NIO - The Chinese EV company looking to rival Tesla

The Chinese electric vehicle market is by far the largest in the world, with half of all EVs sold within its borders. The government wholeheartedly support the idea, with subsidies in place on EV’s under 300,000 yuan (£40,000). Furthermore, in late 2020 they announced that they are banning the sale of new fossil fuel cars by 2035. Currently, EV’s make up just 5% of total car sales in the country, but this number is expected to grow exponentially; with the new age of cars expected to make over 50% of the market by 2030. There are many Chinese EV companies, however, one has recently exceeded expectations.

NIO was founded in late 2014 by Chinese billionaire William Li. Often referred to as the next Tesla, NIO is a premium brand offering expensive, high-quality cars. Currently, the company offers 3 SUV’s (ES8, ES6, EC6) which have all been selling well, and December’s record deliveries of 7,007 to end 2020 with 43,728 total sales proves this. NIO does have a factory, but not ownership of it. JAC Motors, who built the factory with them, and Volkswagen, who invested, are the joint owners of the plant. NIO has forecasted that they will make 150,000 cars next year, a significant jump from 2020.

Not owning the factory in the short term has been very beneficial as they have been able to allocate resources elsewhere, such as building battery swapping stations which have been extremely popular.

The station itself allows a customer to drive in with a low charge battery, and within 3 minutes it can be switched out for a new, fully charged one. They recently announced the NIO Power Swap 2.0, their second-generation power swapping station, which is capable of 312 swaps per day that will be added to their current network of 155 battery stations, with a target of having 500 by the end of the year.

NIO also has an alternative business model known as BaaS (battery as a service). The service allows customers to rent the battery, from RMB 980 (£110) a month, reducing the upfront car cost by around RMB 70,000 (£7,928). This is beneficial for all parties, customers get a premium car for a lower price, and NIO gain compounded revenue for the future and greater demand. NIO cars are special in the fact that they all have a standardised battery. This means that as they bring out newer batteries, such as their revolutionary 150KwH battery coming soon, customers can simply elect to pay more each month for the improved version. BaaS currently has around 40% penetration highlighting its popularity.

NIO day 2020 was one of the best days in the company’s history, with the stock jumping 10% the following Monday to a new record high of $66.99. It was a day in which their new ET7 Sedan was announced, a direct competitor to the Tesla Model 3, with production expected to begin at the end of 2021 and deliveries in Q1 2022. The car diversifies its model portfolio into the highly popularized sedan market and will be equipped with their NIO Autonomous Driving (NAD) Technology, which has LIDAR and includes 33 different sensors.

The company pride themselves on their customer service, which has been a driving force in building up a loyal customer base, with a 62% referral rate that continues to increase. Using the $3 billion raised in their recent share offering the company has invested vastly in research and development which highlights their willingness to keep upgrading their already stellar technology. Furthermore, the $1.3billion offering of convertible senior notes recently shows that they have the capital to burn for their future operations.

Although, it has not been a flawless ride, in early 2020 the company required a bailout from the government due to an unsuccessful 2019 which had them on the brink of bankruptcy. However, since then, the company have gone from strength to strength.

NIO are by no means a finished product, still having a relatively small market share of the 1million+ vehicle sales in China last year. However, undoubtedly the future is bright, and they are certainly a company to keep an eye out for as EV market growth accelerates over the next decade.