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| Tesla vs Nio |
Chinese electric automaker Nio is making its mark in the industry. Nio, which is the Chinese electric automaker, which many people look at and say,look this is the company that's going to challenge Tesla in China.
Since its initial public offering onthe New York Stock Exchange, in September 2018,the company’s stock has risen from a52-week low of $2.11 to peak at $57.20 in 2020.
That’s an increase of more than 2,700%.
But this automaker has had its fair share of challenges,including being caught in the middle of U.S.-China trade tensions anddealing with the economic effects of Covid-19.
So, how did Nio, which was at one point on the brink of bankruptcy,rise from the ashes to become a major player in the electric vehicle industry?
In 2015, China’s premier Li Keqiang
announced a ‘Made in China 2025’ planto transform the country from a manufacturing hub of cheap, low-value goods,to one that produced high-tech products in ten areas– one of which was the electric vehicle market.
To that end, the government offered subsidies to startups.
This created a fertile ground for 45-year-old entrepreneur, William Li to grow his startup,
Nio, which he founded at the end of 2014.
Nio secured early investments from tech giants, including Tencent and Baidu,and in 2016 released its first model, the EP9.
It was a flashy race car with a top speed of 194 mph, and a price tag of $1.5 million.
This model raised the profile of the Shanghai-based automaker on the electric vehicle map and among China’s wealthy circles. Four years after it was formed, the company beat its domestic rivalsLi Auto and Xpeng to become the firstto file an international IPO. So unlike Tesla with its Gigafactories,Nio actually doesn’t make its own cars,Instead, it outsources manufacturing to a state-ownedautomaker in Hefei, the capital of Anhui province.
And the differences don’t end there.
Instead of relying on a charging network like Tesla,Nio decided to adopt a different approach to its batteries,a service that many experts have called Nio’s competitive advantage.
Through a network of battery swapping stations,Nio users can exchange their battery for a fully charged one in three minutes, eliminating the wait time,which can be as long as 24 hours for big cars.
As of June 2020, the automaker has established135 power swapping stations in 59 cities in China.
The Chinese government plans to standardize batteryswapping stations in the country, ensuring that all EV ownerscan use common batteries at any facility,regardless of their car brand.
This means that a Nio owner will eventually be able to swapbatteries at a rival’s battery swapping station.
This has allowed manufacturers to sell EVs without a battery,effectively making the purchase much cheaper,while also giving EV owners the option to upgradeto a larger capacity battery in the future.
In August, Nio unveiled a battery subscription service that allowsEV users to choose battery packs of various capacities and pay monthly.
While these services gave Nio a loyal following, the companyhasn’t been immune to the headwinds within the wider auto industry.
As the global economy slowed in 2018, trade tensionsbetween the United States and China were brewing.
Domestically, the Chinese government reduced tax breaks for car owners,weakening demand in the largest automobile market in the world.
These factors led to a 3% global decline in car salesand production fell by 2.4% in 2018.
Faced with mounting debt, management departuresand negative gross margins, Nio was struggling.
As the electric car startup expanded,so too did its costs.
In the third quarter of 2019, some $280 millionwas spent on marketing and flashy showrooms,25% more than the year before,
outpacing its revenue growth of 20%.
To reduce cash burn and stay lean, the company embarked on a cost-cutting campaign, slashing around 2,000 jobs between January and September.
Just one year after its trading debut at $6.26, the perfect stormtanked the company's stock to below $2 at the end of September 2019.
The cash-strapped company couldn’t pay its workers on timeat the start of 2020. But then the tide began to turn.
Help came in the form of a $1 billion lifeline fromthe local government of Hefei,
in return for expanding its existing operations,including the creation of a new headquarters in eastern China.
As China’s economy rebounded after the first waveof the Covid-19 pandemic, so too did Nio.
In March 2020, the Chinese governmentannounced that it would extend its subsidies,and a tax break for new energy vehicleswhich include pure electric and hybrid cars — to 2022.
This has led to a bumper year for EV manufacturers in China, with 1.1 million electric vehicles sold in the first 11 months of 2020, up 3.9 percent from 2019.
Nio delivered over 35,000 vehicles in the same period,more than twice as many as the year before.
But the company got a boost from an unlikely source. Thanks to the world's most valuable automaker,Tesla, Nio's fortunes were turning around.
In 2020, Tesla’s stock price had jumped nearly sevenfold. The surge encouraged investors to look foropportunities in other electric automakers. Some concluded that Nio was
the next best competitor. As the company’s stock price soared in 2020, Nio becamethe fourth most valuable automaker in the world,surpassing General Motors and Daimler bymarket capitalization at the start of December.
Sales of electric vehicles are expected to increase from 2.5 million in 2020 to 11.2 million by 2025, before nearly tripling to hit 31.1 million by 2030.
By 2030, Chinese manufacturers are expectedto command 49% of the total global EV market,while European firms will make up 27% and the American companies, 14%.
It is no wonder then that Nio has Europe in its sights,followed by other global markets in 2023,But it still has a long way to go beforeit can compete effectively with the industry’s front runner, Tesla.
The success of these ventures will dependon Nio’s ability to control its spiraling costs,appeal to foreign buyers and expand
its battery swapping network overseas.
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