Can NIO phones work?

NIO Auto, which did not deliver outstanding results in the first half of the year, experienced price cuts in June and completed delivery of 20,500 vehicles in July, a record high. However, the annual sales target of 245,000 units proposed last year means that in the next five months, the average monthly sales volume will need to reach more than 30,000 units. Under such heavy sales pressure, NIO's actions seem a bit “not doing business properly” in the eyes of most people.

Indeed, there are mountains separated by mountains, and tech giants have crossed borders into each other's mature fields, and few have succeeded. If a miracle is to be created, entrants need to have special strategic resources and entry timing, and have a glimmer of life under the various factors of time, location, and favorable people. The core competitiveness of NIO Auto is the ultimate user service experience, which brings strong brand stickiness. However, after experiencing this year's price reduction storm and the total reduction in the budget for the full service system, many old fans expressed dissatisfaction with customs clearance. It is not yet known how persistent new users are. This is also the reason why it is currently facing a lot of decline.

However, TOPjun believes that NIO's mobile phones may not be successful; there is only one prerequisite for this success: Li Bin first created a time machine and traveled back to 2021. With the brand's potential and fan stickiness, NIO phones may have a higher probability of success.

01 The right strategy: capital, revenue and car keys
From a certain point of view, NIO Auto's strategy to play mobile phones across borders is correct. There are at least three advantages:

Preferential capital
With the continuous advancement of NIO's mobile phone strategy and the automotive business facing multiple pressures, NIO has still ushered in a new round of strategic investment.

On June 20, NIO signed a share subscription agreement with the Abu Dhabi investment agency CYVN Holdings. CYVN Holdings will make strategic investments totaling approximately US$1.1 billion (approximately RMB 7.899 billion) through targeted issuance of additional new shares and transfers of old shares.

Although this financing is the result of NIO targeting the transformation needs of the Middle East economy, judging from the timeline, its mobile phone strategy played a role in the financing story, and at the same time, I believe this story will continue to empower NIO at the capital level in the future.

Historically, in 2020, the local government lacked the demand of the NEV industry and joined forces with Anhui to obtain a strategic investment of 7 billion yuan. After the epidemic, they grasped the demand for private cars and the license advantages of new energy vehicles and raised more than 5 billion US dollars. NIO's capital story has always been told very smoothly.

Benefit in revenue
According to information, NIO currently has over 330,000 users. According to Li Bin, if it can be purchased by half of NIO's car owners, based on NIO's mobile phone's valuation of 5,000 to 7,000 yuan, it can also bring in 800 to 1.1 billion yuan in sales.

Currently, NIO's cash flow is not good enough. By the end of the first quarter, NIO's cash and cash equivalents, limited capital, short-term investments, and long-term term deposits were only 37.8 billion yuan, far less than at the end of last year. At the end of the same period, NIO Auto had short-term loans of 5.294 billion yuan, and the spot portion of long-term loans was 2,408 billion yuan. The total interest-bearing debt due within one year was about 7.7 billion yuan, but trade payments and bills payable were 18.87 billion yuan.

In addition, NIO also plans to build 1,000 new power exchange stations throughout 2023, with a related investment of about 2 billion yuan. This alone exceeds the additional cost of energy supplementation for the whole of last year. Higher investment requirements and limited cost savings measures may put pressure on NIO's ability to generate cash flow. Although the profits brought by the mobile phone business seem overwhelming, if it can be operated well, it will become another new business growth point.

Good user experience
NIO is not the first car company to make mobile phones.

Since 2019, rumors have continued about Tesla making mobile phones. Not only has the name Model Pi (Pie) been decided, but there are even netizens who have made their own phone renderings; Geely announced its entry into the mobile phone industry in 2021, and completed the acquisition of Meizu in July 2022. In contrast, NIO, which announced last year that it would develop its own mobile phone, seems to be the fastest running one.

Render of the webcast

The reason car companies manufacture mobile phones across borders invariably points to the user experience.

The mobile phone is the most important device that connects the user to the car. Li Bin, CEO of NIO, said that more than 50% of NIO users use iPhones, while Apple is very closed to the automotive industry. NIO's second-generation models are all equipped with an “enhanced digital car key” based on ultra-wideband (UWB) technology, but Apple doesn't have many open interfaces. This means that NIO users of Apple phones cannot use this function in the car without a key.

Judging from the Ministry of Industry and Information Technology's certification information, NIO phones will support UWB ultra-wideband technology. This move not only holds the car keys in one's own hands, but also reinforces the ecological barrier. With mobile phones, starting from the user experience, NIO may also conduct research on other mobile wearable devices, such as bracelets, watches, headphones, glasses, etc.

02 Wrong timing: decline in brand potential and fan stickiness
Cross-border risk
The price is between 5000-7,000 yuan. Aiming at NIO's user base, NIO phones display the “high-end” flag.

It's just that today's “high-end” phones are not simply stacked; they also test the soft power of manufacturer regulation. At the same price, consumers have other established brands to choose from. Just to “better connect with cars” is not enough for users to switch to NIO on the important choice of mobile phones. At this time, the competition is more about users paying premium prices for brands. Can car owners who have just been stabbed in the back by price cuts still stand up to this kind of “cutting chives”?

At the Shanghai Auto Show in April of this year, NIO's ES6 was priced lower than the ES7, but some configurations surpassed the ES7. The car owner's claim for compensation was rejected, and the two sides were at a loss. In June, NIO also lowered the starting price of all new cars by 30,000 yuan while cutting the rights and interests of car owners. Although it achieved a delivery record of 20,000 in July, it was a kind of damage to existing user relationships.

NIO has always claimed to be “the world's first user company.” NIO House, which hosts the NIO community, quarterly user meetings, and the promise of a lifetime free electricity exchange... NIO's user operation method is more like a new consumer brand, focusing on deep connections with users and building a brand culture.

This cost-free service brought real rewards: in 2019, NIO faced a financial crisis, and car owners paid out of their own pockets to advertise NIO and even went offline to help sell cars. The financial report for that year showed that 69% of orders came from recommendations from old users.
In the two years since '19, NIO not only maintained a good trend in sales, but also achieved certain results in user operations. If you take a time machine and set the time back to 2021, with brand potential and fan stickiness, NIO phones may have a higher chance of success.

Changes in brand potential
On January 11, 2021, the market value of NIO Auto surpassed 100 billion US dollars, second only to Tesla and Toyota. Compared with the market value of 4 billion US dollars at the end of 2019, it soared 24 times.

NIO sold 91,429 units in 2021, ranking high even among second-tier luxury brands. More importantly, NIO's average transaction price has reached around 440,000 yuan, which is not much of a concession compared to BMW. It can be said that NIO has stolen all high-end BBA users.
At the time, NIO was gradually forming a “high-end user mentality”, taking advantage of the brand reshuffle brought about by new energy sources and living in a no-man's land of domestic high-end cars.

Differences in fan stickiness
As of October 2021, the number of registered users of the NIO app reached 2 million, daily activity exceeded 230,000, and users generated more than 12 million articles of content. This seemed unimaginable to car companies at the time.

Importantly, NIO gathers a group of high-net-worth people, starting from car owners' purchases, and operating a lifestyle through means such as Nio Life, so that users spontaneously fission and continue to grow new with extremely high brand loyalty.

As part of NIO's lifestyle, mobile phones can create a business model with a “software+hardware+service” system similar to Apple. User operation is NIO's strong point.

03 Conjunctions
Looking at NIO's development process, it seems that it has always been “miserable” while steadily building a sales and service system. At a critical juncture like this one, you can also get a large amount of financing. Amidst the ups and downs, for NIO, there is no more important core business than R&D, brand, and user operations. Whether NIO actually has a future will take time to prove.