Can Nio's smartphone succeed?

In the first half of the year, Nio Autos, which did not perform well in deliveries, experienced a price reduction in June, and completed a delivery of 0.0205 million vehicles in July, reaching a record high. However, the 0.245 million unit sales target set last year implies that in the next 5 months, its average monthly sales need to exceed 0.03 million units. Carrying such heavy sales pressure and continuing to burn money to produce smartphones, Nio's move seems a bit 'unfocused on the main business' to many people.

Indeed, it is generally difficult for tech giants to enter each other's mature fields, with few successful examples. To create miracles, entrants need to have special strategic resources, the right timing, and a variety of favorable factors. Nio Autos' core competitiveness lies in its ultimate user service experience and the resulting strong brand stickiness. However, after the price reduction storm this year and the overall budget compression of the full-service system, many old fans are dissatisfied and new user stickiness remains unknown, which is also why it is currently facing a lot of negative voices.

However, TOP believes that Nio Autos making smartphones may not necessarily fail, it's just that this success has a premise: Li Bin first invents a time machine and travels back to 2021 to rely on brand momentum and fan stickiness, Nio's phone may have a higher chance of success.

01 The right strategy: capital, revenue, and car keys
Nio Autos' cross-border move into the smartphone industry is, in a sense, the right move, with at least three advantages:

Bullish on capital
As Nio's mobile phone strategy continues to advance, the automotive business is facing multiple pressures, but Nio still welcomes a new round of strategic investment.

On June 20th, Nio signed a share subscription agreement with CYVN Holdings, an Abu Dhabi investment institution. CYVN Holdings will make a strategic investment of approximately $1.1 billion (approximately RMB 7.899 billion) through private placement of new shares and transfer of existing shares.

Although this financing is the result of Nio's targeting of the Middle East's economic transformation needs, from the timeline, its mobile phone strategy played a certain role in the financing story, and it is believed that this story will continue to empower Nio in terms of capital.

Looking back at history, in 2020, Nio entered into a strategic investment of RMB 7 billion by taking advantage of the lack of demand for new energy vehicles in the local government and partnering with Anhui State-owned assets; after the epidemic, seizing the demand for private cars and the license advantage of new energy vehicles, and raising over $5 billion, Nio's capital story has been very successful.

Revenue boost
It is understood that Nio has over 330,000 existing users. If, as Li Bin said, half of Nio's car owners can purchase the phone, and calculating based on the estimated price of Nio's phone of 5000-7000 yuan, it can also bring in sales of 8-1.1 billion.

Currently, Nio's cash flow is not abundant. As of the end of the first quarter, Nio's cash and cash equivalents, restricted funds, short-term investments, plus long-term time deposits amounted to only 37.8 billion yuan, far less than the end of last year. At the same period, Nio's short-term borrowings were 5.294 billion yuan, the immediate part of long-term borrowings was 2.408 billion yuan, and the total interest-bearing liabilities due within one year amounted to approximately 7.7 billion yuan. However, trade payable and notes payable were 18.87 billion yuan.

In addition, NIO also plans to build 1,000 new battery swap stations throughout 2023, with an estimated investment of about 2 billion yuan. This alone exceeds the annual cost of replenishing energy last year. The high investment demand and limited cost-saving measures may put pressure on NIO's cash flow generation capability. Although the profit brought by the mobile phone business is minimal, if the operation is well done, it will become another new business growth point.

Good news for user experience.
Car manufacturers making phones, NIO is not the first.

Since 2019, there have been continuous rumors about Tesla manufacturing phones. Not only has the name Model π (Pie) been confirmed, but netizens have even made rendered images of the phone. In 2021, Geely announced its entry into the mobile phone industry and completed the acquisition of Meizu in July 2022. Compared with this, NIO, which announced last year that it would develop its own phone, seems to be the fastest runner.

Rendered image circulating on the internet.

The reason why car companies cross over to manufacture phones all point to user experience.

The phone is the most important device connecting users with cars. NIO CEO Li Bin said that over 50% of NIO users use iPhones, and Apple is very closed to the automotive industry. NIO's second-generation models are equipped with an "enhanced version of the digital car key" based on Ultra-Wideband (UWB) technology, but Apple does not provide many open interfaces. This means that NIO users using iPhones cannot use this function in the car without the car key.

According to the certification information from the Ministry of Industry and Information Technology, NIO Phone will support UWB Ultra-Wideband technology. This move is not only about holding the car key in our own hands, but also strengthening the ecological barrier. With a phone, starting from the user experience, NIO may also conduct research on other mobile wearable devices, such as wristbands, watches, headphones, and glasses.

Wrong timing: Brand potential and fan stickiness decline.
Cross-border risk.
Priced between 5000-7000 yuan, targeting the NIO user group, NIO phone raises the "high-end" flag.

However, the current "high-end" phones are not simply about materials, but also test the manufacturers' soft power. At the same price point, consumers have other mature brands to choose from. Merely aiming to "connect with cars better" is not enough to make users switch to NIO for their important phone choice at this time. What matters more is the extent to which users are willing to pay a premium for the brand. Can car owners who have just experienced a price cut betrayal withstand being "financially exploited" like this?

During the Shanghai Auto Show in April this year, NIO priced the ES6 lower than the ES7, but some configurations exceeded the ES7. When car owners asked for compensation, they were rejected, causing grievances between the two parties. In June, NIO further reduced the starting price of all its new vehicles by 0.03 million yuan while also reducing the rights and benefits of car owners. Although they achieved a delivery record of over 20,000 in July, it is a harm to the existing user relationship.

NIO has always positioned itself as the "world's first user enterprise". NIO House, quarterly user meet-ups, and the promise of lifetime free battery swaps... NIO's user operations are more like those of a new consumer brand, focusing on deep connections with users and building brand culture.

This cost-inclusive service has indeed brought about returns: In 2019, NIO experienced a financial crisis, and car owners paid out of their own pockets to advertise for NIO, and even went offline to help sell cars. The annual financial report showed that 69% of orders came from recommendations by existing users.
In the two years after 2019, NIO has not only maintained a good development trend in sales, but also achieved certain results in user operations. If we could go back in time to 2021, NIO phones may have a higher chance of success thanks to brand potential and fan stickiness.

Brand potential changes
On January 11, 2021, Nio Inc's market cap exceeded $100 billion, second only to Tesla and Toyota. Compared to the market cap of $4 billion at the end of 2019, it surged 24 times.

In 2021, Nio's sales volume reached 91,429 vehicles, ranking high even among second-tier luxury brands. More importantly, the average transaction price of Nio reached around 0.44 million yuan, which is quite comparable to BMW. It can be said that Nio has attracted a large cohort of mid to high-end BBA users.
At that time, Nio was gradually forming a 'high-end user mindset', taking advantage of the brand reshuffle brought by new energy vehicles, and leading in the untapped area of domestic high-end cars.

Fan loyalty differences
As of October 2021, the registered users of the Nio App reached 2 million, with a daily activity of over 0.23 million. The users generated over 12 million pieces of content, which was unimaginable for car companies at that time.

Importantly, Nio has attracted a group of high-net-worth individuals, leveraging the purchase of vehicles as a starting point. By operating the lifestyle through Nio Life and other means, users spontaneously replicate at an extremely high brand loyalty, continuously attracting new users.

Mobile phones, as part of Nio's lifestyle, can create a business model similar to Apple's 'software + hardware + service' system. User operations happen to be Nio's strength.

Conclusion
Throughout NIO's development process, it always seems to be "tragic" on one hand, while steadily building its sales and service system on the other. Just like this critical moment, it was able to secure a large amount of financing. In the ups and downs, the most important core business for NIO is undoubtedly research and development, brand, and user operation. Whether NIO has a future or not, it still needs time to prove.