NIO Takes Aim at US With EV Offerings

Could NIO become the new kid coming to town in the global electric vehicle market? Perhaps, albeit eventually.

This summer China’s NIO filed for an initial public offering of American Depositary Shares on the New York Stock Exchange. Companies generally list on the NYSE to raise enough capital to become serious players on the US stage. Maybe NIO has enough momentum to usurp EV king Tesla.

It’s got a similarly fast trajectory, at any rate. Formed in late 2014 as NextEV to produce an autonomous EV supercar the NIO EP9, NIO soon pivoted into a mass-market EV manufacturer. Late last year the company released its first commercial product, the ES8 SUV. Now would appear to be a good time to try and wrest the EV crown away from Tesla. The American company’s problems with its Autopilot system are continuing, while Musk is doubling down on senseless distractions such as his Twitter fight with British cave rescuer Vernon Unsworth.

However, NIO doesn’t seem ready to step onto the world stage. It correctly points out that China is the top passenger vehicle market on Earth and accounts for more than 50% of the world’s battery electric vehicle sales. NIO intends to exploit this potential by competing on both price and design. It also aims to emphasize the owner’s experience with using the car, which founder and CEO William Li previously told TU-Automotive was a priority for the firm.

NIO raised $1Bn in proceeds from the IPO on the back of a prospectus claiming 40% of the take will go towards research and development, 25% to sales and marketing efforts, another 25% to a manufacturing plant in Shanghai, and the remaining 10% to “general corporate purposes and working capital”.

Although EVs are hot just now, particularly in China, where the government has prioritized the manufacture of eco-friendly and tech-forward vehicles, companies in the segment are struggling. NIO only started booking revenue this year, at the equivalent of $6.7M from January through June this year and has posted a series of deep losses on the bottom line.

“NIO requires the IPO proceeds to remain in the game and fund its cash burn over the next few years,” Arun George from UK-based Global Equity Research says bluntly. Also, says George, “There are many foreign and domestic brands looking to launch battery electric SUVs in China in the 2018/2019 timeline. The foreign brands are generally well funded and some of the domestic brands have powerful backers and will likely follow NIO down the IPO route.”

Of course, there is always the threat of global incumbent carmakers with their efforts in the sustainable-vehicle sphere but this might not be as scary as it seems. “I believe there is an old saying that suggests, culture will eat strategy all day long,” says Jed Dorsheimer, senior analyst for sustainability at financial services company Canaccord Genuity. “One must consider whether it’s a likely or a viable alternative for a traditional auto OEM to successfully transition to an EV supplier?  Do they have the same distribution necessary to support EVs?”

Dorsheimer adds that, in North America at least, the traditional dealership model is “disincentive-ized” to transition to EV sales. This is because the need for maintenance and parts falls substantially; these are significant revenue sources for dealerships in that part of the world.

Regardless, NIO will have more product on the market no matter where it decides to hang its shingle. The company is currently developing a successor to the ES8, another SUV known as the ES6. It describes this as “a 5-seater, high-performance premium electric SUV, set at a lower price point than the ES8 to target a broader customer base.”

NIO didn’t get any more specific. At the moment, an ES8 including the battery (as opposed to a subscription for same) retails for the equivalent of just under $70,000. It’s got the build and brain you’d expect of a contemporary EV, with an all-aluminum alloy body and a Level 2 assisted driving system with a Tesla-ish name – NIO Pilot.

Although there are key differences between NIO and Tesla, the Chinese company has clearly torn some pages from its American counterpart’s playbook. Prospective customers must put down a non-refundable 45,000 remnibi ($6,583; paid in two stages) deposit for the ES8. The company’s NIO Houses, a sort of combination dealership and customer lounge, are reminiscent of Tesla’s proprietary brick-and-mortar sales outlets.

So, are we about to witness the emergence of a Chinese and possibly in future a global, new Tesla? NIO is certainly aiming to motor in that direction but Global Equity Research’s George doesn’t believe the big new ADS issue will be the tipping point for the company. He says that “NIO’s key competitive advantage is that it is first-to-market with a competitively priced SUV for the premium segment. NIO does not seem to have a unique technology.” This, combined with intensifying efforts from EV rivals, means “the IPO proceeds on its own are unlikely to give NIO a sustainable edge over its competition”.

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