Nio prepares for gruelling financial driving test

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Man is silhouetted in front of Nio cars at auto show in Shanghai
A man is silhouetted in front of Nio cars at the auto show, in Shanghai, China April 20, 2017. REUTERS/Aly Song

HONG KONG, March 25 (Reuters Breakingviews) - Nio’s (9866.HK) business model is facing a gruelling driving test. The Chinese electric-car maker has grand plans for this year despite reporting on Friday a net loss of 10.6 billion yuan ($1.7 billion) for 2021. However, its cash pile and a manufacturing partner could help it ride the storm.

Nio has been squeezed by supply chains before: it pared back its delivery outlook in September when chips were hard to come by. But this year’s problems are both bigger and trickier to solve. Russia’s invasion of Ukraine and turbulent markets have hiked up prices for materials such as nickel and lithium, raising battery-pack costs by as much as 15%, per Bernstein.

Yet Nio is charging full steam ahead. Founder William Li reiterated his intent to expand into more countries and regions in 2022, as well as launch three new products. That is no mean feat for an upstart touting new technology: Elon Musk’s infamous “production hell” at Tesla (TSLA.O) offers an example of how precarious overpromising can be.

Investors seem uneasy: shares fell almost 5% in Hong Kong after its results came out. But Li has reason to be optimistic. Nio has more than $8 billion in cash and short-term investments, more than three times its total debt as of the end of the year, so there is money for a rainy day or even a rainy season. This week the company said it will not be passing on costs to customers, which will help to maintain its strong sales growth. Vehicle sales more than doubled last year.

Unlike rivals Xpeng (9868.HK) and Li Auto , Nio can also lean on a powerful partner: a deal with Jianghuai Automobile Group, the state-backed automaker to which Nio has outsourced its manufacturing since 2016, has been extended to 2024. The relationship has not always seemed advantageous — outsourcing can be costly and risky, particularly as Nio’s premium brand would be vulnerable to any lapse in quality control. However, a large, established and well-connected group like JAC can more easily hustle for supplies when the going gets tough. That can add some needed cushion to a difficult ride.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Chinese electric-vehicle maker Nio reported a net loss attributable to ordinary shareholders of 2.2 billion yuan ($342 million) for the three months to the end of December, an increase of 46% from a year earlier, the company said on March 24. Revenue grew 49.1% to 9.9 billion yuan over the same period.

- Its net loss for the full year was 10.6 billion yuan, up from 5.6 billion yuan a year earlier. Total revenue grew 122% to 36 billion yuan.

- The company plans to deliver three new products in 2022, as well as expand in Europe.

Editing by Antony Currie and Thomas Shum

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including environmental policy, cleantech and green finance, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.

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