Does NIO’s First Smartphone Have a Future?

Credit: Visual China

BEIJING, August 23 (TiPost) – Chinese electric vehicle manufacturer NIO plans to launch its first smartphone, “NIO Phone.”

NIO car owners in several provinces have received forms for showing their intentions to purchase the phone. If they participate in the purchase intention survey and make the payment within 72 hours after the phone is officially available for purchase, they can receive a customized gift package from the car club.

The NIO Phone has previously completed its network access at the Ministry of Industry and Information Technology, with the model number N2301 and the applicant being NIO Mobile Technologies Co., Ltd. NIO CEO Li Bin has also revealed that the phone will be released and delivered in the third quarter of this year.

There are rumors in the market that the price of the NIO Phone may exceed 5,000 yuan, and even possibly exceed 7,000 yuan.

The relatively high pricing and NIO's positioning as a car manufacturer have sparked controversy. In an online poll with over 4000 participants, only 749 people chose "plan to buy it," while the rest showed no interest in buying it.

There are also many doubts within the industry. Chen Yudong, the President of Bosch China, once stated that car manufacturers making phones are “making troubles for themselves.” Zhu Jiangming, the Chairman of Leapmotor, also stated that the smartphone market is already saturated, and Leapmotor will never make phones or chips.

Why does NIO insist on venturing into the smartphone business even if the phone market is already overcrowded, rather than focusing on making cars? Is it solely driven by capital gains or are there other long-term goals? Does NIO have a future in the smartphone industry?

NIO's Smartphone Venture: a Bumpy Start?

Currently, NIO has not disclosed the final pricing and product images of its smartphones.

According to information released on the official website of the Ministry of Industry and Information Technology, the NIO Phone will support various network standards, including 2G (GSM), China Unicom 3G (WCDMA), CDMA, China Mobile and China Unicom 4G (TD-LTE / LTE FDD), as well as 5G. It will also support UWB ultra-wideband technology, a wireless carrier communication technology. This means that the phone can be interconnected with other smart devices and used as a digital car key for NIO vehicles.

Recently, the benchmarking platform, AnTuTu, revealed more information about the configuration of the NIO phone on its official Weibo account. Based on the model information, the platform found that the first NIO phone is equipped with the Qualcomm Snapdragon 8 Gen 2 flagship mobile platform, with 12GB of RAM and 1TB of storage. However, AnTuTu mentioned that the benchmark test was possibly conducted on an early engineering model, and the performance was not ideal. The benchmark scores of the NIO Phone show similar performance levels to the Snapdragon 8+ Gen 1 models, but there is a noticeable gap compared to common Snapdragon 8 Gen 2 models.

The performance is not outstanding, and the rumored price range of 5,000 to 7,000 yuan does not seem to have a competitive advantage. On August 16, OnePlus Ace 2 Pro was officially released, which also features the Snapdragon 8 Gen 2 mobile platform. The 12GB+256GB version is priced at only 2,999 yuan, and the 24GB+1TB version is priced at only 3,999 yuan.

Another selling point of the NIO Phone is its pure and ad-free system. NIO co-founder and president Qin Lihong has emphasized that there will absolutely be no ads in the NIO Phone, and they will not rely on ads to make money. This may indeed be attractive to many users who are fed up with ads and pre-installed software, but it is not enough to constitute a unique advantage. For example, Apple phones have had a clean mode for consumers to choose for a long time.

According to Canalys data, the global total smartphone shipments were fewer than 1.2 billion units in 2022, with a 12% year-on-year decline. China's smartphone shipments in 2022 were around 286 million units, a year-on-year decrease of 13.2%. Among domestic manufacturers, vivo, OPPO, and Xiaomi all experienced significant declines in shipments in 2022, with decreases of more than 20%.

From various aspects, it is difficult for the NIO Phone to win over consumers' minds. Entering the market at this time, it is very likely to face a quandary.

NIO Phone, Exclusively for "NIO Fans"?

It is too early to determine the destiny of the NIO Phone at present.

From the description of Li, the NIO Phone seems to be positioned as a special phone for loyal users of NIO cars.

Previously, Li stated in an interview that the main purpose of NIO making phones is to meet the car owners' needs. More than half of NIO car users are using iPhones, but there are many inconveniences due to the incongruency between the phone and the car. In Li’s view, if Apple releases a car model by 2025 and 60% or more of NIO's users use iPhones, then the company will have no defense capability at all. Therefore, NIO must start preparing.

Li’s concerns are not groundless. As the number one high-tech company in the U.S. in terms of market capitalization, Apple has already achieved integration and interaction among its various products and services, providing users with a seamless connectivity and integrated experience of the "Apple ecosystem" including iPhone, iPad, Mac computers, Apple Watch, AirPods, and other products. If one day Apple's car becomes a member of this ecosystem, its integrated product ecosystem advantage may attract iPhone users greatly. And not long ago, according to the U.S. technology blog AppleInsider, Wedbush analyst Daniel Ives revealed that Apple's car is not far from being released, and it is expected to be launched in 2026.

Obviously, NIO's mobile phone is not intended to compete in the mobile phone market, but rather to achieve the interconnection between the automotive and mobile phone terminals through the application of UWB digital keys, and to build a more high-end and complete automotive intelligent ecosystem. Li said, "We will not compete with Xiaomi or Huawei. We are not trying to be a clothing company or a food company, but rather to meet the needs of users and satisfy their usage scenarios based on our connection with them." Li said that NIO is currently not comparable to a mobile phone company that sells 100 million units per year, but "making a phone is not difficult", the challenge is "making a good phone".

Whether NIO's mobile phone is good or not, NIO car owners have the most say. On China’s popular social media platform Xiaohongshu, many NIO car owners have posted that they experienced NIO's mobile phone at an offline event in early July. Some car owners said, "Both the system and the appearance are surprising, with a deeply customized system that provides a better interactive experience for future second-generation vehicles. It will be officially released at the end of August." Many people also said that they are waiting for NIO's mobile phone to be released before changing their phones.

Of course, there are also other new energy vehicle owners who are not optimistic about NIO's mobile phone. One of them said, "The frequency of using the mobile phone in relation to the car is only about 5%. The ecosystem, smoothness, and optimization are the most important factors. After all, we cannot sacrifice the daily usage experience, and it is not possible to sit in the car every day to experience the interconnection between the car and the mobile phone."

In addition, it cannot be ignored that entering the smartphone market requires a large amount of capital investment. Even for mature smartphone manufacturers like Xiaomi, their annual R&D investment exceeds 10 billion yuan. However, NIO's financial situation is not ideal. According to the financial report of 2022, NIO's adjusted net loss (non-GAAP) reached 12.1 billion yuan after deducting equity incentive expenses. The first quarter report of 2023 showed that the company's adjusted net loss in the first quarter of 2023 was 4.55 billion yuan, an increase of 215.9% compared to the same period last year. As of the end of the first quarter, its cash and cash equivalents, restricted funds, short-term investments, and long-term time deposits totaled 37.8 billion yuan, a decrease of nearly 30% compared to the same period last year.

For NIO, which has not achieved profitability since its establishment in 2014, venturing into the smartphone industry undoubtedly means expanding its business. Whether the smartphone business can be profitable remains to be seen, but who will bear the additional operating costs in the end? If all the costs are borne by the users, will it harm Nio’s relationship with its users?

Is It a Trend for Automakers to Dabble in the Smartphone Business?

In the current automotive industry, the interconnection between cars and smartphones is considered a future trend. The concept of "software-defined cars" has penetrated into the automotive value chain. This concept means that in the future, automotive software will dominate industry competition, while automotive hardware will tend to be unified. Automotive software will become an important aspect for automakers to build differentiated products.

According to Morgan Stanley, the current value composition of automobiles still relies heavily on hardware, accounting for 90%. In the future, this proportion will shrink to only 40%, and the remaining 60% will be software.

In the current context where the importance of software in cars is increasing, automakers have been relying on external suppliers because they lack technical accumulation in software and find it difficult to solve software problems independently. But third-party software systems developed by external suppliers often have poor user experience, such as delays and control failures in car connectivity. According to China Business Network, a senior executive from Xingji Meizu once said that the user experience of third-party software systems is not as good as that of native systems with underlying protocols. This not only involves whether automakers are willing to develop, but also involves data security. It is difficult for automakers to open up their systems to manufacturers with no close connection.

For all these reasons, for automakers to enter the smartphone industry is a "difficult yet correct" move. Developing their own smartphones allows automakers to access advanced technology and software earlier and faster, and customize phones for their own users, thereby enhancing the user experience and brand loyalty. Therefore, in addition to NIO, many other automakers are also entering the smartphone industry.

In 2022, Geely's subsidiary, Xingji Shidai, announced a strategic investment in Meizu Technology. After the investment, Xingji Shidai holds a 79.09% controlling stake in Meizu Technology and obtains sole control over the company.

In late March 2023, Xingji Meizu Group released the first generation of Flyme Auto, a software for in-car human-machine interaction. By changing the smart car technology architecture, Flyme Auto integrates smartphones into cars, equating phone upgrades with car infotainment system upgrades, thus enhancing the user experience of smart cabins.

Li Shufu, the Chairman of Geely, said at the press conference, "Technological innovation and ecological integration between the consumer electronics industry and the automotive industry are inevitable. In the future, the automotive and smartphone industries will no longer develop separately but will integrate as one, providing users with a multi-terminal, all-scenario, immersive experience."

In June 2023, the automotive brand Polestar also established a new joint venture with Xingji Meizu Group. Shen Ziyu, the Chairman and CEO of the group, stated, "With the support of Xingji Meizu Group's forward-looking technological ecosystem layout, Polestar will expand boundlessly in the field of smart travel, better develop products that cater to the Chinese market, and lead the global smart travel technology ecosystem."

In addition, many automobile manufacturers have chosen to cooperate with smartphone manufacturers. For example, Li Auto and Xiaopeng Motors cooperate with OPPO, Nezha cooperates with BlackBerry, and BYD, SAIC, BAIC, and other 18 car makers cooperate with Huawei. Huawei's cooperation with automobile manufacturers mainly involves providing full-stack smart car solutions and Huawei's HiCar mode. Huawei will deeply participate in various aspects of car product definition, styling design, marketing, and user experience. Recently, AITO, produced by Seres in cooperation with Huawei, achieved the 100,000th mass-produced vehicle in only 15 months, becoming the fastest new energy brand to reach this milestone.

In summary, automakers entering the smartphone industry is not simply about grabbing a share of the smartphone market. It is more about the long-term consideration of upgrading automotive smart cabins and driving the automotive industry towards intelligence and technology. However, in the fiercely competitive smartphone industry, automakers venturing into developing their own phones will also face complex technological challenges and a shortage of software talent. It remains uncertain whether automotive brands can successfully transfer their accumulated brand effects to the mobile phone field, as the user experience and expectations of cars and phones differ in the minds of consumers.

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