<Editor's Pick>Why is R&D investment not the main reason for Tesla’s Chinese competitor Nio’s massive losses?

Nov 06, 2019 NIO

Nio, the company called "China's Tesla" made a strange move. It released its second quarter earnings report on September 24 and suddenly announced the cancellation of the conference call that night. Nio's share price plunged more than 27% on the day, and fell below $2 to $1.98 in intraday trading, setting a new low for its stock. The market understands that Nio can't face the black hole of loss caused by itself.

Under pressure from the market, Nio announced that it will hold an earnings conference call on September 25. When asked by analysts how to change the money-burning model, Nio CEO Li Bin used R&D investment to explain the loss: “By June this year, our Non-GAAP loss was 22 billion yuan, of which 10 billion were spent on R&D, this is also our core investment direction."

However, the statistical analysis of Nio's financial data presents different conclusions. Nio spent only 25.87% of the total loss in research and development for the three years and a half. The highest year is just over 40%, and the lowest year is less than 20%. In any case, it failed to reach nearly 50% that Li Bin said.

Nio’s loss is no exaggeration compared to Tesla. From 2016 to 2019, Nio's losses were less than Tesla during most of the time period, and only the losses in the second quarter of 2018 and 2019 exceeded Tesla. Losing is not a problem, what caused the loss is the problem. This determines whether the capital market is willing to pay for the money you burn.