NIO's internal meeting | William Li:Win back the dignity of NIO

Last Friday afternoon (March 14), William Li, the founder and CEO of NIO, delivered an internal speech to all employees in the product research and development cluster, elaborating on the core logic of the "Cell Business Unit"bilizing the team to get rid of inertia as soon as possible, enhancing the business awareness of all employees, and achieving the business goals.

Internal speech by  William Li, CEO of NIO.

The following are the main points of Li Bin's speech that day:

Over the past decade, we've done a good job in terms of direction and vision. However, when it comes to down-to-earth actions, such as efficiency, cost control, and lean management, many of our peers have done much better than us. We need to learn from outstanding counterparts.

On January 1, 2024, I wrote a letter to all employees, stating that we should enhance our business awareness and adhere to the principles of "making steady progress every day and achieving success through persistent efforts" and "building solid camps and fighting tough battles".

Throughout last year, I spent a lot of time sorting out 15 system capabilities of the company to start management. Management is not simply about cutting staff or reducing budgets. The key lies in improving efficiency, creating more value, and increasing the rate of return.

Based on these thoughts, management actions have been gradually implemented in the first quarter of this year. Generally speaking, the whole company focuses on the core of business, the core of costs, and the core of expense investment to determine where to allocate funds and to emphasize input-output and efficiency improvement.

Among the 12 basic business units of the company, those that spend the most money include research and development, which costs over 10 billion yuan a year, and the marketing department, which spends several billion yuan a year.

Correspondingly, the personnel costs are also quite high. We need to figure out what effects these investments have actually produced, and then decide where to save and where to spend. Compared with 2021, the resource boundary of the company has definitely narrowed because we failed to achieve our business goals during the period from 2022 to 2024.

Only by spending our money and time where they matter most within the effective resource boundary can we turn the situation around.

We can no longer follow the old inertia. Essentially, when it comes to business management, we should do less of the low-efficiency investments and resolutely carry out high-efficiency ones; we should avoid or reduce low-efficiency projects and firmly engage in high-efficiency ones. This general logic applies to everything.

The "Cell Business Unit" refers to where the money is spent.

For example, the Cell Business Unit at the R&D end is the R&D project. The aggregation of investments in various projects constitutes all R&D expenses; the aggregation of project outputs represents R&D outputs. At the company level, abstracting these most basic business objects results in 12 Cell Business Unit at the company level. The combination of these Cell Business Unit in various dimensions forms the company's business statements. Whether the company makes a profit or incurs a loss is determined by aggregating these Cell Business Unit in different dimensions.

Now we are delving deeper to understand these objects that spend or earn money in each Cell Business Unit and improving efficiency and strengthening management around the "Cell Business Unit".

For example, currently, we have 500 R&D projects of various sizes, with over 10 billion yuan invested in each of these R&D projects. In the past, when initiating projects, only the external payment costs were calculated, and the calculation of internal personnel investment was rather casual, mostly rough estimates, making it difficult to accurately calculate how much a specific R&D project actually cost.

Another issue is the project closed-loop system. Whether there is a final delivery result, who is responsible for the result, at which nodes the inspection and verification are carried out, and the closed-loop system is not strict. We need to clarify all these aspects and accurately account for the time, work, and expenses of each person in the project.

Take users as another example. In the past, some users with free battery-swapping rights sold their cars, but our company didn't reclaim those rights. (Note: In August 2019, NIO launched a free battery-swapping policy, which provided unlimited free battery-swapping services for first-time car owners. By the end of 2020, the lifetime free battery-swapping policy was canceled for new car purchases. In the middle of 2023, NIO further adjusted this policy, separating rights such as lifetime free battery-swapping from the car price and introducing flexible charging and energy replenishment packages, where users would pay for battery-swapping.)

According to the agreement, NIO was no longer obligated to provide free battery-swapping services. However, due to lax management in the middle, a lot of waste was caused. If we had managed it in a more refined manner and checked each user one by one, we could have clearly identified which users had fulfilled their agreements and should have reclaimed the rights.

In fact, there are many things that won't have any impact even if we don't do them. Some might be due to inertia.

In the past, it seemed that as long as there was a budget for a project, it would keep being carried out. But perhaps the market has already changed, and some of the prerequisites at the time of project initiation might have also changed. Yet everyone is still moving forward out of inertia.

Do we need to step back and focus on more efficient things?

I myself also need to reflect on this. I have approved some projects with very low investment returns. The company's project initiation mechanism failed to veto such projects that seemed right but actually had low returns, wasting a lot of money. I really need to enhance my business awareness and conduct self-reflection.

In the future, even if I say to do something but the accounts don't add up, we shouldn't do it.

If we don't calculate the investment return clearly, if no one is responsible for the result, and if there is no closed-loop system, a lot of waste will be caused. With the limited resource boundary of the company, some low-efficiency projects are wasting money, while some projects that need more investment haven't received sufficient funds.

From last year to the present, this management paradigm has become increasingly clear. For any project, there must be someone responsible for its investment result. There is a single person who needs to figure out what return and value creation this project can ultimately bring, and ultimately, someone has to deliver the results. Each CBU will correspond to an investment entity, that is, the project investor. The investor will ask the company for investment. Once the project is established, it will be assigned to different execution teams, which are the business entities, and each business entity also has a corresponding business leader. Every link will form a closed loop, and many detailed processes of the company will be affected.

If a project is not initiated seriously, it means that it is indeed not a high priority and should not be done. If a project is initiated and to be carried out, you must clearly state your contributions.

In terms of cost, recently, we have started to promote work hours at the R&D end. This is different from clocking in. Work hours need to be associated with projects because the heaviest part of R&D investment is personnel costs. The ratio of personnel costs to other costs is approximately 6:4, and the proportion in the software department is even higher. If we don't figure out how many people are working on a project and how long they spend, we won't be able to calculate the project cost or evaluate whether the spending is appropriate or not.

Over the past year, the DD team (Digital Development Department) and the Industrialization Department have already made many attempts based on the "Cell Business Unit".

For example, for digital system R&D projects related to industrialization, those with high returns have had their priorities increased, while those with low returns have had their priorities reduced, with reduced investment or even cancellation.

Given the limited resource boundary of the company, we should be very clear about how to prioritize. In the past, we mostly made judgments based on intuition, but now we are doing everything through the mechanism of the "Cell Business Unit". The company's goal is to achieve profitability in the fourth quarter of this year. From now until the fourth quarter, there are actually only two quarters left. In terms of management, cost control, resource allocation, and priority setting, we must no longer be as intuitive as before. To achieve sustainable development, we must take this step and have a reasonable method to calculate the investment return of each project.

This will indeed have an impact on everyone's work paradigm. Everyone should try to participate in projects with high input-output ratios as much as possible. This will drive the optimization of human resource allocation and help us break away from inertia. For low-output projects, we should stop them when necessary; for high-output projects, we should allocate more resources when needed.

Regarding filling in work hours, I know there are quite a few complaints on SpeakOut (Note: NIO's internal online forum).

Our value group also wrote me a long letter, collecting the views of many colleagues. Filling in work hours is a basic operation in many companies like Huawei. Why can't we do it? This doesn't conflict with the sincere care we advocate. It's quite normal to clarify what you do every day and which projects you are involved in. If you are unwilling to fill in work hours or associate them with projects, it only indicates one situation, that is, your position shouldn't exist, and you should look for another job. We should enable colleagues who truly create value for the company to demonstrate their value and play their roles, and expose those who are just loafing around.

Don't think that just because we didn't do it before and are suddenly doing it now, NIO is no longer the same NIO - NIO should have been like this long ago. In terms of execution efficiency, business efficiency, and cost control, we haven't reached the benchmark level yet, which has brought great challenges to the brand potential and business situation of the whole company. We should have done this a long time ago. The key is still to create conditions for those who can really get things done to demonstrate their value and focus resources on high-priority work projects.

This is the basic line, not a high requirement. If the company doesn't take this step and can't even achieve such a basic level of management, that would be the real trouble. People expect me to manage the company well. Now many people are teaching me how to be a CEO. I must listen to their advice when I should. If I can't even hear any advice, that would be truly troublesome.

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