NIO, China's 'Tesla Killer', Struggles to Stay Afloat Amid Price War

The Chinese electric-car startup NIO, which was dubbed as China's "Tesla killer" after unveiling a sport-utility vehicle in 2017 with sleek design, large-screen panel, and voice-command features and at the half the price of Tesla's Model X, has recently seen a slump in its sales.

NIO, one of China's most highly regarded EV startups, is now a symbol of the challenges that many automakers face in the world's largest electric-vehicle market.

The company has been forced to cut prices, reduce investment, and commit to burning more cash due to a cutthroat price war. This month, NIO chief executive William Li stated that the company, which is listed on the New York Stock Exchange, has to prudently manage liquidity risks as weak sales in the past two quarters have impacted its operating cash flow.

NIO announced last week that an Abu Dhabi government-backed entity will invest approximately $740 million in the company.

Li believes that sales will begin to rebound in June following the launch of a revamped SUV.

The Chinese EV startup was slower than other automakers to cut prices, and the company's recent moves demonstrate the impact of competition on automakers' profits and supply chains. In China's crowded market, some startups have failed after burning through cash, as EV sales growth has slowed this year due to weak consumption and the end of nationwide subsidies for buyers. Earlier this year, WM Motor, which is backed by Tencent Holdings and HongShan, formerly Sequoia Capital China, suspended most of its production, laid off employees, and closed stores due to debt. Letin Auto, known for its $4,000 electric hatchback, filed for bankruptcy in May after failing to secure new funds.

Despite offering over 10 per cent discounts on several vehicle models starting in January and launching a new model with more advanced self-driving capabilities, XPeng, another popular US-listed EV startup in China, has reported falling sales since September.

XPeng delivered almost 40 per cent fewer cars this year than in the same period a year ago.



EV companies, once the darlings of investors seeking the next Tesla, are now struggling with tighter liquidity, operational issues, and increased competition.

Rivian Automotive and Lucid Group, among other American companies, are also experiencing tougher times as their cash reserves dwindle.

China's sales growth for EVs and hybrid vehicles has declined in recent quarters, dropping from the triple-digit percentages that were common in 2021 and much of 2022. According to the China Passenger Car Association, sales increased by 41 per cent in the first five months of this year compared to the same period last year.

The Wall Street Journal reported that Beijing is finalising a stimulus package to revive China's economy and consumption.

Last week, China's finance ministry extended the tax exemption on purchases of EVs and hybrids until the end of 2025.

Foreign brands are finding China's auto market increasingly challenging, particularly in the EV arena where they are playing catch-up.

Legacy automakers like Ford Motor have struggled in China's EV market, while Volkswagen, which dominates in gas-powered vehicles and sells popular EVs in other markets, has yet to have a model rank among the top 10 selling EVs.

According to data from the passenger-car association, Tesla sold over 200,000 cars to local buyers in the first five months of this year, making it the second-largest player in the Chinese EV market.

China's largest EV maker, BYD, backed by Warren Buffett, sold around 900,000 cars, including hybrids, during the same period, accounting for 38 per cent of the new-energy vehicle segment.

Li Auto, which produces more expensive hybrids, emerged as one of China's strongest rising players, delivering over 100,000 vehicles in the same period.

Dozens of carmakers in China have been cutting prices and offering discounts to boost sales since the beginning of this year.

In January, Tesla made significant price cuts in China, which were quickly followed by local players such as XPeng and BYD. BYD also reduced prices for its flagship models in March.

NIO had resisted cutting prices, but its monthly deliveries in April and May dropped to around 6,000 vehicles from over 10,000 in previous months.

According to analysts, NIO's problems were compounded by a slow rollout of new models to replace aging inventory that became less attractive to buyers.

The decline in sales had a negative impact on NIO's profitability, with its margin from new-car sales falling to 5 per cent in the January-March quarter from 18 per cent a year earlier.

As of the end of March, NIO's cash and other short-term liquidity had decreased by a third to $5 billion from a year earlier, while its debts stood at $2 billion.

NIO’s CEO this month said the company now doesn’t expect to break even until at least the end of 2024, a year later than it previously forecast.

The company has also postponed investment in fixed assets and some research and development.

Earlier this month, NIO reduced the prices of all its models available in China by $4,200. This reduction was due to the discontinuation of the free battery-swapping service, which was one of the company's key selling points.

NIO had previously allowed customers to purchase their cars without batteries, which is one of the most expensive components of an electric vehicle.

Instead, they had to sign up for a free programme to change batteries in a few minutes at NIO's facilities.

According to the company, by February, 57 per cent of the electricity used by NIO drivers to power their cars came from battery swaps. Currently, new buyers are required to pay for the battery-swap service.

NIO has plans to increase the number of battery-swapping facilities in China to 2,400 by adding 1,000 more this year. However, the company has stated that it would need more users before the service can become profitable.

NIO in May rolled out a revamped SUV ES6, which has been found to increase consumer visits at NIO's stores, according to a sample study by Morgan Stanley.