NIO(09866)2024-04-09 12:10Share Structure and Listings - NIO has 1,932,063,749 Class A ordinary shares with a par value of 0.00025 per share outstanding as of December 31, 2023[3] - NIO's American Depositary Shares (ADS), each representing one Class A ordinary share, are listed on the New York Stock Exchange under the ticker symbol "NIO"[3] - NIO's Class A ordinary shares are also listed on the Hong Kong Stock Exchange (ticker: 9866) and the Singapore Exchange (ticker: NIO)[3] - NIO's A-class ordinary shares are listed on the Hong Kong Stock Exchange under the stock code "9866" and are subject to certain exemptions from the Hong Kong Listing Rules[169] - The company's A-class ordinary shares on the Hong Kong Stock Exchange traded between a low of HK122.60 in 2023[173] - The company's A-class ordinary shares on the Singapore Exchange traded between a low of 15.78 in 2023[173] Regulatory Compliance and Financial Reporting - NIO is classified as a large accelerated filer according to the Securities Exchange Act of 1934[4] - NIO prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP)[4] - NIO has submitted the auditor's report on the effectiveness of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act[4] - NIO is not a shell company as defined in the Securities Exchange Act of 1934[4] - NIO has not been involved in any bankruptcy proceedings in the past five years[4] - NIO has filed all required reports under Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934[4] - Management believes the company's financial reporting internal controls were effective as of December 31, 2023, with independent auditors confirming this assessment[104] Variable Interest Entities (VIEs) and Contractual Arrangements - NIO's variable interest entities (VIEs) contributed negligible revenue of RMB 13.8 million (USD 2 million) in 2023, compared to zero in 2021 and 2022[11] - Internal services provided by VIEs to NIO's subsidiaries amounted to RMB 110.5 million (USD 15.6 million) in 2023, up from RMB 8.92 million in 2022 and RMB 600,000 in 2021[11] - NIO's VIEs, including Beijing NIO, Anhui NIO Zhixing, and Anhui NIO Data Tech, have no significant operations, assets, or liabilities as of December 31, 2023[11] - NIO relies on contractual arrangements with its VIEs to maintain financial control and consolidate their financial results under US GAAP[11] - NIO's VIE structure is designed to comply with Chinese regulations restricting foreign investment in certain sectors like value-added telecom services and autonomous driving[9] - NIO's contractual arrangements with VIEs include exclusive business cooperation agreements, exclusive purchase rights, equity pledge agreements, and loan agreements[11] - NIO's VIEs hold necessary licenses for value-added telecom services, insurance brokerage, and smart driving technology development[9] - NIO's VIE structure may pose risks, including potential conflicts of interest with nominee shareholders and challenges in maintaining control over VIEs[11] - NIO's VIE-related operations are insignificant to its total revenue and net loss as of the annual report date[9] - The company's Cayman Islands holding company faces significant uncertainty regarding the enforceability of contractual arrangements with its variable interest entities (VIEs) due to potential changes in Chinese laws and regulations, which could severely impact the company's financial performance[12] Regulatory and Legal Risks in China - The company's operations in China are subject to substantial regulatory oversight, and failure to comply with existing or future laws could result in severe penalties or forced divestment of business interests[12] - The company's Chinese subsidiaries and VIEs have obtained necessary licenses, including ICP and insurance brokerage licenses, but may require additional approvals in the future due to regulatory uncertainties[13] - The company has applied for and been included in the Ministry of Industry and Information Technology's catalog of automobile manufacturers for its pure electric passenger vehicle investment project in Anhui Province[13] - The Chinese government has increased oversight on overseas fundraising activities and foreign investments in Chinese issuers, with new regulations such as the Cybersecurity Review Measures and rules for overseas securities issuance and listing taking effect in 2023[14] - Failure to obtain or delay in obtaining necessary approvals for overseas fundraising or capital-raising activities could result in penalties, restrictions on repatriation of funds, and other adverse impacts on the company's operations and financial performance[14] - The company's restricted net assets for its Chinese subsidiaries and variable interest entities amounted to RMB 42.2562 billion (USD 5.9517 billion) as of December 31, 2023[16] - The company's variable interest entities and their subsidiaries had restricted net assets of RMB 54.7 million (USD 7.7 million) as of December 31, 2023[16] - The company's outstanding principal amount of loans to variable interest entities was RMB 86.9 million (USD 12.2 million) as of December 31, 2023[18] - The company's outstanding principal amount of loans to nominee shareholders of variable interest entities was RMB 50.1 million (USD 7.1 million) as of December 31, 2023[18] - The company paid RMB 700,000 (USD 100,000) in service fees to Beijing NIO for the year ended December 31, 2023[18] - Anhui Weilai Zhixing Technology paid RMB 70.1 million and RMB 58.4 million (USD 8.2 million) to Anhui Weilai Zhijia in 2022 and 2023 respectively for services provided under a separate service agreement[19] Financial Performance and Capital Structure - NIO Group has not declared or paid any cash dividends and currently plans to retain most or all available funds and future earnings for business operations and expansion[20] - The company has not been profitable since its inception and recorded net losses of RMB 4.0169 billion, RMB 14.4371 billion, and RMB 20.7198 billion (USD 2.9183 billion) for the years ending December 31, 2021, 2022, and 2023, respectively[32] - The company experienced net operating cash outflows of RMB 3.866 billion and RMB 1.3815 billion (USD 194.6 million) in 2022 and 2023, respectively, despite a net operating cash inflow in 2021[32] - The company is heavily investing in R&D, energy networks, service networks, and sales and marketing to expand its business, but these investments may not lead to increased revenue or cash inflows[32] - The company is developing mass-market electric vehicles, smart assisted driving technology, and other core technologies, but faces challenges in maintaining gross margins due to aggressive pricing strategies in the EV market[32] - The company may face liquidity issues if it cannot generate sufficient revenue or secure adequate financing, which could negatively impact its operations and financial condition[33] - The company has a high level of debt to support its capital structure and shareholder cash flow needs, with total long-term borrowings of RMB 130.429 billion (USD 18.370 billion) as of December 31, 2023[95] - The company issued USD 750 million of 4.50% convertible senior notes due 2024, which were fully repaid in February 2024[95] - The company issued USD 750 million of 0.00% convertible senior notes due 2026 and USD 750 million of 0.50% convertible senior notes due 2027[95] - The company issued USD 575 million of 3.875% convertible senior notes due 2029 and USD 575 million of 4.625% convertible senior notes due 2030[95] - The company repurchased USD 192.9 million of 2026 notes in 2022 for a total cash consideration of USD 170.5 million[96] - The company repurchased USD 255.6 million of 2026 notes and USD 244.4 million of 2027 notes in September 2023 for total cash considerations of USD 249.9 million and USD 222.0 million, respectively[96] - The company completed a tender offer for USD 300.5 million of 2026 notes in February 2024[96] - The 2026 and 2027 notes are unsecured and can be converted into American Depositary Shares (ADS) at an initial conversion rate of 10.7458 ADS per USD 1,000 principal amount[96] - The 2029 and 2030 notes are unsecured and can be converted into ADS at an initial conversion rate of 89.9685 ADS per USD 1,000 principal amount[97] - The company may redeem the 2029 and 2030 notes under certain conditions, including changes in tax laws[97] Manufacturing and Production - The company acquired manufacturing equipment and assets from Jianghuai Automobile for a total consideration of approximately RMB 3.16 billion (excluding tax) in December 2023[36] - The company transitioned from cooperative manufacturing to independent manufacturing, now independently producing all existing models at F1 and F2 factories[36] - The company signed a manufacturing technical service agreement with Jianglai to provide technical support, including logistics, production quality control, and personnel training[36] - The company has limited experience in independent manufacturing, which could lead to delays in product launches, capacity expansion, and potential quality issues[34] - The transition from cooperative manufacturing to independent manufacturing introduces additional risks, including challenges in managing production efficiency and training staff[35] - The company may need to expand or renovate its manufacturing facilities, which could face delays or cost overruns, impacting production timelines and financial performance[35] - Delays in capacity expansion or the development, manufacturing, and launch of future vehicle models could result in customer complaints and harm the company's reputation and growth prospects[35] - The company's ability to attract and retain qualified personnel for manufacturing and production roles is uncertain, which could lead to production delays and inefficiencies[35] Government Policies and Subsidies - Government subsidies for new energy vehicles in China decreased by 10% in 2020 and further reduced by 30% in 2022 compared to 2021 standards[37] - The new energy vehicle purchase subsidy policy in China ended on December 31, 2022, affecting sales performance in 2021, 2022, and 2023[37] - Import tariffs on passenger vehicles in China were reduced to 15% starting July 1, 2018, potentially weakening the price advantage of domestic vehicles[37] - Foreign ownership restrictions for new energy vehicle manufacturers in China were lifted in 2018, allowing foreign competitors to establish wholly-owned facilities[37] - The 2021 Negative List for Foreign Investment Access removed foreign ownership restrictions for fuel passenger vehicle manufacturers, effective January 1, 2022[37] - The Chinese government has implemented a new energy vehicle (NEV) credit policy to incentivize automakers to increase production and sales of NEVs, effective from August 1, 2023[38] - NEV credits can be earned by manufacturing or importing NEVs, and excess credits can be traded through a credit trading system established by the Ministry of Industry and Information Technology[38] - The NEV credit ratio for automakers is set at 18% for 2023, up from 16% in 2022 and 14% in 2021[38] - The company generated revenue from selling NEV credits of RMB 51.65 million in 2021, RMB 6.73 million in 2022, and RMB 1.06 million (USD 150,000) in 2023[38] - The NEV purchase tax exemption policy has been extended, with full exemption for NEVs purchased between January 1, 2024, and December 31, 2025, and a 50% reduction for NEVs purchased between January 1, 2026, and December 31, 2027[39] Product Development and Technology - The company's future cars may not meet customer expectations, potentially leading to product defects, recalls, and negative impacts on brand reputation[40] - The company has delivered cars based on NIO Technology 2.0 (NT2.0) with some NAD features and plans to gradually enable more NAD functions, but there is no guarantee that NAD will meet expectations[40] - The company's cars rely heavily on software, which is complex and may contain defects or errors at launch, potentially leading to delays, recalls, and increased warranty costs[40] - The company currently offers two battery options: 75 kWh (standard range) and 100 kWh (long range), with plans to deliver a 150 kWh (ultra-long range) battery using next-generation technology in the near future[41] - The company faces challenges in deploying its energy service system, including delays, insufficient or excessive service in certain regions, safety risks, and potential damage to vehicles during charging services[41] - The company launched its official used car business in January 2021, establishing a nationwide network covering inspection, evaluation, acquisition, and sales services, and partnered with used car dealers to facilitate transactions through its NIO app[42] - The company relies heavily on single-source suppliers for many components, with limited geographic diversification, which could lead to increased costs and production delays[43] - The company faces potential risks from working with startup suppliers, including supply chain disruptions, inconsistent product quality, and financial instability, which could impact its ability to deliver high-quality products and services[44] - Semiconductor chip shortages led to a 5-day suspension of production at the F1 factory starting March 29, 2021, and caused delays in vehicle deliveries for several days in May 2021[45] - In April 2022, vehicle production was suspended due to component shortages, and in July 2022, ET7 and EC6 production was limited by a shortage of die-casting parts[45] - The company launched the Battery-as-a-Service (BaaS) model on August 20, 2020, offering users a discount on vehicle purchases and monthly battery subscription fees[46] - The company holds approximately 19.4% equity in Wuhan Weineng Battery Asset Co., Ltd., which manages the BaaS operations[46] - The company provides guarantees for user subscription fee defaults to the battery asset company, with the maximum claimable guarantee amount not exceeding the cumulative service fees received from the battery asset company[47] - As of December 31, 2023, the company's guarantee liabilities to the battery asset company were not significant[47] - The company charges a non-refundable deposit of less than 2.0% of the manufacturer's suggested retail price for vehicle reservations, but cancellations still occur due to various reasons[48] - The company faces risks related to its Advanced Driver Assistance Systems (ADAS) and higher-level autonomous driving technologies, including potential regulatory restrictions and public safety concerns[49] - Accidents involving vehicles equipped with ADAS, including those from the company, could lead to negative publicity, regulatory investigations, and potential recalls[49] International Expansion and Risks - The company faces challenges in international expansion, including legal, regulatory, political, and economic risks, particularly in new markets like Norway, Germany, the Netherlands, Denmark, and Sweden[50] - Potential EU investigation into punitive tariffs on Chinese electric vehicles could negatively impact the company's European business and expansion plans[50] - International expansion requires significant capital investment, which may strain resources and complicate current operations[50] - Compliance with foreign and Chinese laws, as well as potential sanctions for violations, poses risks to the company's reputation and business performance[50] - Challenges in localizing products, meeting regulatory requirements, and building brand awareness in new markets[50] - Risks related to international payment systems, logistics infrastructure, and data security laws across multiple jurisdictions[51] - Increasingly strict data transfer restrictions and barriers between different jurisdictions[51] - Potential impact of U.S. export controls on advanced computing chips and semiconductor manufacturing, limiting access to U.S. technology[52] - Uncertainty surrounding U.S.-China trade policies, including tariffs and retaliatory measures, which could affect the company's competitive position and demand for its products[52] - Political instability and economic conditions in specific regions, including trade disputes and territorial conflicts, may hinder international operations[51] - The US government's executive order on August 9, 2023, requires reporting or prohibiting US investments in sensitive technologies and products in China, including semiconductors, quantum information technology, and AI, which could negatively impact the company's business and financial performance[53] - The EU Commission announced in September 2023 an investigation into imposing punitive tariffs on low-priced electric vehicles, potentially leading to anti-subsidy or punitive tariffs that could negatively affect the company's operations and expansion in Europe[53] - The company faces challenges in expanding and operating subscription and leasing services in Europe, including potential losses, low fleet utilization, and higher-than-expected customer default rates, which could negatively impact its business[54] - The company's subscription service in Europe, launched in October 2022, requires significant capital and faces risks such as theft, damage, or operational difficulties of leasing partners, which could harm user experience and brand reputation[54] - The company faces risks of reduced residual value of used cars in its subscription service, which could lower asset value and increase future subscription pricing pressures[55] - Internal methods for calculating residual value may be uncertain, and if actual residual values are lower than estimated, it could lead to insufficient risk provisions and potential impairments on used car inventory[56] - A significant decline in used car values could create pricing pressure on the company's new car business if customers are unwilling to pay higher monthly subscription fees due to reduced residual values[56] Supply Chain and Raw Materials - The company faces risks from rising lithium prices, which could reduce demand for pure electric vehicles and negatively impact its business[57] - The company plans to upgrade and introduce new car models with the latest digital technologies, but this may require high costs and reduce returns on existing models[57] - The company relies heavily on the continuous supply of high-quality lithium batteries, with risks including supply disruptions and rising costs of raw materials like lithium, nickel, and cobalt[59] - The company plans to manufacture its own batteries to supplement supplier batteries, but this requires significant investment and may not be achieved within planned timelines[60] Data Security and Privacy - The company is subject to cybersecurity, privacy, and data protection regulations in China and other jurisdictions, with potential risks of data breaches and legal liabilities[61] - The company has implemented advanced encryption and security measures to protect customer data, but technological advancements and hacking risks could still compromise these measures[62] - In