By ZHOU Shuqi
After a bad Q1 and likely worse Q2, the Nio facade has finally cracked. The EV maker has, until now, steadfastly refused to cut prices when everyone else has gone full "bargains galore."
Something more than fine words is required to pull Nio out of its downward spiral, so, pleading with great reluctance, Nio has slashed prices across the board by 30,000 yuan (US$4,200).
Journey beyond the cars
This sudden change of heart and business model, plus the release of four new models last month, may have temporarily brought Nio back from the verge of another crisis, but more problems beckon.
Sales were barely over 5,000 in April – a dangerous threshold for EV makers – and didn’t reach 7,000 in May. About 8,000 were sold in the first three weeks of June. This a good sign, but only relative to previous failures. And the end of Nio's troubles is still a long way off.
LI Bin, Nio’s founder and CEO, has been unabashedly unorthodox since day one. Never enthusiastic about efficiency or scale – the holy grail for all other car makers including Tesla – he juggles jargon like “full life cycle service,” “digitized experience,” and “beyond cars.”
"Beyond cars" may be a key phrase to many of Nio's ailments. Nio could conceivably be too far ahead of even these fast-moving times. But on the journey to beyond cars, a good first step might be to build a car so impressive, that it inspires customers to want to drive into Li's great "beyond."
For now, Nio's products uniformly look, talk and walk exactly like any other cars, just not sufficiently desirable ones.
Beyond sales targets
Dealerships are not assigned sales targets but should go "above and beyond" – it's that word again - to make customers feel "at home." It's not difficult to go above and beyond nothing, but do customers really want to feel "at home" in a car dealership?
Charging takes too long? Ok, let’s invent a breezy 15-minute battery swap instead. Never mind that each station – 1,000 more to be built this year – costs 1.5 million yuan each.
Nio says the efforts have paid off but in a bizarre way.
Nio claims to have a group of loyal followers other carmakers can only dream of. In 2019 when Nio was running out of cash, more than 8,000 of this mysterious force bought cars, even at the risk of not getting a car at all. This amounted to a crowdfunded donation of 3 billion yuan to save their favorite company from going under.
It's certainly very unusual customer behavior, more suited to K-Pop than EVs. Other carmakers would be well-advised to closely scrutinize these super fans, learn what they can, and build their own supportive army.
Choice, but not too much
In all fairness, no one doubts that Nio makes good cars. It uses some of the best chips, Lidars, and motors out there. Analysts interviewed for this article all acknowledged that Nio is a strong contender in the luxury EV market in terms of design. Even detractors rarely find faults in specs and performance. So, what's up?
The problem is not about any single model. The portfolio is crowded. Nio makes sedans, tourers, and SUVs, each has many different looks and features, in the belief that customers will want to (or be able to) choose the right one for their unique needs and personality. But in reality, customers only find it hard to choose.
“People know they want, and they want the cheapest,” said one manager.
“It’s fine to talk about personality in terms of design. But Nio hasn’t done it right. The brand doesn’t have a clear definition,” says an analyst.
These two statements perhaps epitomize the faulty premise on which Nio is built.
Identity crisis
Most people also express themselves through their clothes, furniture, homes and yes, cars. But when they "know what they want" – a sleeveless minidress for a party, trail-running shoes, a corner sofa – the choice then comes down to "pink or black." Or the cheapest. Few want to design their own car.
They want to choose. One or two choices. They want to tell their friends that they bought a Nio, and they want their friends to know what that means. Like a Mini or Ferrari.
It doesn’t help that Nio is notorious for never lowering its prices. In April, as a price war raged through the market, Nio reduced customer perks, causing an outcry.
Having so many models – eight in total for 2023 – and an almost infinite variety of models within models overstretches its supply chain. The ET5 sedan flopped last year because Nio could not fulfill all orders. They had not made any.
This year’s ES6, an SUV, is delayed for similar reasons. Factories that can switch between models are expensive to operate and easily under-utilized. Similarly, because Nio buys so many different parts, the volume for each is simply too small to achieve any real bargaining power. It's not really manufacturing, it's more like high tech handicrafts.
How much R&D is too much?
Last year during the worst of the chip shortage Nio managers were largely invisible while other auto executives filled their days with personal meetings and corporate dinners, lobbying for more supply. The saying in the industry is that Nio’s head of supply chain, Shen Feng, is “more of an R&D guy than a buying guy.”
The R&D guy’s approach, unsurprisingly, is to develop chips and key parts himself. This could enable better design and save money in the long run, if – a big if – Nio ever scales up. And of course, if Shen is a better R&D guy than the R&D guys at the suppliers.
Right now, conserving cash is the talk of the industry and Nio’s 12 billion yuan spent on R&D in a year is more than twice that of its competitors. Nio has around 40 billion yuan in cash and investors have promised another 5 billion.
Nio's budget line, Alps, is set for delivery next year. The hope is to sell 50,000 a month, which, is, for once, "beyond" – beyond any analysts' expectation.
Price of fame
In a way, Nio’s loyal following has become a burden. In terms of brand identity, the superfan is more or less all Nio has to cling to.
The Nio fan is a popular figure of fun in the industry and beyond, synonymous with a tech-obsessed petite bourgeoisie.
If Nio really wants to appeal to a wider audience who are not feeling particularly rich or keen to appear, ditching the crazy gang might not be the worst idea.
