How NIO Makes Money: Electric Vehicle Sales Generate Most Revenue

NIO Inc. (NIO), whose name in Chinese translates to “Blue Sky Coming,” is a premium smart electric vehicle (EV) producer based in China. The company designs and manufactures premium EVs with a focus on battery technology, connectivity, and autonomous driving. It also offers EV charging solutions and other services, including insurance, maintenance, roadside assistance, and an enhanced data package.

EV makers’ use of the terms “smart” and “connected” is based on “Internet of Things” (IoT) concepts. They are generally used to refer to technology that provides users with applications that automate certain tasks and rely on connectivity to other devices or a network.

NIO vies for sales in the highly competitive Chinese automotive market, which includes companies like SAIC Motor Corp. (600104) and Dongfeng Motor Corp. (DNFGF). Some traditional Chinese automakers, like BYD Co. (1211) and Geely Automobile Holdings Ltd. (GELYF), have also entered the EV market. NIO also competes with new startups, such as Li Auto Inc. (LI) and XPeng Inc. (XPEV), as well as international rivals like Tesla Inc. (TSLA). The company expects competition in EVs to increase as additional players enter the market.

Key Takeaways

  • NIO makes premium smart electric vehicles and provides charging solutions and other services.
  • Vehicle sales generate the majority of the company’s revenue.
  • NIO has had to halt its vehicle production and deliveries as many of its suppliers were forced to shutdown manufacturing due to an outbreak of the coronavirus.
  • NIO made its first deliveries of the ET7, a premium electric sedan, in March.

NIO’s Financials

NIO issues shares that are publicly traded on U.S. stock markets and thus the company is required to report its financial results to the U.S. Securities and Exchange Commission (SEC). The company files its financial results in accordance with U.S. generally accepted accounting principles (GAAP).

NIO primarily uses the Renminbi (RMB) as its reporting currency, but has provided U.S. dollar conversions based on the exchange rate of RMB6.3726 to $1.00 that was in effect on Dec. 31, 2021, for its most recent quarterly data. All figures below are converted from RMB to dollars using this exchange rate.

NIO announced in late March results for Q4 of its 2021 fiscal year (FY), the three-month period ended Dec. 31, 2021. The company’s net loss widened to $336.4 million, more than one and a half times its net loss in the year-ago quarter. Quarterly revenue grew 49.1% year over year (YOY) to $1.6 billion. Gross profit rose 48.8% YOY to $266.7 million.

NIO delivered 25,034 vehicles in Q4 FY 2021, up 44.3% from the year-ago quarter. NIO attributed the increase in vehicle sales compared to the year-ago quarter to higher deliveries.

The company also increased its vehicle margin (calculated by dividing the difference between vehicle sales and cost of vehicle sales by vehicle sales) to 20.9% in the fourth quarter from 17.2% in Q4 FY 2020, mainly due to an increase in higher average selling prices.

NIO’s Business Segments

NIO operates as one reportable segment. However, it provides a breakdown of financial results on the basis of two main sales categories: Vehicle sales and Other sales. The company provides breakdowns for revenue for both of these categories. NIO doesn’t break out gross profit figures for these categories, but Investopedia calculated gross profits by subtracting the costs of sales for both Vehicle sales and Other sales. Hence, we outline both revenue and gross profits below.

Vehicle Sales

NIO primarily generates revenue through the sale of electric vehicles, including its ES8, ES6, and EC6 models. The flagship ES8 is a smart electric SUV with a range of up to 580 kilometers. The ES6 is a smart electric SUV with an extra-long range of 610 kilometers. The EC6 SUV provides an extra-long range of 615 kilometers. NIO delivered 5,683 ES8 models, 12,180 ES6 models, and 7,171 EC6 models in Q4 FY 2021.

Vehicle sales rose 49.3% YOY to $1.4 billion in Q4 FY 2021, comprising about 93% of total revenue. NIO’s quarterly gross profit on vehicles sales was $301.9 million, up 80.7% compared to the same three-month period a year ago. Gross profit comprised 100% of the company’s total gross profit as its other sales category reported a gross loss for the quarter.

Other Sales

NIO also generates revenue through other sources besides vehicles, such as various embedded products and services offered with sales of the vehicles. Embedded products and services include charging piles (i.e. stations), vehicle internet connection service, and extended lifetime warranties.

Other sales also include revenue generated from sales of NIO’s energy and services packages. The energy package provides customers with a comprehensive range of charging solutions, including charging and battery swapping. The service package provides repair service, routine maintenance service, an enhanced data package, and more.

Other sales rose 46.7% YOY to $107.5 million in Q4 FY 2021, comprising about 7% of total revenue. NIO recorded a quarterly gross loss on other sales of $35.2 million, a significant deterioration from the gross profit reported in the year-ago quarter.

NIO’s Recent Developments

On April 9, 2022, NIO said that it has halted vehicle production and delayed deliveries as a result of an outbreak of the coronavirus in China forcing many of the company’s suppliers to suspend manufacturing. A number of NIO’s suppliers went into lockdown due to the Omicron variant of the coronavirus.

On April 1, 2022, NIO provided a delivery update for the month of March 2022 and for Q1 FY 2022. The company delivered 9,985 vehicles during the month. 163 of those deliveries were for the ET7, the company’s flagship premium electric sedan, which it began deliveries of on March 28, 2022. NIO also said that it delivered a record 25,768 vehicles in the first quarter. That represents a YOY increase of 28.5%.

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