NIO expects vehicle margin to bounce back in Q3, confirms plan to enter U.S. market

On June 9, NIO held an earnings call to elucidate the first-quarter 2022 financial results it releasd earlier the same day and answer the questions raised by investors.

Gasgoo sorted out the highlights as below.

Vehicle margin to start bounce back from third quarter

NIO's vehicle margin stood at 18.1% in the first quarter of 2022, dropping 2.8 percentage points over the previous quarter mainly due to the increased battery cost per unit.

As the battery cost continued to grow and peaked in April, the company's vehicle margin will be under a even higher pressure in the second quarter, said William Bin Li, founder, chairman, and CEO of NIO.

NIO has updated the agreement with its battery supplier CATL starting from April this year, so that its battery cost is now connected with the raw materials indexes. It indicates that the battery cost in the second quarter is going to significantly grow compared to that of the first quarter, and will accordingly affect the vehicle margin.

To mitigate the impact of the rising materials costs, NIO has adopted a slew of measures like adjusting vehicle prices. Mr. Li said NIO’s vehicle margin is expected to bouce back in the third quarter with the deliveries of new products, the increase in revenue per vehicle, and the ramp-up of production volume.

However, there are still many uncertainties NIO needs to weight out because the battery cost is very difficult to forecast and determine right now as it varies with raw material market trends and indexes, he added. Thus, NIO cannot predict how much the vehicle margin would recover in the third quarter.

NIO to start production at second plant in third quarter

The production capacity at its first car manfuacturing factory with JAC-NIO (“F1”) has fully recovered to the level before the recent coronavirus outbreak. NIO will continue to ramp up the F1’s capacity in the third quarter.

According to Steven Feng, chief finance officer of NIO, the overall production capacity at the F1 would reach 20,000 units per month in the second half of this year.

According to Mr. Li, the main challenge is the supply chain issue, especially in terms of the chip supply and the production capacity of its suppliers.

Located at NeoPark, a Hefei-based smart EV industry park, the second factory (“F2”) has completed the production line installation and tooling, and has gone into the phase of production valiadation phase. The F2 will be put into operation in the third quarter this year.

As for the F2’s ramp-up pace, NIO will kick off the delivery of the ET5 from this factory in the third quarter and will strive to raise its capacity to 10,000 units per month within three or four months probably.

Order intake hits new high in May

Despite the recent COVID-19 outbreak, NIO’s products continue to witness a robust demand, said Mr. Li. The company’s order intake reach a new high in May. Notably, the orders of the ET7 stayed strong.

Aside from the ET7, the existing ES8, the ES6, and the EC6 (called “866” collectively) also contributed to the order instake growth in May. NIO is planning to incorporate some new smart hardware and software features for the upgraded versions of the three models.

Besides, the order intake in May also included the ET5. “Because of the auto shows and exhibitions, we have witnessed a very positive order performance of ET5,” said Mr. Li.

All existing models to be upgraded to NT2.0 platform in 2023

As for the new product roll-out plan, NIO started delivering the ET7 on March 28. On April 29, the first ET5 tooling trial builds rolled off the production line at the F2, and the delivery is expected to begin this September. In addition, the brand new five-seater SUV based on the NT2.0, the ES7, will be unveiled this month, and is expected for delivery in late August.

Mr. Li also confirmed that all existing models, namely, the “866”, will be upgraded to the NT2.0 platform next year.

To start production of next-generation battery pack in H2 2024

NIO currently has over 400 staff members working on battery-related technologies, including battery materials, cell and pack design, battery management systems, and manfuacturing process, said Mr. Li.

The company plans to launch a new 800-volt high-voltage battery pack that also supports battery swapping technology in 2024 with the production starting in the same year.

NIO insists on a long-term battery strategy that combines in-house R&D with outsourcing, which the company believes it will benefit the vehicle gross margin and the overall competitiveness and profitability of NIO’s products.

Challenge of chip supply

There are many uncertainties over the chip supply, Mr. Li noted.

Averagely, a NIO's vehicle needs over 1,000 chips and the supply for those chips may vary from time to time. The situtation totally depends on the upsteam suppliers of NIO’s tier 1 suppliers. Many of the chips in scarcity are basic chipsets.

For instance, like TI and Infineon, they provide a variety of chips to OEMs and it’s very difficult to identify which one is going to face shoratge. That's why NIO has made a list to include those risky chips.

Normally, the list includes around 1 to 20 kinds of chips and it may change month to month. Thus, NIO has to handle the issue on-the-go.

Overall, NIO considered that the current chip supply issue is still manageable and under control. The production in June is not specifically related to the chip shoratage and will see a normal capacity ramp-up process, added Mr. Li.

To start delivery of vehicles under mass-market brand in H2 2024

NIO is steadily pushing ahead with the product development and production preparation for its yet-to-be-launched mass-market brand. Based on the agreement it signed on May 10 with the local authority of Hefei Economic & Technological Development Zone, it has started the planning and preparation of the production capacity building for the new brand.

According to Mr. Li, NIO intends to start the delivery of the product under the mass-market brand starting from the second half of 2024. The vehicle model will be built on the NT3.0 platform.

NIO expects the mainstream products of the mass-market brand to be at the price range from 200,000 yuan ($29,870) to 300,000 yuan ($44,810). They will also support the battery swapping technology and use the batteries in-house developed and manufacturered by the company.

To make foray into the U.S. market

Regarding the expansion of global footprints, NIO's teams have been speeding up the preparations to launch its products and services in Germany, the Netherlands, Sweden, and Denmark.

At the earnings call, Steven Feng confirmed NIO's plan to enter the U.S. market.

He revealed that NIO has started a comprehensive study of the U.S. market and has formed a dedicated team responsible for the new market entry plan.

“It is now still in the study phase, and we'll share more information at an appropriate moment,” Mr. Feng said.

To release NOP+ driver assistance system in Q3 2022

Since the delivery of the ET7, NIO has made fast iterations and released more smart features via the FOTA (firmware over-the-air) upgrades on a continous basis. It has introduced over 200 new features on the NT2.0 platform with the next-generation voice interaction and emotion technologies. Besides, NOMI’s interactive experience has been comprehensively upgraded.

In the third quarter of this year, NIO will launch the NOP+ (Navigation on Pilot Plus) driver assistance system based on the HD map co-developed with Tencent.