NIO 2nd-qr. Earnings Explanation, Will the King of R&D Win Tomorrow?


After NIO released its second-quarter earnings report, Bloomberg reported that the total loss of NIO since its inception in 2014 was approximately US$5.7 billion (approximately RMB 40 billion), exceeding Tesla’s accumulated losses for the past 15 years. Public opinion. In the subsequent earnings conference call, Li Bin, chairman and CEO of NIO, clarified that according to non-GAAP, as of June this year, the loss was about 22 billion yuan. That night, some media follow-up pointed out that Bloomberg’s report is also correct, because it refers to data calculated according to US General Accounting Standards (GAAP).

In view of the fact that the financial report data incident has caused major market turmoil, investors and users are very concerned about: In the past four years, how much did NIO spend? Where does it spend? What results has it got? We are unfolded for this.

How much has NIO been spent in 4 years?

The verification work was carried out for the main financial data for the four fiscal years 2016-2019, of which 2019 was due to Q2.

On September 26, NIO told that Bloomberg’s accumulated loss of RMB 40 billion includes the value-added to redemption of convertible redeemable preference shares issued to private equity investors prior to the initial public offering. The return value, such as the accumulated value added after deducting preferred stock, from 2016 to the present (June 2019), its actual operating cost is 27.946 billion yuan. According to our calculation, the actual net loss from 2016 to the present (June 2019) was 23.172 billion.

Table 1: List of NIO Operating Costs and Net Losses for the Second Quarter of 2016 to 2019 (Data from NIO Official)

Table 2: NIO’s fourth quarter financial report for 2018 (screenshot from NIO’s official website)

Table 3: NIO’s second quarter earnings report for 2019 (screenshot from NIO’s official website)

In addition, according to the data provided by NIO, from 2016 to the present (June 2019), its total investment in research and development, users, marketing, etc. is about 35 billion yuan (see Table 4).

Table 4: NIO total investment from 2016 to 2018; another: Q1 input amount is 1.305 billion yuan in 2019, and Q2 input amount is 1.4214 billion yuan in 2019 (data provided by NIO official)

Where is the money used?

Li Bin said on the 25th conference call that there are more than 10 billion investment in positive research and development, which is the direction that NIO has always adhered to. “We have submitted more than 4,200 patents worldwide,” Li Bin said. “We definitely need more funds to support technology research and development.”

It is understood that NIO has a global R&D team of about 4,000 people, accounting for 40% of the largest number of employees before the layoffs (more than 9,000). This proportion is expected to increase to over 50% by the end of October, when the total number of employees will drop. 7,800 employee. “We are not just a traditional car company.” On September 27th, NIO’s president Qin Lihong said, “we are also a high-tech company.”

Qin Lihong said that since its establishment, NIO has mainly spent research and development expenses on the six core technologies of intelligent electric vehicles, namely the electric motor, electric control and battery pack of the “EIC” system, and the three “smart” system such as smart gateway, smart cockpits and automatic assisted driving systems. At present, there are only Tesla and NIO that have the ability to independently and forwardly research and develop these six core technologies.

“In addition, the high-performance vehicle structure based on all-aluminum body and air suspension is also our independent forward research and development, which is the highest-end passenger car made by Chinese companies so far,” Qin Lihong said. “Intelligent power-changing system, Including the battery-exchangeable chassis, intelligent power station, the world’s first, more than 400 patents.”

“Any breakthrough can support a good company in these eight technologies,” a senior technical expert told, “but every competition is fierce, and it takes a lot of manpower, material and time. In this sense, NIO’s eyes are far-reaching and very discouraged.”

But there are also obvious criticisms. Another veteran said: “I have persuaded them, and at the same time, from so many big projects, each system is very complicated, it is very risky for a startup. But they seems don’t care.”
In the eyes of the industry, NIO is an obvious difference, due to the abundant start-up capital, it is investing heavily in research and development, and it is totally different from the previous local auto companies, it is called “R&D Devil”. On September 25th, Li Bin’s speech once again confirmed this point, he said: “In the fourth quarter of 2018, only the research and development expenses even reached 1.5 billion.”

If NIO’s money is spent mostly on research and development, where is the other money used?

“Mainly on users,” Qin Lihong, president of NIO, said, “In the past four years, we have invested 10 billion in user development, it is about 1:1 ratio comparing to R&D investment, therefore, we are also a user service company.”

Qin Lihong told that NIO spent a total budget of 3 billion (RMB) marketing services in 2018. In 2019, it is also 3 billion (RMB). In the past, there was no product, it took around 2 billion on NIO Day and some other upfront investments..

Qin lihong, president of NIO

“This 10 billion (RMB) is complete cost,” Qin Lihong said, “including the investment in Foemula-E, this is counted as a brand fee. It includes all employees’ wages, marketing activities, facilities, services, spare parts, etc., all in it, so this is a full-scale data.”

What is the return on the huge investment?

On September 26, NIO told that NIO currently has 1,535 patents granted worldwide, and 2,594 patents are in application, totaling 4,129.

“Our technology accumulation speed is definitely the industry leader”, NIO Public Relations Department replied, “At the same time, our product and service experience is also the industry leader.”

“We spent a lot of money,” Qin Lihong responded, “but first, compared with many other auto companies, the efficiency of our spending is still quite high. Second, the money has invested in a full set of technology, we have now highest-end products of Chinese cars so far, we have invested in an internationally influential brand and have invested a large number of users to recognize and follow. Therefore, it’s worth spending.”

Recently, a news screened by a NIO car owner at the Shandong High Speed Rail Station to advertise at NIO has once again triggered people’s concern about the relationship between NIO and its users. “I am very satisfied with the service of NIO ES8!” On September 26, a NIO ES8 owner, Mr. Lu said, “even if it is rainy night, they can all come to the door, this is really hard to get, I am very satisfied with performance of ES, NIO is a very reliable company.”

If the user’s evaluation of NIO is largely influenced by the service, what do the industry think about NIO’s products and technologies?

Li Bin

“NIO certainly got returned in good things,” said a senior executive of the car company, “for example, NIO’s e-motor, the overall performance is the first and far ahead in China; and such as the integrity of the vehicle platform, it is completely capable of carrying more products, only two models are too wasteful; in addition, the ES8 is an air suspension and an all-aluminum body, which is the first in the country and the world leader.”

“Simply, we spent the money and got a result of technology leadership and user support.” Qin Lihong said, “Left-hand is technology, right-hand is users, this must be the ultimate commanding height of the car brand, we will certainly win tomorrow by winning these two commanding heights.”

Qin Lihong admitted that in order to cope with the cash flow challenge, the company is in the process of layoffs and adjustments. “There will be disturbances, but the current adjustment is very smooth, and it has basically passed the shock period. At present, the company is operating normally, the morale is high, and the overall situation is very good. Moreover, the financial report reflects the situation in the past period, since the third quarter. NIO has become more stable and powerful.”

In this regard, the industry is cautiously optimistic, commentator Sun Yong pointed out: “From a macro perspective, with the further improvement of the new energy vehice policy in China, China’s new energy vehicle market will gradually improve next year, from a micro perspective NIO itself is also making some adjustments, such as reducing the efficiency of employees by optimizing the structure of personnel, opening NIO Spaces (only sales function) to reduce costs and increase efficiency, etc., it is believed that these measures will gradually reflect the performance in the near future.”