Nio’s affordable cars carry luxury baggage
HONG KONG, Aug 25 (Reuters Breakingviews) - China’s maker of premium electric cars, Nio , is taking an unusual route. Founder and Chief Executive William Li hopes hitching cheaper products with Nio’s swanky services will capture market share for the loss-making company read more . But the strategy risks lengthening the road to profitability too.
Li built his $32 billion brand by going the extra mile to wow customers. Nio buyers enjoy perks including access to private clubhouses, and can opt into services like battery-leasing and battery-swapping, which cuts charging time from around 30 minutes to three minutes.
When Nio first sold cars five years ago, little luxuries helped convince consumers to try novel technology from an unknown brand. Today, its services set Nio apart in an increasingly crowded field of automakers. That will be more important from September when Nio launches a new, cheaper model priced at around 300,000 yuan, roughly $44,000, to compete with Tesla’s (TSLA.O) popular Model 3.
Affordable models would ideally allow Nio to increase volumes and creep closer to profitability but extravagant after-sales services elevate costs and undermine economies of scale. In the quarter ending March, when vehicle revenue grew 25%, the company’s operating loss rose 640% from a year earlier to $345 million. Management partly attributed increased expenses to battery-swapping. Nio is nonetheless committed. It’s currently implementing a plan to add thousands of new facilities over four years, and similar services will be available to buyers when it introduces a mass-market marque in 2024, Li said in June, without elaborating.
Nio’s not the only car company to invest in infrastructure and services to encourage electric-car adoption. Everyone from pioneers Tesla and Xpeng (9868.HK) to the venerable Volkswagen (VOWG_p.DE) owns or operates charging stations. However, few are as extreme as Nio, which has gone so far as to dispatch mobile charging vans that meet motorists on the road.
Li can get smarter about the extras as it heads down market. Nio could continue to offer battery rental options or even loans, reducing car buyers’ upfront payments by around a fifth, without committing to regular battery swapping and the infrastructure investments entailed. Alternatively, it could raise prices, but that would be at odds with its drive for more accessible and affordable models. More modest clients will bring rich challenges.
Follow @KatrinaHamlin on Twitter
CONTEXT NEWS
Chinese electric-car maker Nio will hold its annual general meeting on Aug. 25.
Nio’s new mass-market brand, which is expected to launch in 2024, will feature models priced between 200,000 and 300,000 yuan, around $29,000 to $44,000, founder and Chief Executive William Li said on a conference call on June 9. The mass-market brand “will support battery swapping”, Li added, without elaborating. Battery swapping is a service whereby drivers can exchange car batteries for freshly charged powerpacks, rather than charging the batteries via a plug.
Separately, Nio expects to deliver the first of its new ET5 model in September, the company said in a press release in January. The vehicle will be priced at 328,000 yuan with the battery included, or 258,000 yuan for buyers who opt for Nio’s “Battery-as-a-Service” subscription, it added.
Our Standards: The Thomson Reuters Trust Principles.
