Li Bin is going all out to achieve profitability in the fourth quarter.

Recently, Li Bin has been reading a lot of philosophy books. This is related to the questions he has been thinking about in the past year or two. "It's about what to persevere in, what to change, and how to face different - level problems," Li Bin, the founder, chairman, and CEO of NIO, said at a media communication meeting on the afternoon of September 3rd.

On September 2nd, NIO released its financial report for the second quarter of this year. The report shows that NIO's revenue in the second quarter reached 19.01 billion yuan, a year - on - year increase of 9% and a quarter - on - quarter increase of 57.9%. The net loss was 4.995 billion yuan, a year - on - year narrowing of 1% and a quarter - on - quarter narrowing of 26%.

At the earnings conference call on the evening of September 2nd, Li Bin emphasized that the second quarter was the bottom for NIO this year. Starting from the third quarter, NIO will see quarter - on - quarter improvements in multiple key indicators such as sales volume, revenue, gross profit, and cash flow. "We are confident that we can achieve the goal of a 20% gross profit margin this year, and turn the operating cash flow positive in the fourth quarter, thus achieving the profit target," Li Bin said.

As early as the end of 2024, Li Bin gave the performance expectation that NIO would achieve profitability in the fourth quarter of 2025. However, the continuous huge losses have made the outside world worried about NIO's profit target. At the communication meeting, Li Bin did not deny that this goal is very challenging. But NIO has reached a critical point where it has to make a profit.

Whether NIO can make a profit not only affects sales conversion but also is an important indication of the company's healthy operation.

To achieve the profit target, since this year, NIO has focused on aspects such as operational efficiency and the construction of organizational capabilities for improving execution. Moreover, it has implemented the CBU mechanism (Cell Business Unit, that is, the basic business unit) within the company, enabling each business unit to set clear business goals, cost targets, and return - on - investment targets to improve quality and efficiency. Reflected in the financial report, NIO's R & D expenses in the second quarter decreased by 6.6% year - on - year to 3.007 billion yuan, and sales, general, and administrative expenses decreased by 9.9% quarter - on - quarter. Li Bin said that next year, NIO will continue to reduce R & D investment, maintaining it at 2 - 2.5 billion yuan per quarter.

Li Bin calculated an account - NIO's goal in the fourth quarter is to deliver 150,000 vehicles, achieve a vehicle gross profit margin of 16% - 17%, and control sales management expenses and R & D expenses within a reasonable range. For this reason, by the fourth quarter of this year, the total production capacity of the three brands, NIO, LeDao, and Firefly, should reach an average of 56,000 vehicles per month to achieve the quarterly goal.

This is not the first time NIO has been at the bottom. Compared with the difficulties in 2019, Li Bin believes that this time NIO has entered a deeper and longer trough. But getting out of the trough is no longer about luck, but organizational capabilities. "The organization has better resilience and has started to acquire some skills."

It's not just the organization that has changed. Li Bin said that he also needs to grow. "In the past two years, starting from me to front - line colleagues in the whole company, we have started to complete our psychological construction, which is to work honestly."

We have sorted out some of Li Bin's remarks (with deletions) at this communication meeting:

Achieving profitability in the fourth quarter is very important for NIO

Li Bin: This year, the outside world has mainly focused on two aspects of us. First, how are the sales; second, when can we make money and whether we can make money. In fact, people don't have many concerns about NIO's products, technology, and brand itself. They are more concerned about the business situation, efficiency, and sustainability.

Judging from the just - released second - quarter financial report, NIO's business situation is improving, with a significant quarter - on - quarter improvement. After excluding some one - time adjustments due to organizational optimization, the actual improvement is even greater. For NIO, starting from the second quarter of this year, we have entered a new cycle and returned to the upward channel.

This year is a big year for NIO in terms of technology, products, and infrastructure. In August, the delivery volume exceeded 31,000 vehicles, setting a new record. As a strategic product, the L90 delivered 10,575 units in its first month, also setting a record. We expect the delivery guidance in the third quarter to be 87,000 - 91,000 vehicles, and the revenue guidance to be 21.8 - 22.8 billion yuan.

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Everyone is very concerned about whether we can make a profit in the fourth quarter. I said internally that maybe only 1% of the people believed we could achieve fourth - quarter profitability, but now more people are starting to believe it. We know clearly internally that the challenge is very big, but it is also possible.

NIO is not encountering a crisis for the first time. In fact, we went through a cycle from 2019 to 2020. We reached the bottom, were on the verge of death, then came back, entered a glorious period, and then entered a longer cycle. This year, due to some external pressures, all colleagues in the company know that we must fulfill this mission (fourth - quarter profitability).

I think whether internally or externally, starting from the L90, people think we have a chance. The new ES8 has performed better than expected, and people's confidence has become stronger. We need to win one small battle after another to boost everyone's morale.

People are very concerned about NIO's sustainability, which is also directly related to our brand image, sales, and other aspects. After the release of NIO's second - quarter financial report, people are very concerned about how much we lost. This kind of concern not only affects the conversion efficiency of users but also involves recruitment, supply - chain cooperation, and other aspects. So I think it is very important to prove that we can achieve profitability at an appropriate time.

So from the perspective of business and development stages, we know clearly internally that it's time to do this (fourth - quarter profitability).

Breaking down how to achieve the profit target

Li Bin: In terms of sales volume, our goal for the fourth quarter of this year is to deliver more than 50,000 vehicles per month on average. In addition, regarding the gross profit margin, with the increase in the delivery proportion of high - gross - profit products such as the new ES8 and LeDao L90 in the overall product portfolio, we believe that there is a chance to achieve a vehicle gross profit margin of 16% - 17% in the fourth quarter of this year and achieve break - even.

In terms of cost control, the R & D expenses were about 3 billion yuan per quarter in the past, which was a high - intensity investment. Since the first quarter of this year, we have implemented the CBU business mechanism and comprehensively calculated the ROI (return on investment), which has greatly improved efficiency. We are confident that we can control the quarterly R & D expenses at about 2 billion yuan and achieve the same output as the previous 3 - billion - yuan investment.

We think that an R & D investment of 2 - 2.5 billion yuan per quarter can not only meet the long - term competitiveness in basic core technologies but also meet our development needs for new models, including the iteration of some models. The reduced investment is mainly in terms of personnel and projects. We carried out some organizational adjustments in the first and second quarters of this year, prioritized projects, and abandoned unprofitable ones. But I don't think this will affect our competitiveness. One advantage of having less money is that you will focus on what is essential.

The sales and management expenses are also being continuously optimized, and we are confident that they can be controlled within 10% of sales revenue in the fourth quarter. Overall, there is a chance to achieve NON - GAAP profitability in the fourth quarter.

Source: Respondent

The main task in the fourth quarter of this year is to achieve the delivery target of 150,000 vehicles. Currently, the pre - orders for the L90 and the new ES8 are good. There are also the L60 and Firefly, with a total of four models waiting to be produced, indicating strong demand. In terms of production capacity, the production capacity of the L90 can reach 15,000 vehicles in October, and the production capacity of the ES8 can be increased to 15,000 vehicles in December. Overall, the total production capacity of LeDao is 25,000 vehicles, NIO is 25,000 vehicles, and Firefly is 6,000 vehicles, with a total production capacity of 56,000 vehicles, which lays the foundation for monthly deliveries of 50,000 vehicles.

Regarding organizational change and internal adjustment

Li Bin: Every car - company CEO dreams of continuously producing blockbuster products. Sometimes a product can be a hit, sometimes not. Sometimes it may not be so good at the beginning, but as the organizational capabilities improve, it will return to an appropriate level. In terms of the organizational change in marketing, we have made very significant moves this year. We haven't talked much about it externally, but it has been a complete transformation. For example, compared with April, the number of LeDao employees decreased by 40% in May, while the sales volume of the L60 increased by 40%.

This reflects many adjustments. On the one hand, it is to raise the upper limit of the product; on the other hand, the overall marketing organizational capabilities and system capabilities also need to keep up so that we can be sustainable, or each product can give full play to its potential. Perseverance is the current mindset of the whole company, working steadily and putting in hard work.

In terms of production capacity, the main change is to adapt to the changes in intelligent electric vehicles. Now, the effect of a new car is that the demand is very strong at the beginning, then it will decline for a while, and then it will rise again and enter a stable state. This curve is becoming more and more similar to that of consumer electronics. How can the supply chain match it? We need to stock up at the beginning and then make rapid deliveries. For example, after the launch of the ES8 and L90, we held meetings with suppliers in the middle of the night. Immediately after the launch, based on the pre - order situation, we checked which items needed to increase procurement and which needed to be stocked in advance. I also had intensive one - on - one exchanges with many supply - chain bosses recently to ask for their support.

However, stocking up in advance also has a cost, such as the occupation of funds. Whether to stock 3,000 or 5,000 vehicles, it will occupy 1 - 2 billion yuan. If each vehicle costs 300,000 yuan, it will also occupy more than one billion yuan. So there is a problem of fund occupation.

What is the compulsory course for entrepreneurs?

Li Bin: All CEOs hope that everyone will execute as soon as they give an order, but it's not easy to change an organization once it has formed a habit. It's not easy for the whole organization to form a consensus, turn it into a new process and mechanism, and even adjust the culture.