Li Bin of NIO: Profitability isn't just for show; it validates our path.

On September 2nd, NIO released its second - quarter financial report:

The delivery volume increased by 71.2% quarter - on - quarter to 72,000 vehicles, the revenue increased by 57.9% quarter - on - quarter to 19.01 billion yuan, and the net loss narrowed by 26% quarter - on - quarter to 4.9948 billion yuan.

Judging from the sales structure, NIO's 72,000 vehicle deliveries in the second quarter mainly came from the main NIO brand.

In the second quarter, the NIO brand delivered 47,100 new vehicles, the LeDao brand delivered 17,100 vehicles, and the Firefly started deliveries on April 29th, delivering a total of 7,612 new vehicles in the second quarter.

However, as the LeDao L90 started deliveries in the second half of the year, the LeDao brand has become NIO's second growth curve.

In August, the LeDao L90 started deliveries, driving the overall delivery volume of the LeDao brand to increase by 174.8% quarter - on - quarter to 16,400 vehicles; driving the overall delivery volume of NIO to increase by nearly 50% quarter - on - quarter to 31,300 vehicles. During the same period, the delivery volume of the NIO brand exceeded 10,000 vehicles.

36Kr Auto learned that in October, CATL batteries will also be installed in the LeDao L90, which is expected to boost the delivery volume of the LeDao L90.

Li Bin, the CEO of NIO, said at the second - quarter earnings conference call that NIO plans to increase the production capacity of the LeDao L90 to an average of 15,000 vehicles per month in October. By the fourth quarter, the overall production capacity of the LeDao brand will be increased to an average of 25,000 vehicles per month; the new ES8 will reach a production capacity of 15,000 vehicles per month in December.

In Li Bin's view, the success of the LeDao L90 is largely due to the improvement of systematic capabilities and the willingness to listen to advice in product definition.

In the case of the LeDao L90, Li Bin began to compromise on the second - row screen and the refrigerator, resulting in the second - row sky screen and the large freezer in the LeDao L90. In his words, "If you do it, do it thoroughly."

The hot sales of the LeDao L90 have made Li Bin decide to postpone the delivery of the LeDao L80, originally scheduled to start this year, to next year. In addition, Li Bin also said that next year, NIO will launch more large vehicles to improve the product layout of SUVs.

Against the background of limited resources, Li Bin chose to focus on the depth rather than the breadth of the product matrix.

NIO's trade - offs are also reflected in the average price per vehicle.

While NIO's delivery volume increased significantly quarter - on - quarter in the second quarter, the average price per vehicle decreased quarter - on - quarter.

In the second quarter, against the background that NIO's most expensive model, the NIO ET9, had started nationwide deliveries, the average price per vehicle of NIO decreased by 12,000 yuan compared with the first quarter, dropping to 224,000 yuan, which reflects NIO's consideration between maintaining brand image and increasing sales volume.

In the third quarter, all models of NIO's 5566 series are standard - equipped with 100 - kWh batteries; the pre - sale price of the new NIO ES8 is more than 110,000 yuan lower than the previous model. In addition, Li Bin revealed at the media communication meeting after the earnings release that the pricing of all future products will be reset based on the new ES8 as an anchor model.

NIO's average price per vehicle has become more down - to - earth. But as Li Bin said after the pre - sale press conference of the new ES8, "If NIO continues to maintain high prices, it will be difficult to participate in market competition." Survival is currently the top priority for this company.

NIO's strategy of trading cost - effectiveness for scale did enable NIO's delivery volume to exceed 30,000 vehicles for the first time in August.

Not long ago, the new NIO ES8 will also start deliveries. According to Qin Lihong, the co - founder of NIO, the small - order situation of the new NIO ES8 is better than that of the LeDao L90, and NIO also expects the ES8 to sell more than 10,000 vehicles per month.

The small - order data can prove that the product strength of the new vehicle has been initially recognized by users. If the systematic capabilities accumulated by NIO during this period can withstand market tests, then the new NIO ES8 and the LeDao L90 may jointly fulfill NIO's delivery expectation of more than 150,000 vehicles in the fourth quarter.

According to the profit formula for the fourth quarter designed by Li Bin earlier, if NIO can achieve an average monthly delivery of 50,000 vehicles in the fourth quarter, increase the comprehensive gross profit margin to 17% - 18%, control the sales expenses at around 10%, and control the R & D expenses at 6 - 7%, NIO can achieve profitability under the NON - GAAP standard.

In other words, NIO needs to achieve a revenue of about 30 billion yuan in the fourth quarter, and control the sales and R & D expenses at 3 billion yuan and 1.8 - 2.1 billion yuan respectively.

The earnings report shows that NIO's product gross profit margin only increased slightly by 0.1 percentage points in the second quarter compared with the first quarter. This data certainly did not satisfy Li Bin, and he believes that there is still room for improvement in NIO's product gross profit margin in the second half of this year.

Li Bin said at the earnings conference call that the four models of NIO's "5566" series were only switched in the middle and late May, accounting for only 20% of the total delivery volume in the second quarter. This is the main reason why NIO's product gross profit margin did not increase significantly in the second quarter.

When NIO achieves break - even in the fourth quarter, according to Li Bin's expectation, NIO's gross profit margin per vehicle will reach 16% - 17%. Specifically for its three major brands, the gross profit margin per vehicle of the NIO brand will be 20% - 25%, that of the LeDao brand will be 15%, and that of the Firefly brand will be 10%. Among them, the target gross profit margin per vehicle for the LeDao L90 and the new ES8 is 20%.

How to improve the product gross profit margin and then the comprehensive gross profit margin on the premise of a decreasing average price per vehicle is a great test of NIO's supply - chain management ability.

NIO has already achieved initial results in controlling R & D expenses and sales expenses.

Since the second quarter, NIO has implemented the CBU mechanism, suspended the mobile phone iteration project, iterated the NIO NT1 models as needed, and slowed down the update speed of the NT2.2 and NT2.5 models. Such cost - cutting measures are reflected in the earnings report as a decrease in R & D investment.

In the second quarter of this year, NIO's R & D investment was about 3.007 billion yuan, accounting for 15.82% of the revenue; in the first quarter of this year, NIO's R & D investment was about 3.181 billion yuan, and in the second quarter of last year, this figure was 3.219 billion yuan.

In the middle of this year, NIO integrated the teams of Firefly, LeDao, and NIO, so that many underlying capabilities can be highly reused. Therefore, Li Bin is confident that R & D expenses can be further saved on the premise of ensuring R & D output.

The sales, general, and administrative expenses in NIO's earnings report are also decreasing quarter - on - quarter.

In the second quarter, NIO's sales, general, and administrative expenses were 3.965 billion yuan, accounting for 20.87% of the revenue. In the first quarter of this year, this figure was about 4.4 billion yuan, and in the second quarter of last year, this data was about 3.757 billion yuan.

At the earnings conference call, NIO admitted that the control of these expenses was not up to expectations, but it also believes that with the increase in sales volume and sales efficiency, sales expenses can be controlled at 10 percentage points. NIO's confidence may be explained by a data revealed by Li Bin: after the launch of Firefly, the number of new car - selling team members across the country only increased by 31, but it achieved an average monthly sales volume of about 4,000 vehicles.

NIO's second - quarter earnings report and sales performance since the second half of the year have given the market hope for its profitability in the fourth quarter. So what exactly does profitability in the fourth quarter mean for NIO?

Li Bin believes that it is a test of NIO's past path. In 2019, NIO got out of the trough by luck. Now, NIO has to prove itself with its own capabilities.

The following is an edited conversation between 36Kr Auto and Li Bin, the CEO of NIO:

Question: What are the differences between the crises in the past two years and the crisis in 2019? What different feelings did NIO have in getting through these two crises?

Li Bin: This time, we need to get out of the trough by improving our capabilities. From 2019 to 2020, NIO was able to get out of the trough partly due to the support of users and partly due to the timely help from the governments of Hefei and Anhui. I think we got out of it partly by luck, and we didn't really improve our capabilities much in the process.

But this time is different. We fell into a deep and long - lasting pit. The process of getting out of the pit is a process of establishing a clearer understanding of our competitive advantages and the problems of the entire organization. It can also be said that we have started to improve our capabilities.

Question: What does it mean for a company to be able to make a profit in a certain quarter? Does the ability to make a profit in Q4 this year mean whether NIO has a future?

Li Bin: The losses in the earnings report will affect our user conversion rate, recruitment, and relationship with the supply chain. The impact is multifaceted.

So I think it is very important to prove that we can make a profit at an appropriate time. Making a profit is not just for others to see. We clearly know that at this point in time, we need to do this to prove ourselves.

Question: Some competitors have recently spent a lot of money on buying graphics cards to train large - scale models. Will buying graphics cards become a major expense for NIO in the future? Will the NIO mobile phone still be iterated annually?

Li Bin: We'll do the mobile phone business when we have more money.

Regarding the issue of buying graphics cards, NIO also bought a lot of graphics cards before. But later we realized that more graphics cards don't necessarily mean a better model. Deepseek has proven this.

One advantage of having less money is that it makes us focus on what is essential. When we have a lot of money, we just think about spending it. When we don't have much money, we start to prioritize projects, think about whether a project is worth doing and what the output will be. The same goes for graphics cards.

We are now very strict in controlling the budget for graphics cards. So we rent a lot of graphics cards. We rent them when we need them and return them when we don't.

We don't even know what the graphics cards are calculating and what's running in the large - scale models, so we need to manage them carefully. Not having a large number of graphics cards doesn't mean we can't produce good results. Everyone is calculating the cost - effectiveness.

Question: What adjustments did NIO make in product definition behind the success of the LeDao L90 and the new ES8?

Li Bin: In terms of product definition, in the past, NIO buried the value deep, and the obvious value was not enough. We made up for this lesson in the third - generation ES8.

In the past, we used to make product definitions based on our own preferences. For example, regarding the second - row sky screen, because I was always struggling with my kids at home to prevent them from watching screens, but as they grew up, the struggle was in vain. I also understood that kids want to watch screens in the second row, and you can't stop them. So I compromised and decided to install a good - quality screen.

The same goes for the refrigerator. We used to doubt whether there was such a great demand for it. Later, we found that the demand was quite large, so we installed a large freezer. If we do it, we'll do it thoroughly.

Question: What experiences in creating hit products did NIO gain from the LeDao L90 and the new NIO ES8?

Li Bin: Sometimes, the sales volume of a product may not be very good at the beginning, but as the organizational capabilities improve, it will return to the expected level. You can pay special attention to the LeDao L60.

Actually, this car is quite interesting. It has always ranked among the top three in the 200,000 - 300,000 - yuan pure - electric SUV segment this year. Although it was underestimated at the beginning of the year, its sales are getting better and better, which shows that its product competitiveness is quite good. After the overall organizational capabilities improve, the sales volume will return to the appropriate level.

I think the product strength determines the upper limit of sales volume, and the organizational capabilities, which we call 6P capabilities internally, determine the final delivery volume of a car. The so - called 6P includes pricing level, sales ability, channels, marketing ability, etc. So sometimes, if the sales volume of a car fails to meet expectations, it's not because the product is bad.

I often tell the internal team that there is no problem with the product definition of the LeDao L60, but other capabilities haven't kept up. So this year, our marketing system has undergone a major organizational transformation, which can be described as a complete overhaul. For example, in April and May, we reduced the number of employees by 40%, but the sales volume increased by 40%, which reflects many adjustments.

NIO's current attitude is to work steadily and make long - term efforts. In the past two years, from me to front - line colleagues, everyone in the company has started to mentally prepare: work hard and stop talking nonsense.

Question: How did we specifically prepare for the production capacity of the LeDao L90?

Li Bin: The most important change in production capacity is adapting to the changing delivery rhythm of intelligent electric vehicles. Now, the new - car effect is greater than before. So when a new car is just launched, the demand is very strong, then the sales volume will decline for a period of time, and then it will recover to a stable state. So the supply chain needs to match this trend.

Nowadays, cars are becoming more and more like consumer electronics. Mobile phones are pre - stocked before launch and then delivered quickly. So this time, we mainly started pre - stocking earlier and with a larger quantity than before.

But there is a cost, such as the occupation of funds. If we need to pre - stock 3,000 - 5,000 cars, it will occupy 1 - 2 billion yuan. Some aspects of production - capacity guarantee can be negotiated with the supply chain, and some parts also need to be pre - stocked in advance. This is what we have changed.

Question: Dr. Shen Fei was previously in charge of the energy business. Why did you dare to choose Dr. Shen Fei as the person - in - charge of LeDao at that time?

Li Bin: To do well in brand and product, systematic capabilities need to be established. When Shen Fei was chosen, the situation of LeDao was difficult, with a lot of negative news and low internal morale. We believed that for LeDao to get out of the dilemma, it needed to establish a system suitable for itself.

And Shen Fei is a colleague with strong ability to establish systems. I think he did a great job in our rechargeable, swappable, and upgradeable system, so we let him be the person - in - charge of LeDao.

Moreover, I think Shen Fei has an advantage in that he won't easily change the direction. For example, he will firmly implement the current marketing model, but he also has very detailed thinking in execution. This is the kind of colleague I need.

Question: What are the