Executives at electric vehicle manufacturer Nio are putting a positive spin on the company’s future prospects, despite mounting challenges to its business.

Talking to the media on Tuesday at industry expo Auto Shanghai, Nio co-founder and executive vice president Jack Cheng said he is not going to worry about the company’s sales performance, which has experienced a “greater than anticipated slowdown,” according to the company’s latest financial results.

“We’re a startup company [and] we’re moving ahead with our capacity in our manufacturing partnership,” Cheng said. “There will be a lot happening in the next couple of years,” he added, alluding to the company’s self-driving plans.

At the show, Nio CEO William Li teased a sedan dubbed the ET Preview, a first for the company, which has launched two SUVs. Nio did not provide any additional information about the new vehicle.

Nio has also opened up its charging services to other EV brands for the first time, making them available for car owners through a mini program in popular messaging app WeChat.

But some analysts are not convinced. “Having these ancillary services like the mobile charging, that’s nice and all, but it’s not going to dent Nio’s bottom line,” Tu Le, founder of consultancy Sino Auto Insights, told TechNode.

Declining sales

Nio’s comments at Auto Shanghai come as the company seeks to tackle increasing pressures on its business, including lawsuits for allegedly misleading shareholders, slowing deliveries, and expensive manufacturing partnerships, all of which could hamper Nio’s development.

Still, that doesn’t seem to have inhibited the company from pulling out all the stops at the annual auto show, the largest in China, which alternates location between the eastern Chinese city and Beijing.

Nio’s booth at Auto Shanghai dwarfs those of its competitors, including Weltmeister and Xiaopeng. The display also outdoes some state-owned auto manufacturers. The impeccably designed space features a Nio House—one of many user centers the company has opened around China, an auditorium, and a display area for the company’s vehicles and services.

Nio is trying to give the impression that everything is fine, Le told TechNode. “Under the surface, they’re probably freaking out,” he said.

The company has been struggling to sell its vehicles. Since launching its flagship SUV, the ES8, in June last year, Nio has delivered around 15,000 cars. Nio saw a slowdown in sales in January and February, which it attributed to accelerated deliveries at the end of last year, seasonal holidays, and a slowing auto market in China. The company expects this trend to continue into the second quarter.

According to figures from the China Association of Automobile Manufacturers, electric vehicle sales reached more than 225,000 units in the first quarter of 2019, up 120% year on year. Meanwhile, total auto sales dropped more than 10% during the same period.

The majority of these sales were lower cost EVs that were also generally subsidized by the Chinese government, and the figures are not necessarily indicative of deliveries in the high-end market, where Nio is placed.

In the first quarter, Nio delivered nearly 4,000 ES8s, down by half compared to the last three months of 2018. The company launched the ES6, a more budget-friendly SUV, in December. According to its website, Nio will begin delivering the vehicle this quarter.

The company faces the challenge of dealing with costs that come faster than revenues, which is compounded by the fact that it is attempting to build its sales, Nio House, and charging network at the same time, Bill Russo, founder of consultancy Automobility, told TechNode. “This will test the patience of investors and they may need to get fresh capital,” he said.

Nio should be able to tap its deep-pocketed Tencent ecosystem investors for some time until the company can prove its business model can work, Russo added.

But declining sales and ballooning expenses also expose the company to greater scrutiny. “It’s like the emperor with no clothing,” Le said. “And because Nio is publicly traded they have exposure in China, but also internationally. “

Legal troubles

The ES6 (Image credit: TechNode/Chris Udemans)

Since Nio released its financial results in early March, the company’s share price has fallen by more than 50%. Aside from the delivery slowdown, the company made losses of $1.4 billion last year.

Shareholders have subsequently filed class action lawsuits against the company in the US, saying that Nio provided “misleading” statements that led to losses for investors. These include Nio backing out of plans to build its own factory, instead opting for a “little known” automaker to build its cars.

The company’s vehicles are currently produced by state-owned auto manufacturer JAC in the eastern Chinese city of Hefei.

The lawsuits also allege that the company failed to disclose the impact of government subsidy reductions on sales. Nio has said these claims do not have merit.

Shareholders’ legal actions, in which the company’s tops executives and board members are listed as defendants, could distract management from their core focus on Nio’s development. “Not only are they having problems with sales, but now management’s attention has to be divided between three or four fires that they need to put out,” said Le.

The “joint manufacturing” model with JAC will no doubt continue for over the next few years as Nio has been blocked from building its plant in Shanghai’s Jiading District, as a result of government rules targeting capacity glut. The factory was due to open by the end of 2020.

However, as part of its agreement with JAC, Nio is required to pay the state-owned firm for every vehicle produced. In addition, the company has agreed to compensate JAC for operating loses it incurs as a result of manufacturing the startup’s cars for the first three years of production.

According to its listing documents, as of the end of June 2018, Nio had paid JAC RMB 65 million (around $10 million) for its 2018 second-quarter losses.

Chris Udemans

Christopher Udemans is TechNode's former Shanghai-based data and graphics reporter. He covered Chinese artificial intelligence, mobility, cleantech, and cybersecurity.

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