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    NIO (NIO)

    NIO Q3 2024: Targets 15% Vehicle Margin in Q4, Plans 20% in 2025

    Reported on Nov 20, 2024 (Before Market Open)
    Pre-Earnings Price$4.63Last close (Nov 19, 2024)
    Post-Earnings Price$4.41Open (Nov 20, 2024)
    Price Change
    $-0.22(-4.75%)

    What went well

    • Improving Profitability: NIO targets a 15% vehicle margin in Q4 and aims to achieve a 20% margin in 2025, reflecting a strong focus on cost optimization and premium brand positioning.
    • Robust Production & Demand: The planned ramp-up to 10,000 units per month in December and 20,000 units in March underscores strong demand and effective order conversion, supporting scalable delivery growth.
    • Diversified Brand & Global Expansion: The multi-brand strategy—with NIO, ONVO, and Firefly addressing different segments and global markets—diversifies revenue streams and reduces dependence on a single product line.

    What went wrong

    • Slow production ramp-up: Technical challenges and insufficient launch stock for the L60—characterized by its advanced 900-volt architecture and complex powertrain integration—could delay volume increases and push some backlog into later quarters, potentially eroding demand especially as subsidies phase out.
    • Margin pressure and reliance on promotional adjustments: While management targets a vehicle margin of 15% in Q4 and eventually 20% in 2025, the current heavy reliance on cutting promotional incentives—affecting sales volume—creates uncertainty as improvements hinge on supply‑chain efficiency and cost optimizations.
    • Rising operating expenses and investee losses: The aggressive expansion in SG&A spending to support new store openings and network buildup, along with increasing losses from equity investments in upstream/downstream companies, may further widen losses and delay the breakeven timeline beyond 2026.

    Q&A Summary

    1. Margin Outlook
      Q: Profit vs volume trade-off?
      A: Management emphasized focusing on premium brand positioning, targeting 15% vehicle margin in Q4 and moving toward 20% in 2025 while accepting a temporary sales volume dip due to reduced promotions.

    2. Expense Guidance
      Q: CapEx and OpEx guidance for 2025?
      A: They plan to keep CapEx at roughly last year’s level (about RMB 8 billion) while investing in store expansion and then optimizing SG&A expenses as sales volume improves.

    3. Break-even Timeline
      Q: Break-even timeline and capital needs?
      A: The company expects to narrow losses progressively, with plans for full-year break-even by 2026 supported by positive cash flow continuation from Q4 into 2025.

    4. Production & Demand
      Q: L60 ramp-up and demand visibility?
      A: Confidence is high in the L60’s order pipeline, with production ramp targets of 10,000 units/month in December and 20,000 by March next year, underpinned by long wait times and strong conversion rates.

    5. European Pricing
      Q: Tariff impact on EU pricing strategy?
      A: Despite significant tariff-induced price increases, management maintains a unified pricing strategy, with steady performance noted in markets such as Norway.

    6. Smart Driving
      Q: Key milestones for autonomous driving?
      A: They plan iterative releases based on the new NIO World Model, aiming to greatly improve safety and overall driving experience through enhanced smart driving features.

    7. Product Refresh
      Q: Plans for new product generation?
      A: The roadmap includes launching the ET9 from a next-generation platform, alongside facelifts and new ONVO SUVs that will reinforce their lineup and competitive edge.

    8. R&D Costs
      Q: Forecast R&D and SG&A expense seasonality?
      A: R&D investment is expected to remain around RMB 3 billion per quarter, with some seasonal increases, while SG&A expenses will initially rise for store initiatives before efficiency gains are realized.

    9. Investee Losses
      Q: How to view investee losses?
      A: Increased losses among investees reflect strategic investments in key industry areas; however, improved performance from the Battery as a Service unit offers promising outlook to mitigate these risks.

    10. Brand Strategy
      Q: Risk from brand cannibalization?
      A: Management noted a minimal internal overlap of approximately 2% between NIO and ONVO, suggesting that any cannibalization risk is negligible.

    11. Other Sales Margin
      Q: Trend for other sales margin?
      A: Although recent network deployments have pressured margins, ongoing operational improvements are expected to gradually narrow these losses from other sales.

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