NIO releases Q2 financial report, stock price soars: Three major positive factors behind the improving situation

On September 5th, NIO released its latest financial report, showing that both revenue and delivery volume in the second quarter reached record highs. In the second quarter, revenue was RMB 17.45 billion, a year-on-year increase of 98.9% and a quarter-on-quarter increase of 76.1%; delivery volume was 57,400 units, a year-on-year increase of 143.9% and a quarter-on-quarter increase of 90.9%; vehicle gross margin was 12.2%, up 6 percentage points year-on-year and 3 percentage points quarter-on-quarter; R&D expenses were RMB 3.22 billion, cash reserves were RMB 41.6 billion, and the loss narrowed significantly by 16.7% year-on-year.

Boosted by the positive performance information, NIO received high praise in the capital markets. On September 5th local time in the United States, NIO's stock rose by 14.39%. On the first trading day after the results were announced in Hong Kong, NIO's stock surged over 17% at the opening, leading the automotive sector in Hong Kong.

Following the release of the results, JP Morgan upgraded NIO's ADR rating to overweight with a target price of $8. Guotai Junan Securities upgraded NIO's H shares to buy with a target price of HKD 45. In addition, Guohai Securities stated in a research report on September 5th that with the intensified trade-in policy and the expected intensive new car launches in September (such as the LeDao), they are optimistic about the opportunities in the automotive sector in September 2024.

With NIO's significant increase in sales volume and effective narrowing of losses in the second quarter, it indicates that NIO has entered a period of positive growth. Furthermore, the continuous improvement in gross margin is directly related to NIO's non-participation in price wars. This year, competition in the Chinese automotive market has intensified, especially in the high-end market, with many brands lowering terminal prices to boost sales. In contrast, NIO has maintained its competitive advantage in the high-end pure electric market by keeping its pricing stable. Since May, NIO has achieved sales of over 20,000 units for four consecutive months, indicating a significant return on its previous investments.

Specifically, NIO has established a 12-stack technology layout covering the entire lifecycle of intelligent electric vehicles, ensuring an increase in product competitiveness, continuously improving the charging and swapping network, and advancing the multi-brand strategy in an orderly manner, forming three positive factors.

Positive Factor 1: Building a R&D Foundation of RMB 50 Billion

Currently, China's new energy vehicle sector has launched a high-intensity R&D arms race, with some Chinese brands successively releasing the latest AI technology achievements, demonstrating underlying innovation capabilities.

In July this year, NIO announced the successful mass production of the world's first 5nm intelligent driving chip - the NIO Adam NX9031. At the same time, after 4 years of research and development, NIO released the first comprehensive vehicle-wide operating system SkyOS·Tianshu, aimed at AI.

Professionals have stated that for the Chinese automotive industry, which has long been plagued by "lack of core technology and soul," NIO's breakthrough in underlying technology may accelerate the industry's rapid transformation. Moreover, these technological innovations are not achieved overnight and require a substantial amount of early-stage R&D investment to lay the foundation. CCTV's "Xinwen Lianbo" program evaluated NIO's achievements as "strong core, forging soul," stating that "this is a continuous breakthrough for Chinese smart cars in the global competitive arena, independently controllable and globally leading."

Data shows that NIO has consistently had the highest R&D investment among new forces in technology development. The latest financial report shows that NIO's R&D expenses in the second quarter were RMB 3.22 billion. This means that NIO's cumulative R&D investment has reached RMB 50 billion, resulting in a 12-stack technology layout covering all intelligent vehicle business scenarios and over 9,100 global patents NIO's investment in self-developed intelligent driving chips and vehicle operating systems has not only yielded results but also made NIO the first in the industry to achieve a "soulful and intelligent" car enterprise.

At the same time, NIO's research and development direction is also quite clear, focusing on accumulating expertise in underlying software.

"We now spend 60%-70% on basic research and development costs, not for a specific model or brand. These things can be used on all brands and models today," NIO founder Li Bin said in an interview. Just like SkyOS·Tianshu can serve as the base for all models and brands, its research and development efficiency is very high, the difficulty lies in laying the foundation.

"Once the technological foundation is laid, even if NIO sells 10 million units a year, the investment in basic research and development will not increase much. This is the advantage of doing platformization particularly well in terms of intelligence and electrification," Li Bin admitted.

Bullish Point 2: State-owned assets boost, commercial value of charging and swapping network is evident

On August 20th this year, NIO announced the County-by-County Charging Plan, planning to build NIO charging piles and battery swapping stations in every county in the country to further improve and densify the NIO charging and swapping network. By June 30, 2025, NIO plans to achieve nationwide charging coverage for all counties, and by 2026, it aims to complete nationwide battery swapping coverage for all counties.

NIO started laying out charging and swapping facilities before delivering its first vehicle in 2018. As of now, NIO has built over 23,000 charging piles and over 2,500 battery swapping stations nationwide, providing users with over 45.6 million charging services and over 52 million battery swapping services.

For many NIO owners, battery swapping is a very satisfactory way to replenish energy, with its biggest feature being speed. The upcoming fourth-generation NIO battery swapping station can swap batteries in as fast as 2 minutes and 24 seconds, making it almost on par with refueling. In addition, full automation, no need to get out of the car, stable experience, no worries about battery life degradation, and more are all benefits that NIO brings to owners through battery swapping.

Different from traditional car companies, NIO has a differentiated business model and logic. It is not only an electric vehicle company but also an intelligent company and an energy company. Among them, the biggest highlight of NIO is battery swapping, and the investment in building battery swapping stations and promoting battery swapping construction is even more immeasurable. Currently, NIO's scale of battery swapping and various business innovations are difficult to replicate.

Supported by the above logic, NIO's battery swapping has also been widely recognized in the industry. Since November last year, Chang'an, FAW, GAC, Geely, Chery, JAC, Lotus, and other car companies have cooperated with NIO to lay out battery swapping.

In May this year, "NIO Power," which leads the charging and swapping business, received a 1.5 billion yuan investment. The investor is "Hubei Ke Investment," a state-owned enterprise under the Wuhan East Lake New Technology Development Zone. This means that the Wuhan government hopes to strengthen the layout of new energy vehicle charging and swapping through cooperation with NIO.

"This is definitely a good thing for NIO to promote the battery swapping model," Li Bin recently revealed. The development of the cooperative models is progressing smoothly, but the development cycle still needs to wait due to designing completely new products While announcing the Jia Dian County Pass Plan, NIO also launched the Jia Dian Partner Plan, which includes three cooperation models: charging station joining, fixed income for charging and swapping stations, and guaranteed income + profit sharing for charging and swapping stations. Currently, the first batch of swapping station partners have signed contracts with NIO. Some partners have expressed that the reason for participating in the project is because NIO's swapping business model has been proven successful, they see potential in its earnings, and they also value the social value of NIO's energy participation in grid regulation.

According to the public interpretation by Academician Ouyang Minggao of the Chinese Academy of Sciences, our solid-state battery and high-voltage fast charging technology still need to mature, even if high-voltage fast charging is to be achieved, it also requires an integrated microgrid of "generation-storage-charging-swapping". From this perspective, NIO's swapping stations are typical energy storage facilities, indicating that when deploying swapping stations, NIO has forward-looking considerations for the overall national energy planning.

In other words, NIO's swapping is moving towards an open collaborative model, which can effectively reduce costs. The energy business built by NIO's charging and swapping infrastructure is like an electric version of Amazon Web Services, and its commercial value may even exceed that of electric vehicles themselves.

Bullish Three: Arrival of the Multi-Brand Scaling Stage

Recently, spy photos of NIO's third brand product undergoing road tests in Europe were exposed. This is the second exposure of the product since March this year. Industry insiders believe that this indicates NIO is accelerating the implementation of its multi-brand strategy, which is expected to accelerate overall sales volume. Furthermore, NIO's "multi-brand" strategy can further promote overall sales volume increase in the future and help the company's steady development.

Public information shows that the positioning of NIO's three brands is very clear: NIO targets the high-end market, catering to business and family users; ONVO targets mainstream family market users; and "Firefly" is positioned as a premium small car in China, mainly serving the needs of second family cars. In terms of price range, the main sales of the three brands are in the thirty-thousand, twenty-thousand, and ten-thousand price ranges, with clear distinctions, and the common feature is the ability to swap batteries.

In May this year, on International Family Day, NIO's second brand "ONVO" was officially launched, and the first product ONVO L60 was also unveiled. Different from the high-end positioning of NIO, ONVO targets a more extensive mainstream family market. Many brands achieve volume through the household car market, embarking on the path to scaling, and NIO also has this intention. Li Bin stated that ONVO brand can achieve breakeven with a monthly sales volume of 20,000 to 30,000 units. In addition, the ONVO brand will release its second product next year, a mid-to-large SUV.

It is understood that the first car of ONVO, L60, will be launched in September, with deliveries starting at the end of September, and the order volume "far exceeding expectations".

In fact, the plan to enter the mass market was revealed as early as a financial report conference call in 2020, and the establishment of ONVO was officially planned in 2021. If we go back even further, NIO had already been brewing the multi-brand strategy since its establishment in 2014.

Li Bin stated that the intelligent pure electric track is destined to be a prolonged battle with unknown results, requiring massive capital investment, inevitable losses, and the need for new brands that can achieve scaling to solve this issue. According to the plan, the third brand can also have a share in the mainstream market, following ONVO's creation of the second growth curve, to create a third growth curve for NIO "With the gradual launch and iteration of multiple models, NIO's continuously built foundational technological capabilities and long-term strategic planning will gradually come into play. The accumulated R&D investment, refined community operations, and efficient infrastructure will lead to a steady increase in sales volume and gross profit," said William Li.

According to the plan, NIO's future growth path is very clear: First, in terms of price range expansion, NIO will cover the range from 140,000 to 800,000 RMB through three brands (covering the range from 100,000 to 700,000 RMB with the BaaS model), aiming for a broader target market than its competitors. Second, in terms of category expansion, NIO will leverage its multi-brand advantages to make its product categories more complete and have more differentiated advantages. Third, in terms of expanding regional coverage, NIO will extend to third- and fourth-tier cities through sales outlets, coupled with the promotion of charging and battery swapping in every county and the advancement into overseas markets, covering more markets.

Despite the intensifying market competition, NIO's long-term investment in technology, products, services, and communities has already demonstrated strong systemic capabilities. Thanks to the accumulation of high value, the NIO brand is expected to solidify its high sales volume model, and the advancement of its multi-brand strategy is also adding momentum to NIO's scaling, promoting the overall development of the company towards a positive direction