How China's carmarker Nio plans to rival Tesla

How China's carmarker Nio plans to rival Tesla

William Li, chief executive officer of Nio Inc. (centre) poses for photographs with car owners in Shanghai on March 21, 2021.

(BLOOMBERG) – At a gala dinner in Shanghai, Mr William Li, the founder of Chinese electric carmaker Nio, can barely move forward in the buffet queue before being stopped for another selfie, handshake or hug.

Over the next three hours, Mr Li, 46, poses for hundreds more photos, chatting with customers of the company he started just over six years ago and has built into a way of life – at least for the people who buy his cars – with clubhouses, a round-the-clock battery recharging service and even clothing, food and exercise equipment, all decked out in Nio’s geometric logo.

While other billionaire executives may cringe at spending their downtime glad-handing customers, for Mr Li, this is for his business, which relies on creating a sense of allegiance among buyers, who then persuade their friends and family to spread the word about its cars.

Dubbed “rippling mode”, the strategy evokes the ever-widening circles caused by throwing a single stone into a pond, he says.

The scene in Shanghai was just what he was aiming for – a passionate customer base with the loyalty of Apple fans, and a dash of Tesla co-founder Elon Musk’s cult of personality thrown in.

It is an approach that has turned Nio into Tesla’s most visible nemesis in a country that seems to be minting Tesla adversaries every other day.

While other electric vehicle (EV) companies may pump out more cars aimed at the mass market, Nio is targeting the premium buyers, just like what Tesla is doing.

China is already the world’s largest market for EVs.

Sales will reach two million this year and surge to 6.2 million vehicles by 2025, when they will account for a quarter of all passenger car sales in the country. Nio’s premium ES6 sport utility vehicle (SUV) competes head-to-head with the sporty Model Y that Tesla started making in China last year.

Nio delivered more than 20,000 vehicles, all of them SUVs, in the first quarter at an average price of US$68,000 (S$91,200), while Tesla shipped around 17,000 of its Model Y SUV in China, which starts at around US$53,000.

Tesla has faced a raft of setbacks of late in China, which accounted for more than 20 per cent of all revenue last year.

Increased scrutiny from local regulators has been accompanied by a rising backlash against Tesla and its cars, culminating in one owner climbing on top of a Model 3 at the recent Shanghai Auto Show, claiming the company failed to address issues with her vehicle’s brakes.

The protest, which went viral in China, unleashed a wave of complaints about Tesla’s customer service, the very thing Mr Li – who regularly replies to queries from Nio owners on the company’s app and has taken weekend trips across China to meet customers – has used to differentiate Nio in the cut-throat EV landscape.

But Tesla is not the only foe he has to worry about.

A battle royale is brewing in China’s new energy car market – where retail sales of battery-powered passenger vehicles jumped 10 per cent to 1.11 million last year, despite the hit from the pandemic – one that will challenge both Nio and Tesla, and set the stage for global control over the future of cars.

After years watching from the sidelines, the big carmaking giants are doubling down on EVs, with Volkswagen launching an eight-car range from its platform designed for battery electric cars in China, Toyota Motor unveiling a new EV platform, and premium carmakers like BMW aiming for one-quarter of all Chinese sales to be electric.

Chinese search engine titan Baidu, smartphone maker Xiaomi and network giant Huawei Technologies have also pledged almost US$19 billion in the EV and autonomous driving space since the start of the year alone.

Smaller companies like Nio – which is listed with compatriots Xpeng and Li Auto in New York – will face greater pressure as multinationals enter the fray.

Carmaking is typically a capital-intensive business, but with Nio, Mr Li has sought to create a brand beyond the vehicles.

The most visible manifestation of that was the Nio House, an elite drop-in centre for the company’s customers – even offering art and music classes for their children – and located in prime real estate in some of China’s biggest cities.

It was coupled with extravagant marketing events. The carmaker holds annual Nio Days and, at the first one in 2017, paid for flights and luxury hotels for everyone who ordered a vehicle a year before production started.

When its public charging facilities are overwhelmed, Nio has a fleet of cars that can take portable battery chargers to users wherever they are parked.

Such largesse, along with a major recall after some cars caught fire just as China shifted subsidies from EV purchases to support the charging network, saw Nio rack up US$5 billion of losses in its first four years of existence.

By the second quarter of 2019, the company was losing around US$5 million a day.

“It was our darkest time,” Mr Li said. A team met nightly to comb through expenses, from salaries to the cost of Nio Houses.

By October 2019, it looked like the gig was up. After posting a worse-than-expected quarterly loss, Nio’s shares plunged to a record low of US$1.32.

At its nadir, it had lost more than 70 per cent of its market capitalisation – about US$5 billion in value – from its New York initial public offering a year earlier.

Early last year, the municipal government in Hefei came knocking and injected 10 billion yuan (S$2.1 billion) into Nio, more than the company’s entire revenue for 2019. For Nio, the quid pro quo was supporting local industry – it pays a government-owned manufacturer in Hefei called Jianghuai Automobile Group to make up to 20,000 cars a month.

Nio cut about a quarter of its workforce, slowed its efforts on autonomous driving, delayed wage payments for managers and spun off some non-core businesses.

Also, the roll-out of the costly Nio Houses was suspended for more than a year. A more modest Nio Spaces was rolled out in cheaper locales and also sometimes in smaller cities.

Nio is still yet to turn a profit but its sales have risen steadily since – topping US$1 billion for the first time in the three months to Dec 31 last year.

It narrowed its net loss in the first quarter of this year to 451 million yuan, down from 1.69 billion yuan a year earlier and 1.39 billion yuan in the fourth quarter of last year.

Even the businesses that underpin Nio’s lifestyle brand are making money, contributing to 1.1 billion yuan in revenue from non-vehicle sales last year.

“I trust companies like Apple for their determination, software development, intelligence capability and user connection,” Mr Li said.

But he is looking to the long game. “I’m very optimistic,” he said. “By 2030, 90 per cent of the newly launched cars will be electric, or even 95 per cent.”

For the Nio fans gathered at the Shanghai event, that future is already here.

With the event drawing to a close, owners pose for a large group photo with Mr Li at its centre, everyone flashing thumbs up.

As the lights dim, he slips out of the hall and into the night, where his driver – in a white Nio ES8 – waits to take him home.

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