Nio: Chinese electric-car company enters race to lower prices and cut costs

China’s electric vehicle price wars have been recharged. Tesla’s decision to increase sales and regain market share in China by slashing prices in late 2022 led competitors such as BYD to follow suit. Nio remained above the fray. Now it has instigated a fresh fight.

Chief executive William Li once said the company would not follow Tesla’s lead. A 23 per cent quarter-on-quarter drop in sales in the first three months of the year and a gloomy outlook for the second quarter appear to have changed his mind.

Nio’s move to cut prices by Rmb30,000 ($4,200) means buyers save about a tenth on the cheapest models. New buyers will no longer receive free battery swaps either. Research and development projects will be shelved as the lossmaking company attempts to lower costs.

Nio listed in the US in 2018. Most sales take place in China, but the company is gaining a foothold in European markets. It is expected to enter the US in 2025.

Within China, this should be a more lucrative year than 2022, when Covid-19 led to frequent lockdowns. But subsidy removals have dragged on sales growth. Electric and hybrid sales rose 46 per cent year over year, according to the China Passenger Car Association. That’s down from more than 100 per cent the previous year. Nio’s shares trade nearly 90 per cent below their 2021 peak.

Nio has delivered 43,854 vehicles in the first five months of the year. That leaves more than 206,000 to go if it is to meet its annual target. Lower prices will help. The ES6, a new, inexpensive SUV model, had strong pre-orders. A national campaign to encourage car purchases, including EV adoption in the countryside, could help lift sales, too. But only national subsidies will return growth to previous levels.

Even more importantly, Nio needs to prove it can rein in spending. At the end of the last quarter, the company had Rmb37.8bn in cash. If first-quarter losses are repeated and no new funding is raised, Nio will have less than two years before it needs to break even.