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“it’s not that li bin doesn’t know how to calculate accounts, but he calculates the “general account”.”

author | yu kuai

editor | li yuchen

in the second half of the third quarter of 2024, the air is filled with the smell of "earnings report show".

on september 5, nio released its q2 2024 financial report, with revenue of 17.45 billion, a year-on-year increase of 99%, almost doubling, but a net loss of 5.05 billion, with a loss of 88,000 per vehicle.

in the second quarter, nio delivered 57,400 vehicles, a year-on-year increase of 144%. the gross profit margin of its vehicles increased from 6.2% in the second quarter of last year to 12.2%.

although sales have increased significantly and gross profit margin has improved significantly, nio's losses have not improved and remain at a high level.

however, the capital market gave positive feedback: on september 5, eastern time, nio's us stocks closed up 14.39%. on the first trading day of hong kong stocks after the results, nio's opening price once soared by more than 17%, leading the hong kong stock auto sector, and closed up 13.05%. after the results were released, jpmorgan chase raised nio's adr rating to overweight, with a target price of us$8. yuanta securities raised nio's h-share rating to buy, with a target price of hk$45.

the first half is electrification, the second half is intelligence。this has long been a consensus in the industry, but getting a ticket to the second half does come at a "price."

with high investment in technology, nio has always left the impression of "spending money lavishly" on the outside world. in 2023 alone, nio's investment in r&d exceeded 13.4 billion yuan, and this year it maintained an r&d investment of about 3 billion yuan per quarter. since 2016, nio's cumulative r&d investment has reached 50 billion yuan. li bin does not deny that nio's technology investment has cost "a lot of money."

nio has always been a leader in user experience. its battery swap system has relieved users of range anxiety. at the same time, nio has also established a high-end service reputation and user mindset in soft aspects such as intelligence, high-end aesthetics, and humanistic atmosphere.

beyond user minds and word of mouth, its essence is actually concealed as a technology-based enterprise.

the core of nio's losses lies in its high investment in core technology research and development and charging and swapping infrastructure.

li bin, founder, chairman and ceo of nio, once told leifeng.com that r&d can actually bring in gross profit, but the effect is slow. basic r&d is to open up the underlying system in order to "ensure that even if it rains once every 100 years, there will be no flooding."

it’s not that li bin doesn’t know how to calculate accounts, but he calculates the “general account”.

01

the "technical background" of burning money

smart cars are an “and” relationship, not an “or” relationship.

in li bin's view, ai is becoming a new commanding height in the competition of the smart electric vehicle industry, and ai will also become the core basic capability of smart electric vehicle companies. a successful smart electric vehicle company must also be a successful ai company.

"it's easy to upgrade a screen or a refrigerator, but that's not what nio wants. from the beginning, nio has insisted on a long-term route and has been investing in basic technologies."

in the second half of the intelligent era outlined by software, algorithms and chips, the prelude to competition has already begun.

li bin believes that the ultimate competition of smart cars is the underlying capabilities. this is why nio has always adhered to long-termism in the field of technological innovation.

electrification is the foundation of new energy vehicle technology, but intelligence is definitely not just about writing code. the various systems of smart cars are purchased and assembled from different suppliers, resulting in the inability to link and integrate the systems. not only can it not meet diverse needs, but it can easily create a sense of fragmentation in the experience.

intelligence requires comprehensive consideration from the perspective of the entire vehicle. a basic understanding of smart cars is the ticket to the second half, and technological investment is the singularity that unlocks the company's infinite imagination.

"chip + operating system" is the foundation that supports the key technologies of smart cars. shenji nx9031 and skyos are the core embodiment of nio's long-term technological innovation.

over the years, tesla has spared no effort in pouring r&d resources into core technologies such as operating systems, algorithms, and chips. musk's obsession with these underlying technologies is essentially a control over the "product definition rights" of smart cars.

in the traditional automobile industry chain, the core links are engines, transmissions, chassis and other components. in the era of electrification, the focus has gradually shifted to batteries, motors, and electronic controls. in the era of intelligence, ai will become the core.

in the era of fuel vehicles, the life cycle of a car is as long as 10 years. hardware and mechanical parts are rarely replaced once they leave the factory, and the work input of the oem will also be solidified.

tesla has ushered in the software-defined era, bringing about tremendous changes in the business model of the automotive industry. the "production" of cars continues even after they are delivered to consumers, with continuous ota upgrades and intelligent driving algorithm iterations. software development will run through the entire life cycle of the car.

the rise of ai has brought about a shift in the right to speak in the automotive industry chain. software-defined cars are based on the innovation of electronic and electrical architecture and the decoupling of software and hardware. the upgrade of various functions all point to chips and operating systems.

in other words, if car companies do not have the ability to independently develop software and hardware, the "product definition rights" will be controlled by chip suppliers.

of course, self-developed chips will also bring product cost and performance advantages.

in the context of piling up chips and computing power in china, one point has been overlooked, that is, the performance of chips.

the actual utilization efficiency of general-purpose chips such as nvidia orin is only about 30%. domestic car companies always have a sense of powerlessness that "the meat they bought cannot grow on their bodies."

tesla's dedicated self-developed chips are highly compatible with powerful algorithms.the chip performance is maximized through the combination of software and hardware.

"we can use our own chips with low computing power of 100tps and matching hardware to complete tasks that other companies cannot accomplish with chips with 1000tps."

when tesla released the first generation of fsd chips, it said it had a more advanced neural network algorithm, but the chip computing power was not enough. the hw3.0 chip launched at that time had a computing power of only 144tops, but now tesla fsd v12 can run smoothly on it.

after in-depth cooperation with mobileye and nvidia on two generations of chips, tesla released its first generation of chips in 2019. with sales of approximately 400,000 vehicles in 2019, based on self-developed software and hardware, the marginal cost continued to decrease with the increase in installed capacity, and it has the advantage of scale dilution.

at this year's innovation and technology day, li bin announced that the world's first 5nm process smart driving chip, the shenji nx9031, had been successfully taped out. this chip has more than 50 billion transistors and can achieve the performance of four current flagship smart driving chips in the industry.

nio's self-developed intelligent driving chip is designed to match the development of nio's own intelligent driving algorithm and system, just like tesla's self-developed intelligent driving chip for fsd, because the industry's general computing platform may not be able to meet all the needs of car companies. self-developed chips are also an economic account, and their r&d and manufacturing costs will decrease as the number of vehicles in use increases.

smart electric vehicles need not only chips, but also a "soul".

"the operating system is a more pressing supply chain issue than chips," miao wei, member of the standing committee of the 14th national committee of the chinese people's political consultative conference and deputy director of the economic committee, once called at the conference.

some time ago, the united states restricted huawei from using the app framework on android. huawei had to transfer its previous industrial operating system to the full ecosystem in advance to overcome the difficulties.

the mobile phone operating system is a lesson for the future automotive field. if there is no operating system, no matter how powerful the chips are or how well the car is made, without a foundation it will be a dangerous building.

chinese cars have advantages in production and intelligence, but as the global automotive industry moves closer to qualcomm cockpit chips and automotive android systems, china's advantages will gradually be diluted.

under the law of the jungle, the mobile phone market has proven that the winner takes all in terms of operating system. will smart cars follow the same path as smartphones?

while many car companies are obsessed with single-point intelligence, nio is looking at the "long" and "heavy" aspects, focusing on an operating system that outsiders seem unwilling to spend a lot of money on.

"having both a core and a soul is the only way for china to transform itself from a major automobile country to a powerful automobile country," li bin added. "this is absolutely not a cliché. it comes from the heart."

2019 was the darkest moment for nio. nio, which was already in the icu, needed to survive and also needed to decide whether to develop an operating system. this was not a good time to decide on major technological investments.

nio has a code of conduct called vau, which stands for vision, action, and upgrade. it is a long-term first principle that requires continuous correction rather than overnight action.

the purpose behind this principle is to demonstrate the value of nio’s r&d:it is not about how many low-priced models can be delivered, but whether it has the ability to win the next stage of competition.

therefore, during the low period of nio, li bin withstood the pressure and decided to develop skyos, even if they had to maintain a minimum investment.

as an automotive intelligence foundation built for ai, skyos is a full-domain operating system for the entire vehicle that took nio four years to develop. it has seven major features: high bandwidth, low latency, high computing power and heterogeneous hardware, cross-domain integration, flexible and continuous evolution, high reliability, and information security.

traditional automobile companies still think in terms of components, while smart electric vehicle companies use a layered and decoupled mindset. nio’s skyos can connect smart hardware, computing platforms, communications and energy systems at the bottom layer to achieve unified management and coordination of all-domain applications, including vehicle connectivity, vehicle control, smart driving, digital cockpits, and mobile applications.

li bin used the example of building a building, "your foundation should be laid according to the number of floors. we want to lay the foundation for a 100-story building. as long as we get out of the ground, each floor can be built very quickly."

only when both "core" and "soul" are combined can smart electric vehicles achieve a close integration of hardware and software, computing power and algorithms, and create a more extreme product experience for users.

skyos can become the foundation of all brands of all models. similarly, 60%-70% of its basic r&d costs will also be shared among all models.

nio believes that advanced technology and cost reduction and efficiency improvement are not binary opposites, but a binary unity.li tianshu, head of product experience at nio, said, "if you look back and do the math, you'll find that if nio and another company develop the same nine models, nio's overall marginal investment will be lower."

02

as battery swapping moves towards openness, infrastructure madness continues to increase

the operating system and chips are strategic high-profile moves, while the battery swap infrastructure is the tactical foundation.

twenty years ago, the whole country worked together to promote the construction of "village-to-village connectivity" in china, including roads, electricity, daily and drinking water, telephone networks, cable tv networks, the internet, etc. this not only promoted infrastructure construction in rural areas and improved rural living standards, but also boosted the local economy.

in the era of new energy, the biggest obstacle to the popularization of electric vehicles lies in infrastructure, among which charging and swapping facilities are one of the most core links.

the future of new energy, or the battery swapping that nio wants to do, is not just the battery swapping itself.

when everyone is busy pursuing engines that represent safety and comfort, as well as high computing power and high intelligence, they often overlook "electricity" and "energy".

for traditional cars, the core is to build a good engine. the energy source behind fuel vehicles is the petroleum and petrochemical system. in the era of electric vehicles, the user's operating experience is simpler, but the car system is actually more complicated.

the potential for battery swap stations may be greater than we think.

the era of electric vehicles should be about "integration of transportation and energy, and interaction between vehicles and the grid", that is, the power grid is everywhere, and transportation and energy are integrated.

the national photovoltaic power grid, power generation and power consumption are balanced. it is not economical to build a separate energy regulation system. in order to keep the power grid balanced and most efficient, the car needs to be combined with the power grid.

after the deep integration of the transportation system and the energy system, batteries can not only be used on the vehicle side, but also as energy storage equipment to smooth out peak loads and fill valleys, assist the power grid in peak and frequency regulation, save electricity costs, and help the power grid absorb more clean energy such as wind power and photovoltaics.

in recent years, policies have also been supportive of the "battery swap model".

in 2020, the battery swap model was written into the government work report for the first time. the general office of the state council issued the "new energy vehicle industry development plan (2021-2035)", vigorously promoted the construction of charging and swapping networks, and encouraged the application of battery swap models. in november 2021, the "safety requirements for battery swapping of electric vehicles" was officially implemented, becoming the first basic universal national industry standard for my country's battery swap industry.

in 2021, the ministry of finance and four other ministries jointly issued the "notice on improving the financial subsidy policy for the promotion and application of new energy vehicles", which clearly proposed to encourage the development of a new "vehicle-battery separation" business model.

in december 2023, the ministry of industry and information technology's work conference emphasized that it would support the development of the battery swap model for new energy vehicles in 2024. xin guobin, vice minister of the ministry of industry and information technology, once spent a lot of time at a state council press conference to summarize the seven advantages of the battery swap model.

this year, the ministry of finance and other departments issued the "notice on carrying out pilot work to fill shortcomings in county charging and swapping facilities", proposing to strive to achieve "full coverage of charging and swapping infrastructure in every township."

the battery swap model is no longer just an "initiative" of a certain company or market, but has risen to the strategic level of the country's development of new energy vehicles.

of course, the battery swap market is also large enough. orient securities research predicts that by 2025, the proportion of domestic battery swap models is expected to reach 30%. kaiyuan securities predicts that by 2025, the market size of my country's battery swap industry chain is expected to reach 133.4 billion yuan.

however, it is not easy to do battery replacement well.

israeli company better place and tesla have both tried battery swapping. however, the former went bankrupt in 2013, while the latter chose to completely abandon this route and focus on supercharging. the failures of better place and tesla were due to funding, technology (efficiency), and business models.

but if there is such a company that is willing and able to spend money and has innovative technology, battery swapping may not be impossible.

nio should be considered the most successful company in exploring the battery swap business model. it has largely avoided the pitfalls that previous companies have encountered.

for example, the time of entry is very important. in may 2018, nio's first battery swap station was completed and put into operation. today, nio's battery swap stations have been upgraded to the fourth generation.

neither early nor late, the timing is just right. it has been 8 years since “new energy vehicles were identified as one of the seven strategic emerging industries by the state council in 2010”. new energy vehicles have gone through the initial stage and entered the period of rapid growth.

funds are important, and so are costs. battery swap stations are a huge money-eating beast, with large investment scales and long investment cycles. the construction cost of nio's first-generation battery swap station is about 3 million yuan, the second-generation station costs about 2 million yuan, and the third-generation station costs about 1.5 million yuan. the cost of battery swapping is gradually decreasing.

technology is also important. compared with the first three generations of battery swap stations, the fourth generation of nio’s battery swap stations have significantly improved their efficiency and service capabilities.

at the launch ceremony on june 13 this year, ledao l60 and nio et7 completed a series of actions including reversing into the garage, battery replacement, and vehicle self-inspection in about two and a half minutes, saving 1 minute compared to the third-generation station.

from the first generation's 8-minute battery replacement to today's more than 2 minutes, every minute is behind a huge technological innovation.

in combination with battery swapping, nio has launched the "baas (battery as a service)" model, which allows users to avoid the high replacement costs and car price depreciation caused by battery degradation after the power battery expires. through nio's battery swapping, users are equivalent to obtaining a lifetime battery warranty, and each battery swap will enjoy a battery health check.

as of september 5, nio has built 2,561 battery swap stations around the world, providing users with more than 52 million battery swap services. in addition, nio has built more than 23,000 supercharging piles and destination charging piles, and connected to more than 1.6 million third-party brand charging piles. nio is the car brand with the largest number of charging piles and battery swap stations in the country. there are nio charging piles from fuyuan in the east, kashgar in the west, mohe in the north, and sansha in the south, and nearly 80% of the charging power serves non-nio users.

the battery swap station is worthy of its reputation as an “infrastructure maniac”.

nio still feels that is not enough, it wants to "let electric cars go wherever gasoline cars can go."

to this end, nio announced the "county-to-county" plan in august this year. nio plans to achieve nationwide charging access in all counties by june 30, 2025. nio will increase the layout of nio's charging/battery swapping network, so that more than 2,800 counties across the country will have nio charging piles.

"county-to-county connection" is the new infrastructure for new energy vehicles. this plan is too grand and huge to be completed by nio alone. cooperation is always the best option.

"in addition to competing on price, we need to compete on value. we need to build a charging and swapping service system and connect all counties. i hope everyone will compete on this."

shen fei, senior vice president of nio, said that nio energy has proved through its own practice that the business model of vehicle-battery separation, rechargeability, replaceability and upgradeability is valid and can be closed-loop.now, nio is also ready to share this business model with the entire chinese automotive industry.

in fact, battery swapping is not a lonely battle for nio.

in recent years, more and more oems have been negotiating with nio on battery swapping. in just over half a year, nio has reached strategic cooperation on battery swapping with seven oems, including changan automobile, geely holding, chery automobile, jac group, gac group, faw group, and lotus.

the battery swap alliance is a win-win cooperation.

it took nio 8 years to build the largest battery swap network in china. nio's integrated charging and swapping system has good stability and high equipment utilization. moreover, as an asset-heavy, high-investment industry, cooperative enterprises can save costs, enter the market quickly, and develop new models through cooperative research and development to drive sales.

"cooperating with nio, especially using the same battery pack, as long as the manufacturer launches a battery swap version of the car, there will be a battery swap network covering the whole country. this is the option with the least risk, the least investment and the greatest return for the company." shen fei said。

in just one year, nio's battery swapping circle of friends has continued to expand, and a battery swapping alliance has gradually formed. the alliance will work together to promote the construction of a standardized and large-scale energy infrastructure network.

government funds are also joining the trend.

on may 31 this year, wuhan state-owned assets invested 1.5 billion yuan in nio energy.

weilai and wuhan have a long history of cooperation. weilai energy was established in 2017. in the first phase, they had successful business cooperation. this time, wuhan has increased its investment in weilai. weilai energy will cover the whole country and even the world from wuhan.

wuhan's rare large-scale move this time has a clear goal, which is to strengthen industries in the fields of charging and battery swapping, energy internet, etc., and cultivate more upstream and downstream enterprises in the industrial chain. it also reflects the commercial value of nio's battery swapping business.

with the participation of government capital and partners, nio's battery swap model has gradually changed from heavy to light. nio has added an operating identity, and dozens of battery swap stations in the nio network are built and owned by partners.

as the battery swap track heats up significantly, industry giants have also increased their investments in battery swap strategies.

at the world power battery conference on september 1, catl revealed that it will build 10,000 battery swap stations in the future. by 2025, catl's battery swap station construction goal is to cover more than 30 cities with more than 500 stations; by 2026, it will cover more than 70 cities with more than 1,500 battery swap stations.

weilai told leifeng.com that battery swap stations will be like gas stations in the future. a complete battery swap network will be formed across the country, which can be operated by the state, enterprises or third parties. batteries also have a set of standard systems, with several different types of batteries to choose from for different models or mileage requirements. car companies can develop models under such a system without unnecessary consumption of batteries.

if the standards are unified, the biggest obstacle to the large-scale promotion of battery swapping will likely be removed. will battery swapping be able to advance as rapidly as the charging industry did in the past? this is worth looking forward to.

03

"take off from where you are": waiting for a second growth pole

at the earnings call on the evening of september 5, li bin announced that the l60, the first model of the ledao brand targeting the mainstream family market, will be officially launched on september 19 and will start delivery at the end of september. it is reported that the orders for the l60 are currently good.

the nio brand is responsible for the high-end market and pursues high gross profit margins; the ledao brand focuses on the mainstream family car market and pursues greater sales.

therefore, nio’s main brand adopts a first-mover strategy, investing heavily in advance to become a leader, while ledao adopts a late-mover strategy, being “born mature” without consuming a lot of resources.

in the past two years, nio has invested 24.2 billion yuan in research and development. this has also caused nio to be controversial, but now it seems that nio's investment and persistence have gradually entered the harvest period.

li bin told leifeng.com at a communication meeting at the beijing auto show, "nio spends all its money on r&d and infrastructure. we believe that as competition intensifies, more and more people will be able to recognize the potential of nio's investment in technology, infrastructure, and service systems."

in weilai’s view, ledao is born mature.

"which new energy brand has 1,000 battery swap stations when it releases its first car? nio only had 200 stations two years after delivering its first car, so ledao's maturity at the start is beyond imagination, especially in terms of the end-to-end experience of the entire chain," said lihong qin, co-founder and president of nio.

nio's technology, products and continuous infrastructure construction have gradually entered the stage of accumulation from quantitative change to qualitative change. nio has taken advantage of its domestic supply chain and achieved cost reduction and efficiency improvement through optimization brought by r&d investment. nio will also improve its operating efficiency and increase its production capacity.

li bin said bluntly, "what ledao does is called taking off from the spot."

focusing on the mainstream market of 200,000 yuan, will ledao become the second growth pole of nio? we wait and see the answer.

//

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