China’s electric vehicle price wars have erupted again. Tesla’s decision to increase sales and regain market share in China by lowering prices by the end of 2022 led competitors such as BYD to follow suit. Nio stayed above the fray. Now it has unleashed a new battle.
Chief executive William Li once said the company would not follow Tesla’s lead. A 23 percent quarter-on-quarter sales decline in the first three months of the year and gloomy second-quarter prospects seem to have changed his mind.
Nio’s move to cut prices by 30,000 Rmb ($4,200) means buyers will save about a tenth on the cheapest models. New buyers will also no longer receive free battery changes. Research and development projects will be put on hold while the loss-making company tries to cut costs.
Nio listed in the US in 2018. Most sales are 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 the removal of subsidies has curbed sales growth. According to the China Passenger Car Association, sales of electric and hybrid cars increased 46 percent year-on-year. That is down from more than 100 percent last year. Shares of Nio are trading nearly 90 percent below their 2021 peak.
Nio 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 goal. Lower prices will help. The ES6, a new budget SUV model, had a lot of pre-orders. A national campaign to encourage car purchases, including EV adoption in rural areas, could also help boost sales. But only national subsidies will bring growth back to previous levels.
More importantly, Nio needs to prove it can curb spending. At the end of the last quarter, the company had Rmb 37.8 billion in cash. If the first-quarter losses repeat and no new funding is raised, Nio has less than two years to break even.