「DannyData 05」How long will NIO survive?（Wanna Survive）

Previously I asked you in a small survey “What would you Like to know about NIO?” and the most frequently asked question was “How long will NIO survive?”

Admittedly, it has been struggling for NIO as we can see.

For example, during NIO’s peak, it has 9,900 employees, but it has now been reduced to less than 7,500.

At the end of Q3 2019, NIO’s total asset amounted to CNY16.84 billion while its total debt was at CNY18.95 billion. NIO is already in the state of insolvency – meaning that NIO’s total assets are less than liability. Feels poorer than me lol.

What confused and surprised a lot of people is NIO’s sudden bullish stock prices at the beginning of 2020.

What confused and surprised a lot of people is NIO’s sudden bullish stock prices at the beginning of 2020. To add in another factor of consideration, NIO also has a huge number of loyal “NIO fans” despite the equally comparable amount of “NIO haters”. You can always see the keyboard warriors on both sides getting in on battle-like arguments. It is likely that the common section of this episode will also become a battlefield.

So let’s talk about this today: NIO, emerging as an electric car maker, how long can NIO survive?

I am Danny, Auto and Tech talk show. All arguments made in this video will follow my key principle,what do you think it is? Okay, there’s a sudden stillness in the air, maybe my fellow viewers are not prepared for a sudden questioning. Let me say it myself: Refute as you wish.

I turned an obsessive when it comes to sourcing for materials, all evidence presented in this video are taken from first-hand sources on NIO’s prospectus, financial reports, conference calls, NIO’s CEO Li Bin’s interviews. Moving forward you need to be ready. I might just pop in with another question for you, please don’t make it awkward again.

Coming back to our topic, how long will NIO survive?

I know a lot of you wish that I can offer a simple, straightforward answer. Like, “NIO can survive for 3 more months!”, so that you can switch off my video and go back to watching your “pretty girls hot dance” or “Hua Nong BBQ bamboo rat” videos. Yeah it’s kind of rhyme, I am getting there.

However, I can’t offer you a simple and straightforward answer, I can only share with you a responsible one. If you expect me to give you a specific number to the question “how long will NIO survive?”, then this question is as hard as your question in my Luckin’s video on “Luckin and Starbucks, which one tastes better?”

In real-world business, nothing is ever a simple numeric question, rather it is a multiple-choice question. If I refer to the model in Geoffrey Moore’s book “Crossing the Chasm” to evaluate NIO, NIO is currently crossing the chasm from early adopters to early majority.

Although I can’t give you a specific number to the question “how long will NIO survive?”(I will share the reason later) I can use the level of urgency to answer the question of “To understand how long NIO will survive, what are three factors to consider?”

Let’s start with the most urgent aspect – NIO’s cash flow

If you search > news editors wrote: “NIO lost tens of billions of RMB” followed by an arbitrary conclusion that there is no Future for NIO.

Allow me to say something off the books. Today’s media like to think that they’re smart with headlines like: “No future for NIO”, by leveraging on a pun between “NIO” and “Future” (“NIO” in Chinese sounds similar to “future”), but that’s just unprofessional and self-entertaining clickbait. Can you imagine a TV show candidates using puns to introduce themselves? If I introduce myself as “I am Danny, I like to eat at Denny’s”, you would probably slap my face. So, I would like to urge the media to please use clickbaity headlines and focus more on the insightful and professional contents. It is better to have one like than to have ten dislikes your video.

Coming back to NIO, I always digress from my topic, and I think you are already used to it. Although I have written an article before analyzing how much money NIO has lost, I won't jump to the conclusion that “NIO has no future" just because "NIO lost billions" like other news editors. For me, this is very unprofessional.

To give you an example, Amazon has been making a loss for 20 years, yet it still survives with trillions of dollars in valuation.

Those with a little financial background will know that the duration of NIO’s survive is independent of how much they lost in their P&L, but on their cash flow.

For the sake of the newbies, let’s go through the three most important financial statements for a company. I believe many of you know what they are, write them in the comments section below as I countdown in 5, 4, 321. The answer is “balance sheet”, “income statement”, and ”cash flow statement”.

The function of the three financial statements are:

1）The balance sheet is used to show your asset, debts, and situation of the owners’ equity during a specific period of time. Simply put, it evaluates how much you have.

2）An income statement tells you how profitable you are, Simply put to see if you are a prodigal.

3）Lastly, a cash flow statement reflects your risk situation. It shows the liquidity of your cash. To be honest, it doesn’t matter you how much you spend, as long as you have a sugar daddy backing you up, you can retreat and restart the game with full HP as many times as you wish.

This is why I said: It depends on how long NIO can survive, not on how much he lost in his income statement, but on NIO's cash flow statement.

As long as NIO has “sugar daddies” to support its cash flow, it does not matter how much NIO loses, it can always resurrect. Well then, who is NIO’s “sugar daddy?” There’s plenty of rumours and hearsay about NIO’s financial backing.

These investors may include the government-backed Yi Zhuang Investment Holding, the Huzhou government (Zhejiang province) and the GAC group. Money from the first two has not been received, and there’s a high chance that will not happen. And as for the GAC group, they are currently in “primary negotiations” with NIO. In the end, the most reliable source comes from NIO's first and second-largest shareholder – NIO’s CEO Li Bin and Tencent.

I have to say that friends from the IT industry are William Li 's real friends! By the way, Qiang dong Liu is also NIO's brother, and I believe true friendship is that you are not only working for him but to become one body that shares the same interest, like Liu and Li.

Since I said that NIO’s survival mostly depends on its cash flow statement, why is it that the media will only focus on how much NIO lost, but rarely talk about NIO’s cash flow?

Well, you can’t really blame the media fully. On one hand, the reporter’s capability in the area of entrepreneurship is limited, on the other hand, NIO only has itself to blame.

I really have to talk some trash about NIO’s financial report. Ever since NIO’s prospectus in September 2018, it has never released another cash flow statement.

But in the subsequent financial statements, NIO only released the cash flow statement once a year. It's deeply hidden that you can't find it on the NIO's website of investors' relationships but in the complete annual report released on the SEC official website.

For an influential electric car manufacturer that burns money at an unprecedented rate to only release an annual cash flow statement, NIO is definitely at fault. A cash flow statement is the most important financial statement to evaluate corporate risks. This infrequent release is like a nouveau riche who spends money casually, invests business for fun, claims to be short on cash but refuses to show his Alipay and credit cards bills to their dad.

Right here is a screencap of Tesla’s cash flow statement in 2011 Q3. @NIO should take note.

Tesla was also losing loads of money but they still published their statement every quarter. NIO, please learn from Tesla and make your financial information more transparent to the public.

At this point, I’m guessing that NIO fans are already accusing me of praising Tesla. Please make your judgments after reading through my status: I have no benefactor, Neither do I aim to admire nor hate any tech company. I will explain no more on this.

Not only did NIO not release its cash flow statement, but Wei Feng, NIO’s newly appointed CFO, said: "The cash flow from sales is actually very healthy." But is that really the truth?

Pay attention to the keywords, "cash flow from sales". The term "cash flow from sales "is very tricky as it refers to a small marker in the cash flow statement.

Here’s a little more background knowledge for our newbies: the three most important indicators in a cash flow statement are: "Net cash used in operating activities", "Net cash used in investing activities", and "Net cash used in financing activities".

Thus, “the cash flow from sales” that the CFO mentioned is merely a small marker within the indicator of "Net cash used in operating activities ".

That brings us to a tight spot. The cash flow statement is the most critical factor when analyzing NIO’s survival, but NIO does not publish it. What can we do about that? Well, there are two ways of approaching this.

Let’s start with the first method: I wish to call upon NIO to publish its quarterly cash flow statement in an effort to make the company's financial status more transparent. This is only for the best, but the chances are slim. Hopefully, someone in NIO can see this video, for this is the only contribution I can make.

I'm not the only one interested in NIO's cash flow statement. Many of NIO's current and potential car owners also want to see the risk status of your company. After all, you've promised many long-term services to your customers. But the premise of all these services is that NIO can survive. And on top of that, there are 7,500 employees in NIO, I hope my video will be helpful for your career development.

As for the second method, I can help with the analysis purely for your reference.

Let’s first go through how I determine the lifespan of a company. There are three steps in total.

Step 1: Analyze the number of existing liquid assets. These are assets that can relieve NIO from any urgent situations but bringing about serious repercussions. NIO's high liquidity assets include three types: cash and cash equivalents, restricted cash, and short-term investments.

Here’s a list of liquid assets ranked top-down by the degree of liquidity:

1）Cash and cash equivalent;

2）Liquid assets；

3）Current assets.

You can see that what I'm taking here for NIO is an intermediate level standard. Put simply, not only do we have to take a look at how much cash NIO has on hand, but we also have to calculate NIO's credit cards, financial products, and items that can be cashed out in a short period of time.

We can see from NIO's Q3 2019 financial report that NIO's high liquidity assets are evaluated at 1.96 billion RMB. Let’s mark this number down.

Step 2: Analyze activities that primarily affect cash flow.

In which we can define into either positive or negative cash flow. In layman terms, do we now have more money or less money?

There are three main activities for NIO to receive a positive cash flow:

1) Receive 2,000 RMB as pre-order for the new model EC6;

2) Reduce costs, such as layoffs;

3) Find new sources of funding.

On to negative cash flow, there are also three main activities:

1) Store expansion. According to NIO’s financial statement, there are currently over 70 Nio House and Nio Space, with an aim to open 200 stores by 2020.

2) Investment in research and development of new cars, such as EC6 and 2020 ES6;

3) Expansion of the charging network - as you know one of NIO’s main feature is its extensive charging network.

All of the above are activities that affect NIO's cash flow. Likewise, NIO can dynamically adjust its cash flow based on its situation. For example, if NIO finds that cash flow is tight, it may continue to fire people. Precisely because of various dependencies, real-world business is not a simple calculation question, but a multiple-choice question. This is one of the reasons why I can merely give an educated guess.

Moving on to the third step: Calculating the liquid assets runway.

Assuming that the previous activities that affect NIO's cash flow in the earlier section remain, e.g., no substantial investments or financing activities, how long do you think NIO's high liquidity assets of 1.96 billion RMB support its daily operations?

As I’ve previously said, NIO only publishes an annual cash flow statement ever since the initial prospectus, so we can only make a rough estimate using the prospectus and 2018 cash flow data in the annual report. We see that NIO's "Net cash used in operating activities" in 2016, 2017, and 2018 were -22 billion RMB, -4.57 billion RMB, and -7.9 billion respectively. We can therefore conservatively estimate that's annual "cash flow from operating activities" averages on -8 billion RMB, which is about -600 to -700 million RMB per month. From this perspective, NIO's 1.96 billion RMB in high liquidity assets can only sustain for about three months.

Again, my calculations are purely for your reference only. I can only make educated guesses and I’ve shown my calculation process. Refute as you wish.

Finally, let me put forth my view: It is unlikely that NIO can’t survive. The worst-case scenario will be an acquisition, similar to the case study of Meituan’s acquisition of Mobike.

Moving on to NIO's second urgency: Will the "outer three-ring products" be profitable?

Here I first introduce the "four-ring model": The four-ring includes general products, expected products, extended products, and potential products. To put it plainly, the products of a company are divided into four levels according to "business relevance", for example:

Let's start with the first ring, general products. This refers to the tangible core product that consumers have in their hands. For instance, NIO's general products are electric vehicles, including ES6, ES8, and later EC6. This is well understood.

In the second ring, we have expected products, which usually refers to software and services. For example, many people buy an iPhone because they feel like the user-friendliness of the iOS operating system. When it comes to NIO, it refers to its charging network, NIO Pilot autonomous driving, NIO House community activities, and so on.

The third ring is extended products, which refers to the peripheral products. For example, the accessories of a NIO car may include foot pads, nomi dresses, and other products created by NIO and various designers.

The fourth ring, potential products, refers to products that can be upgraded with technology development in the long run, such as NIO’s battery capacity upgrade.

To give another example, Tesla has an exciting potential product – the Acceleration Boost package, which allows you to increase your car’s acceleration by spending some money, it is definitely not cheap.

First of all, the core of NIO is selling cars. In this area. It keeps selling at a loss till now, as the vehicle gross profit is negative.

Why NIO promote its product by cash-burning? There are three main reasons:

1. NIO wants to shape a brand image to target the premium electric vehicle market and make friends with customers at the same time. The strategy is similar to "Grabber", which has been illustrated in my previous video. Help yourselves to search if you are interested in it.

2. NIO burns much money to promote its brand quickly. As a new entrant in the automobile manufacturing market and a younger generation of vehicle industry, timing is much more important than money.

3. NIO wants to earn profit by selling its three outer-circle products: expected products augmented product and potential products.

What about the performance of its three outer-circle products? It sells at a loss so far, as you can find its "other gross profit" is also negative in DannyData.

NIO financed its money-losing quest to promote its brand. No wonder it was always criticized. However, at the same time, it has gained considerable loyal customers, and some of them even provide voluntary advertisement for NIO. We have to admit that NIO has made great efforts to satisfy its loyal users' needs:

In my view, few leaders can be as diligent as William Li is, as he always goes to another city to meet users in less than ten days.

NIO contributes a lot to its users, aiming to satisfy their three main quests:

1. Saving time and fixing the trouble

NIO is striving for providing service which can provide users "an experience beyond refuelling".

In other words, NIO wants to save its users' time. Although we always say "time is money", how much it is worth vary from people. My words may be criticized, but the real world is harsh, and that is why people's salary levels are different.

2. Social network.

"Love & belonging" is a high-level pursuit in Maslow's hierarchy of needs. NIO provides a platform for users to meet their demands for making friends, dating, (NIO's proposal video), and even talking business.

3. Creating possibilities.

NIO House creates a space beyond the car, where NIO organizes various activities.

These activities are not only about relaxing and entertainment but also including lectures given by bigwigs.

NIO has put much money and made efforts to satisfy those three demands from users. Although this behaviour seems to be irrelevant, it has a long-turn value. The long-term value can explain why NIO can gain a vast army of fans, and over 45% of NIO's orders are from current users' recommendations. Now, do you understand?

Let's move on to the third point, Winner-Take-All.

Mr Li Shufu, Geely's chairman, ever described a car is "just two sofas 4 wheels". It sounds silly, but it shows people used to give priority to cars' hardware at that time. What about future vehicles? Dr Herbert Diess, Volkswagen's CEO, has drawn a reasonable conclusion with three comparisons related to "future":

In the future, the car will become one of the most complex but most valuable Internet devices. In the future, passengers will use the car more frequently, and the use time may double. In the future, the car will no longer be a simple box, but more comfortable and warmer space.

Therefore, in the future, the core competitiveness in the vehicle industry is not hardware, but the system and database. The situation is similar to today's mobile phone industry: while the top producer gains more and more market share, losers are almost eliminated. Moreover, the "Winner-Take-All" effect will become increasingly evident.

I agree with He Xiaopeng's opinion:

"In the next two or three years, how many car newcomers will there be left?"

"I think no more than 10"

"I think it's about ten."

"No more than 5"

He Xiaopeng: "No more than two are successful."

The reason of Winner-Take-All is easy to be understood, as the theory fits the feature of the internet age: With data increases, the system can be optimized, which enables it to collect more data. Such a positive cycle, combined with rapid iterative optimization, can widen the distance from top producer to competitors.

It is widely believed that NIO's biggest competitor in China is Tesla's Model 3 and Model Y, as their price range are highly closed. However, I think many people cannot think out of the box, as they still judge a car by its hardware. If we take the long view on NIO, its biggest competitors are all cars that collect data on the road.

Currently, NIO has almost completed its first step. That means NIO already shaped its brand image as a "premium electric vehicle", and it has gained a lot of loyal customers. However, if NIO wants to "bridge the gap", it is crucial to open the market rather than only focus on the small segment with the wealthy class. Using a business model to illustrate, NIO needs to compete for more market share, which includes ordinary customers and sceptics.

Even a newbie like me can think of this, let along William Li. However, the fund shortage hinders Li's movement. From the perspective of the whole market, the heavy-asset industry is much more challenging to open the market than the We-Media industry like Bilibili. I will give more detail when I analyze Bilibili.

To conclude, the vehicle industry must be a winner-take-all in the future. Like the film, Glengarry Glen Ross says:

“As you all know first prize is a Cadillac El Dorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you're fired.”

OK. I have finished the introduction of NIO's three things. You know my habit. I have set the stage for the following content showed at the beginning, which is what I want to convey next.

Actually, I have already to be criticized before making this video, as "There are a thousand Hamlets in a thousand people's eyes". For example, when I said NIO keeps selling at a loss, NIO's anti-fans can explain my words as "Don't expect NIO to earn money, as it cannot earn money even when sells its cars!" Meanwhile, NIO's fans may think, "NIO is sincere!" The online sentiment is complicated and fiery, and all I can do is to be matter-of-fact.

Dyson ever said:” The Internet can't change human nature, it just provides an unprecedented possibility to inspire a potential factor in human nature.

Straightforwardly, the internet magnifies people's emotions, especially for online celebrities like NIO.

On the one hand, fans speak of NIO in glowing terms, and some of them even work harder than pyramid sellers. One time, I have exhibited the official announcement and data reported by NIO on NIO APP, then I was subjected to a torrent of verbal abuse by NIO's fans. I was accused of "Tesla's undercover"; "licking Tesla's boots"; "Cut it all ", bla bla bla.

They tried to aim at their imaginary enemy, but they accidentally aimed at their leader —— NIO itself. I believe the rational NIOs' owners are not willing to get along with these "crazy fans". After all, those who can afford NIOs are mostly well-educated and rational.

On the other hand, the anti-fans catch the goods on NIO tightly: Like "NIO voluntary recall of ES8s for battery safety concerns"; NIO's two "eighty million"—— NIO House's expensive rent and NIO has burnt eight million to hold an NIO Day. They even slandered NIO for many times, as the cost of spreading rumours is low.

I think the above-mentioned NIO fans and NIO anti-fans' emotions on the Internet are too extreme. These people scolded me by extracting from a part of my video and catching the handle. Think about a barrage of what you saw before when you see here. It's estimated that many people want to say obscene language.

So why are people getting more and more extreme on the Internet now?

In fact, we can't just blame all these people themselves. We also need to blame too many company backers who try to trap them in their own "information cocoon".

What is "information cocoon"? For example, the applications like TikTok and Kwai push more about what you like, which is similar to the "tittytainment" I mentioned in DannyData 03. It's because you are given more about what you want, which makes your information sources narrower, and this means that you are trapped in your own "information cocoon". When you hide in the "information cocoon" for a long time, your mood will become more and more extreme, and this trend will become more and more evident in the future. If you don't pay attention, you will pack your "information cocoon" thicker.

But I'm also delighted to find that many people watching my videos are eager to break their "information cocoon", that is, to expand their knowledge boundaries. Even if you don't agree with what I said, you won't overreact and attack me immediately, but think more. I believe I have the patience to see these friends here; most of them belong to this kind of person.

I have three hopes for making DannyData video:

Let's talk about the first hope - to arouse your thinking.

I never feel that what I say is subject to me, and I don't want personnel like high handed CEO. As I said before, I hope that even if you don't agree with my view, it can also arouse your thinking.

I like Liang's foreword in the program《Ba Fen》very much，"there is no guarantee of success, not necessarily useful, knowledge is just the light to illuminate the world".

I adapted it as "DannyData video is not guaranteed to help you earn money, not necessarily give you short-term benefits; thinking is just the light to illuminate life."

I'm not very good at this adaptation, please forgive me.

Let's talk about the second hope - "speaking as human".

I find that there is a big difference between the case of science and technology companies in the school and the one I have experienced personally. One is academic, and the other is practical. I don't want to judge which one is right or wrong. I just want to give you more views to think about questions. And I will analyze the business model which looks advanced and make green hands understand it in the way of "speaking as human".

The last hope is to make the cake of the financial topic bigger.

Now there is a kind of bad atmosphere on the Internet, which always argues with the keyboard, such as leaving a message under the creators of other financial districts: "little Danny scolds you in his video again! Go to fight with him!" In fact, I do not appreciate this kind of behaviour, and I have no desire to find someone to ask for war. And I don't think you want to turn my video into a barrage war.

In fact, I know that many vloggers become popular by manipulating public opinion:

You fucking see clearly, yes, yes, true Chinese, Chinese don’t hit Chinese, our ancestors are same.

But I don't want to use this kind of abusive way to increase the number of fans, because I entirely agree with Li Dan's saying:

“Manipulating public opinion is too stupid. If it is not the kind of cruel man, it is really dangerous and it will backfire. You manipulated the 100,000 people today, and tomorrow, regardless of the others, the 100,000 people will turn to you.”

I hope you will treat all creators in the financial zone with a friendly attitude. Even if everyone has different choices such as "data sect" and "story meeting". You can dislike them, but you don't need to spray it. You just need to pay attention to the few people with high content quality. After all, we make such quality content, so it's challenging for us to renew weekly. It is an excellent way to switch video what you like.

if Danny doesn't update just to see Lao Jiang, if Lao Jiang doesn't renew, just to see the wizard, and if the wizard doesn't renew, it means that everyone has gone over the Spring Festival. Well, it's a wave of business praise. The wizard and Lao Jiang's fans, if you see it, please say something.

In fact, I think it is like a game for children when people argue with others without reason. It's a real skill for everyone to make the high-quality content cake of the financial zone more significant. Just like the relationship between NIO and Tesla, on the one hand, they have a direct competition relationship, and on the other hand, they make the cake of electric vehicles bigger together so that they can have a broader living space. In fact, Tesla has seen this for a long time. Otherwise, why did Tesla open all its patents in 2014?

Natsume Soseki wrote in 《I'm a cat》：

" People like to cut the vast world with a knife, draw their own field, and make a prison in it."

I don't want to be such a person who "cuts the world with a knife". I think every creator of the financial zone is smarter than monkeys. Why not build a skyscraper together instead of guarding their cottage?

I have a prejudice: when you watch the financial zone more than you watch something meaningless, you will get more. After all, the roasted bamboo rat that others eat won't come into your mouth and make your stomach rumble in the middle of the night. The knowledge of science popularization in the financial zone can exist in your mind and help you sleep when you are sleepy.

Finally, I would like to say some words to the audience who have the patience to see the video at present. You will find that the number of my fans has increased rapidly recently, which is good for me, but actually, I don't like to call you "fans". Maybe it's better to call you "confidants" like Gao Xiaosong, but in fact, I prefer to call you a word, which is "fellow travellers" as the Taoist said, because you just meet me at a specific time It's understandable that you'll probably break up with me later. I just hope that when you watch the video, it can enlighten you. Thank you very much for your previous support of all kinds of messages. I hope you take good care of yourself in an extraordinary period. As a "fellow traveller", I can accompany you for a longer time.

The End

Danny here, auto and tech talk show. In fact, I know that many people want to see me do a comparative analysis between NIO and Tesla, but it's hard for me to explain the business models of the two companies thoroughly in single DannyData video, so I have an idea that I need your feedback: I want to open a new series of videos, which may be called DannyPK? It's a bit vulgar and exposes my age. This new series will put technology companies that I mentioned in different DannyData videos and do another benchmarking PK analysis, such as the first episode of Tesla benchmarking the fifth episode of NIO. DannyData series focuses on analyzing the long-term business model of a technology company.

Are you interested? Please leave a message for me. Or which technology companies would you like to see me analyze?

I am looking forward to your feedback. Tech Never Die, see you later.