the end of 2023 (owning 1,100 charging stations by the end of 2023), we can estimate that Nio's initial investment in swapping stations reached 5.2 billion RMB (equivalent to an average initial investment of 2.2 million RMB per swapping station vs Xiaopeng's 350,000 RMB per charging station).

If we follow Nio's disclosed depreciation period for charging and swapping facilities of 5-8 years, assuming an average of 6 years, the depreciation of swapping stations alone for Nio would reach nearly 900 million RMB per year.

However, Nio's revenue from the energy system in other income in 2023 was only 1.7 billion RMB, including revenue from selling charging piles and total revenue from charging and swapping businesses. Based on an estimate of 500 million RMB for charging pile business (4 billion RMB in 2022), the revenue from charging and swapping businesses in 2023 was only 1.2 billion RMB.

As Nio opens charging piles to third-party car manufacturers but swapping stations only to Nio owners, it can be inferred that most of the 1.2 billion RMB may come from charging pile charging revenue, while the actual revenue from swapping business in 2023 may be less than 600 million RMB.

Dolphin Jun made a rough estimate of Nio's swapping business in 2023, and the actual loss may have reached 1.5-2 billion RMB, dragging down Nio's total gross profit margin by around 3 percentage points.

② Establishing a high-end brand image through "comprehensive service," but bringing challenges in reducing sales expenses and affecting the profitability of Nio's other businesses Nio was established with customer experience as its core, building a brand culture of "comprehensive service" to establish a high-end brand positioning. However, this approach also brings challenges in reducing sales expenses and affects the profitability of Nio's other businesses.

Firstly, looking at the breakdown of Nio's sales expenses, the three largest expenses: employee salaries, marketing and advertising expenses, and rental expenses account for nearly 80% of the sales expenses.

Comparing the number of sales and service personnel among various companies, Nio's sales personnel significantly outnumber other new forces. Even in 2023 when sales were less than half of expectations, Nio's number of sales outlets was almost the same as Li Auto's by the end of 2023 (Li Auto had 467 retail centers vs Nio's Nio House + Nio Spaces 480 outlets). With a similar number of outlets, Nio had nearly 5000 more sales and service personnel than Li Auto, and almost three times the number of ZEEKR personnel, which also positions itself as a high-end pure electric vehicle brand.

Although the number of personnel seems significantly higher, in reality, the number of sales consultants among Nio's sales and service personnel is not that high (according to Nio's financial report conference call, the actual number of sales consultants at the end of 2023 may have been only 5000-6000). The main reason is that two-thirds of these personnel (nearly 10,000 people) are mostly Nio service personnel (such as Nio House services/community/road services/charging station staff).

This has an impact on the financial statements in two ways:

1. The salaries of service personnel directly related to Nio's vehicle sales (such as Nio House services/community) will be directly included in the employee salary item of sales expenses, making it difficult for Nio to reduce sales expenses.

2. The salaries of service personnel related to providing other business income may be included in other business costs, which also leads to other businesses, even excluding charging services, possibly only reaching a breakeven point. This is a significant gap compared to other new car companies, for example, Li Auto's other business gross profit margin reached 47% in 2023, and XPeng's other business gross profit margin reached 34%, both positively impacting the overall gross profit margin.

The second largest component in sales expenses, marketing and advertising expenses, is essential for Nio's high-end pure electric positioning in promoting new vehicles.

As for the third largest component in sales expenses, rental and related expenses, Nio's sales channels mainly operate under a direct sales model, with two types of sales channels: Nio House and Nio Space. Nio House was initially established as Nio's offline experiential store, with each Nio House not only featuring a showroom but also providing ample space for various functions such as office work, reading, leisure, growth, gatherings, and urban cultural services. Nio Space, on the other hand, occupies a smaller area More emphasis on sales.

However, the two expenditures of creating high-end "storefronts" - decoration costs and rental expenses - remain high for Nio:

Comparing the property decoration costs of Nio and Li Auto, with almost the same number of sales outlets as Li Auto, Nio's property decoration costs reached 5.2 billion yuan by the end of 2023, while Li Auto's property improvement costs were only 2 billion yuan, and XPeng's were only 700 million yuan (most outlets are dealerships).

In addition to decoration costs, the rental costs for a single Nio store have also reached nearly 3 million yuan, accounting for 13% of the sales expenses in 2023, making it difficult to reduce.

③ Other reasons

In terms of vehicle positioning, Nio has a certain cost disadvantage in car manufacturing: Li Auto positions itself as a high-end extended-range vehicle. Due to the absence of large batteries in extended-range technology, the overall manufacturing cost will be more advantageous compared to high-end pure electric vehicles. At the same time, high-end plug-in hybrids have a large market space, and the sales volume has a certain scale effect, which will drive higher manufacturing gross profit margins.

Nio's pure electric models, on the other hand, focus more on "piling up materials" compared to other high-end pure electric vehicles, such as equipping the series with 4 NVIDIA Orin X chips (while the industry standard is 2 chips), which also leads to higher manufacturing costs.

The reason for the high R&D expenses is that Nio had too many R&D directions before: such as smartphones, autonomous driving chips, solid-state batteries, in-car smart hardware, etc. However, after layoffs, there has been a trend of contraction in R&D directions, currently focusing on new vehicle models and intelligent driving R&D (self-developed autonomous driving chips will soon be integrated into the NT3.0 platform), which is basically on par with Li Auto in terms of scale.

It can be seen that Nio initially created a high-end pure electric brand through "high-end service" + "battery swapping", but it also placed a heavy "burden" on Nio's financial statements, requiring higher sales volume to dilute the initial capital investment and unleash the leverage effect on the cost side.

When it is difficult for the main Nio brand to achieve a significant increase in sales volume in the short term, Nio's second brand "ONVO" was born.

II. Can Nio's sub-brand ONVO help Nio achieve break-even?

As Nio's second brand, ONVO is priced in the 200,000-300,000 yuan range. Although this price range itself has a high penetration rate and intense competition in pure electric vehicles, products with 800V+ standard intelligent driving are concentrated in this area, and both newly launched pure electric models and the sinking of high-end brands will focus on this price range.

However, ONVO still has differentiation advantages in this price range:

1. The inherent brand momentum advantage of brand downsizing: Compared to brands like Leapmotor/XPeng/ BYD that have tried to move upmarket but ultimately got stuck due to brand value, leading to mediocre sales performance of high-priced models, companies that downsize their brands, such as Li Auto launching the L6, ZEEKR 001 with price downsizing, are more likely to succeed in sales performance with brand value and strong product power brought by high R&D investment.

2. Entering the pure electric SUV sub-segment: Looking at the current best-selling models in the 200,000-300,000 yuan price range, apart from Tesla Model Y, there is a lack of pure electric SUV models. There is still room for further growth in the pure electric SUV segment in this price range

3. Price advantage: The starting price of the ONVO L60 is only 206,000 yuan, which is 20-40,000 yuan lower than the starting price of direct competitors ZEEKR 7X/Model Y. At the same time, based on the BaaS model, the starting price of ONVO is only 149,900 yuan, lower than market expectations. The BaaS model directly reduces the threshold for users to purchase cars, effectively stimulating the demand for car purchases by users with a budget of only 150,000-200,000 yuan.

4. Unique recharging advantage: The ONVO L60 will support both 900V high-voltage fast charging and battery swapping, which can be used at over 1,000 battery swapping stations nationwide and over 25,000 NIO-owned charging piles. The recharging experience of 900V high-voltage fast charging and battery swapping is a highlight of the ONVO L60 in the 200,000 yuan price range.

NIO is quite optimistic about the sales expectations for this car. It is expected that the total delivery volume of ONVO in the fourth quarter of this year will reach 20,000 units, with monthly sales climbing to 10,000 units in December. In 2025, ONVO will also launch a mid-to-large-sized SUV (expected to be delivered in the third quarter), and management expects the full-year sales volume of ONVO in 2025 to reach 120,000 units, providing a supplement to NIO's main brand sales volume that is difficult to improve.

The launch of ONVO will also have a synergistic effect on NIO's operations:

1. Both ONVO and NIO's next-generation models use the NT3.0 platform, with some components being shared, creating economies of scale and improving NIO's gross profit margin on the car sales side.

2. ONVO will bring more users who use NIO's services and battery swapping, accelerating the reduction of losses on other service revenue streams.

3. From a cost perspective: The launch of ONVO will result in relatively minimal additional operating costs for NIO. The R&D costs of the ONVO NT3.0 platform are shared with NIO's main brand, and the ONVO L60 is a product derived from NIO's main brand research and development efforts. On the sales cost side, the main expenses are related to channel expansion and increased sales personnel. However, since ONVO's channels are more focused on expanding to second and third-tier cities, both store decoration costs and rental costs are relatively low, and the additional sales costs are relatively controllable. There is a leverage effect based on the increase in sales volume on the cost side, resulting in a lower operating cost ratio.

Even with so many synergies from the launch of ONVO, according to calculations by Dolphin Jun, 2025 is still not a year when NIO can achieve a break-even point.

Although NIO's operating losses in 2025 are expected to narrow compared to 2024, there is still a projected loss of nearly 17-18 billion yuan. The operating loss rate is expected to decrease from 30% in 2024 to 18% in 2025, as the gross profit margin improves and the leverage effect on operating costs is released While Nio still faces huge operating losses in 2025, calculating Nio's cash burn rate becomes crucial. As of Q2 2024, Nio had 41.6 billion in cash on hand. Based on Dolphin's estimated free cash flow burn rate, it is projected that Nio will burn 25 billion in free cash flow from the second half of 2024 to the end of 2025. This means that Nio's current cash on hand can last until 2026-2027 at least, indicating sufficient cash security and signaling that Nio has emerged from the valuation bottom resembling bankruptcy.

Currently, Nio's stock price corresponds to a 2024 P/S ratio (considering only car sales business) of 1.3-1.4 times, but the corresponding 2025 P/S ratio is only 0.9-1 times. The valuation seems relatively reasonable, but with high capital investment, the risk of the business model proving successful remains significant. It is still necessary to leave enough safety margin. Dolphin believes that for companies like Nio, when the cash flow security is relatively certain, the investment opportunity lies in the marginal reversal when the valuation hits rock bottom (such as when the 2024 P/S drops to 1 time).

For more in-depth research and tracking comments on Nio by Dolphin, click:

Financial Reports:

September 5, 2024, Financial Report Interpretation "Nio: Rarely Not Collapsed, Happy to Support the Future?"

September 6, 2024, Conference Call Summary "Expected Luhua L60 Delivery Volume to Exceed 10,000 in December, Q4 Vehicle Gross Margin Reaches 15%"

June 7, 2024, Financial Report Interpretation "Sales Volume Returns, Stock Price Collapses, How Does Nio Save Itself?"

On June 7, 2024, the minutes of the conference call "Expected return to double-digit gross profit margin in the second quarter"

On March 15, 2024, financial report interpretation "Another loss explosion! Can Nio only rely on Middle Eastern gold owners to survive?"

On March 6, 2024, the minutes of the conference call "Maintaining a gross profit margin of 15%-18% for the whole year, hoping monthly deliveries will quickly return to 20,000 vehicles"

On December 5, 2023, financial report interpretation "Repeatedly teetering on the brink, what is Nio relying on to restore its reputation?"

On December 6, 2023, the minutes of the conference call "Continuing to increase sales network and personnel investment (Nio 3Q conference call minutes)"

On August 29, 2023, financial report interpretation "Nio: a single quarter loss of 6 billion? Don't lose hope, the future is not too far away"

On August 29, 2023, the minutes of the conference call "Achieving low double-digit gross margin in the third quarter, with gross margin increasing to 15% in the second quarter (Nio minutes)"

On June 9, 2023, financial report interpretation "Nio: Reflection is more important than selling cars"

On June 9, 2023, minutes of the conference call "Nio minutes: ES6 to exceed tens of thousands in July, gross margin to return to double digits in the second half of the year"

On March 2, 2023, financial report interpretation "With many ideas and poor execution, how much trust can Nio still erode?"

On March 2, 2023, minutes of the conference call "Nio: Gross margin expected to reach 18-20% by the end of the year, lithium prices may drop to 200,000"

On November 11, 2022, financial report interpretation "Nio: When pricing is pessimistic enough, how much impact can a collapse in performance still have?"

On November 11, 2022, minutes of the conference call "Nio: Break-even in the second quarter of next year, no problem with long-term stable gross margin of 20-25%"

On September 7, 2022, financial report interpretation "Don't be scared by explosive losses, Nio is approaching better days"

On September 7, 2022, minutes of the conference call "Production capacity is the bottleneck, record-breaking sales month by month"

On June 29, 2022, hot review "This report shorting Nio could be more heartfelt"

On June 16, 2022, minutes of the new car launch "Rapid release, rapid delivery, Nio has hope in the second half of the year"

On June 9, 2022, Q2 financial report analysis "Nio remains soft, can only rely on new cars for confidence?"

On June 9, 2022, Q2 financial report conference call "Gross margin in Q2 will be worse, Nio's turnaround depends on the second half of the year"

On March 25, 2022, 2021 annual report review "Nio: Under pressure, is the future continuing in the dark or welcoming the dawn?"

On March 35, 2021, 2021 annual report conference call minutes "2022 is a year of comprehensive acceleration for Nio"

On November 10, 2021, Q3 2021 report review "Nio: After the 'ankle cut', will there be a deep squat jump in the first half of next year?"

On November 10, 2021, Q3 2021 report conference call minutes "Nio: No need to overly worry about temporary delivery slowdown and pressure on gross margin (conference call minutes)"

On August 12, 2021, Review of the 2021 Q2 Report "Saying goodbye to the outbreak period, what is Nio's future relying on?"

On August 15, 2021, Update on the 2021 Q2 Report "Nio: High valuation vs low deliveries, be cautious of the current 'future'

Research

On June 13, 2023, Hot Topic on Nio "Nio: Finally doing subtraction"

On December 21, 2021, Research on Nio NIO DAY "The debut of the 'hit model' ET5, Nio aims to reignite the 'future'

In-depth

On June 9, 2021, Three Idiots Comparative Study - Part 1 "New forces in car manufacturing (Part 1): Investing in the right people, doing the right things, analyzing the people and events of the new forces"

On June 23, 2021, Three Idiots Comparative Study - Part 2 "New forces in car manufacturing (Part 2): Market enthusiasm waning, what are the three idiots relying on to solidify their position?"

On June 30, 2021, Three Idiots Comparative Study - Part 3 "New forces in car manufacturing (Part 3): Doubling in fifty days, can the three idiots continue to sprint?"

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