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Nio’s William Li tells employees downsizing is necessary to survive the next two years

Written by KrASIA Connection Published on   4 mins read

To secure a position in the final race, Nio has ultimately resorted to reducing its workforce, though not as the sole measure.

“This year, we’ve launched five entirely new products and have captured over 40% of the upscale electric vehicle market, with transaction prices exceeding RMB 300,000 (USD 41,200). Nevertheless, our overall performance has not met our initial expectations.”

On the afternoon of November 3, William Li, chairman and CEO of Nio, issued a company-wide memo with a somewhat somber tone. In his memo, he highlighted the next two years as an intensely competitive phase in the automotive industry, marked by significant external uncertainties. To secure a place in the final race, he stressed the need to further enhance the company’s operational efficiency and ensure sufficient resources are allocated to support critical operations.

Over the past two months, the company has conducted more than thirty sessions of strategic planning, analyzing the objectives, key success factors, priorities, action plans, and necessary resources for each business in the next two years. The company has also identified opportunities for organizational optimization and cost reduction.

Nio has outlined the following priorities for further action:

  • Ensuring long-term investments in core technologies to maintain a leading edge in product and technology development.
  • Guaranteeing that sales and service capabilities are well-equipped to cope with intense market competition.
  • Ensuring that Nio’s three brands and nine core products are launched on schedule.
  • Optimizing the organization by consolidating redundant departments and positions, streamlining inefficient internal workflows, and eliminating non-productive roles.
  • Improving resource allocation by delaying or reducing investments in projects that won’t enhance the company’s financial performance within the next three years.

According to Li’s plan, the company will reduce approximately 10% of its workforce, with specific adjustments to be completed by the end of November. He expressed regret about the impact this decision would have on some colleagues but emphasized that it was a difficult choice necessitated by the intensity of market competition.

Industry insiders with knowledge of the matter told 36Kr that most business areas will be affected by this move, albeit to varying extents, with the battery and smartphone businesses possibly experiencing the most significant adjustments.

Over the past two years, Nio has been expanding rapidly, heavily investing in new projects such as batteries, chips, and smartphones, as well as secondary and tertiary brands. Coupled with the expansion of existing business sectors related to intelligence, energy, and user engagement, the company’s workforce has more than doubled, reaching around 30,000 by the end of last year. This made Nio one of the largest new players in the automotive industry.

However, Nio’s financial performance has not kept pace with its growth rate. In 2022, the company reported a loss of RMB 14.4 billion (USD 1.97 billion). Starting in the second half of the previous year, the company’s cash and cash equivalents decreased by over RMB 6 billion (USD 824.8 million) every quarter. As of the end of the second quarter this year, Nio had only RMB 31.5 billion (USD 4.33 billion) in cash and cash equivalents remaining.

Nio made progress with the launch of its new ES6 luxury SUV this year, and with a RMB 30,000 (USD 4,120) price reduction in response to market conditions, the situation began to improve further. In July this year, its monthly sales surpassed 20,000 units and have consistently exceeded 15,000 units in the following months. According to the company’s Q2 financial report, Nio’s gross margin is expected to return to double digits in the third quarter this year.

However, to sustain its operations, Nio sought external financial support. After securing around RMB 5.3 billion (USD 728.5 million) from Middle Eastern investment firms in June, the company issued another USD 1 billion in convertible bonds on the public market in September, with USD 500 million allocated to repay previous bonds and another USD 500 million borrowed to address its pressing financial needs.

Despite this development, Nio’s position in the capital market this year remains challenging. As investors grow increasingly cautious, the cost of financing is on the rise. Nio’s announcement indicated that the previously issued USD 500 million in convertible bonds, originally due in 2026 and 2027, had interest rates of 0% and 0.5% respectively. In contrast, the newly acquired USD 1 billion in convertible bonds carried interest rates of 3.875% and 4.625%.

Given the substantial capital required to sustain its business operations and manage external financing challenges, optimizing the organization and reducing costs became inevitable for Nio.

According to 36Kr, Nio’s gross margin is on track to reach double digits in the third quarter as planned after boosting its monthly sales and achieving significant cost reductions in the supply chain. By consolidating its overall organizational structure, Nio is poised to further optimize its costs.

The era of cash burn for startups has come to an end, and the once-promising newcomers in the automotive industry must now deliver results. Nio has realized that only by reducing costs and improving efficiency, can it weather the storm and remain at the table.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Peng Suping for 36Kr.


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