The tale of Nio has not happened in isolation: It is an allegory for China’s electric vehicle market as a whole, in which young EV companies are struggling to survive in an ever-slowing market.
Struggle wasn’t always the norm. In 2015, China’s new energy vehicle market became the world’s largest with annual sales of 370,000 cars. The State Council, China’s cabinet, had earmarked the sector for development as part of a five-year plan, with an aim to drive growth by a system of government-mandated production quotas, central government incentives, and regional purchase subsidies.
As a result, the sector boomed, with as many as 500 EV startups established with backing from government investments, real-estate barons, and tech giants. Everyone wanted to ride the wave of investment in electric cars.
Nio was an early beneficiary of this system. The company is the first of its Chinese counterparts to go public and has received the stamp of approval from Tesla’s second-largest shareholder, Baillie Gifford & Co., which now also owns 11% of Nio. Many have dubbed the company China’s “Tesla killer.” After all, both EV makers are looking to capture the high-end market. But the story, as we shall see, is more complex than it seems.
Nio has seen its share of controversy since listing in September last year. Analysts and experts are now concerned about the company’s future after three years of huge losses, poor sales, and massive recalls.
Nio: A rising star
Nio was created under watchful eyes. The founding shareholders include heavyweight “all-stars” such as gaming and social media giant Tencent, the founder of e-commerce titan JD.com, and Hillhouse Capital.
But to understand the company and what will become of it, one needs to know its founder, William Li, a veteran of China’s auto industry. He, along with an old friend Li Xiang (no relation)—who later went on to found his own EV business, Chehejia—also invested significant amounts in Nio.
In the early 2000s, the two entrepreneurs had started China’s two biggest online auto service platforms, Bitauto and Autohome. William Li’s Bitauto went public on the New York Stock Exchange in 2010, followed by Li Xiang’s Autohome three years later.
William Li was even credited as being “the godfather of Chinese mobility,” investing $400 million in capital in more than 30 auto-related internet companies, including the online used-car platform Uxin, the ride-hailing provider Dida, and the bike-rental platform Mobike.
Investors saw little reason to doubt Li’s experience, eloquence, and charisma—the main drivers of Nio early success. Still, it was the company’s business model that won over potential shareholders.
Originally known as NextEV, the company rebranded itself as Nio—meaning “a new day”—hoping to embody the car company of the future. With grand plans to overhaul the traditional auto industry, the company did not see itself as a manufacturer and seller of cars, but instead aimed for a user-centrism that redefines what it means to own a vehicle. As the company wrote in its first open letter in late 2015, Nio’s mission was to create a lifestyle around its products and a new experience with premium smart electric vehicles and services in the era of mobile internet.
From the very start, Nio targeted Tesla. It was determined to overthrow the American EV giant in China by offering high-performance products at prices lower than that of Tesla.
As part of an ambitious plan to revolutionize the traditional auto sales model, Nio claims to provide a premium customer experience by offering one-stop worry-free service. Each car owner is assigned to an exclusive after-sale service team, which consists of several “fellows” who handle issues related to insurance and repair. Users can even receive personal charging services for an extra charge. The company is banking on this customer service model working in China, despite its lack of success elsewhere.
Moreover, the company has spared no effort to build a large and active network of clubhouses. Its mobile application includes social features, which, the company claims, allows executives including William Li to interact with customers.
All this happened as China became the world’s biggest EV market in 2015—surpassing the US—with hundreds of EV startups springing up overnight, including embattled billionaire Jia Yueting’s EV brand LeSEE and Alibaba-backed Xpeng Motors. Nonetheless, Nio was the most-watched of the lot. Their team boasted hundreds of top engineers across the globe, including Padmasree Warrior, former chief technology officer at Cisco and Motorola, who joined Nio as US chief later that year.
Using her influence in the tech world, Warrior helped Nio enter Silicon Valley. But the company’s worldwide fame truly exploded after it released its EP9 supercar in late 2016. The vehicle broke the record for the fastest all-electric car at the Nürburgring Nordschleife “Green Hell” track in Germany that year—and again at France’s Circuit Paul Ricard.
Nio had moved into the fast lane. In April 2017, it showed off its first mass-market offering, the seven-seat SUV model ES8. A total of 10,000 pre-orders were booked in five months, the company said. This was followed by a $1 billion Series D funding led by Tencent, which valued the company at more than $20 billion.
The strong start led many to believe that Nio, with its notable founders, strong backers, and record-breaking fundraising, was the most likely to succeed among the hundreds of Tesla challengers in China. The company was also turning heads with its high-profile business strategy, radical market expansion, and ambitious goal to disrupt the traditional car-selling business by using leading technologies. Nio looked to be on a perfectly paved road to success.
In November 2017, Nio raised eyebrows when it began spending an astonishing RMB 80 million in annual rent for a 3,000-square meter showroom in a prestigious Beijing mall. The company now boasts over 30 “Nio Houses” nationwide. These stores not only allow potential customers to check out vehicles and take test drives, but also provide Nio car owners an exclusive clubhouse—including a cafe, library, and play area for children—as part of a broader strategy to shape “a joyful lifestyle beyond the car.”
Amid growing concerns whether such unconventional and lavish business strategies could drive sales, Nio drew unprecedented attention in August 2018 when the company filed for a listing on the New York Stock Exchange.
A month later, Nio made history by becoming the first Chinese EV maker to list in New York. However, analysts noticed the huge loss of RMB 11 billion in three years that had resulted from delivering fewer than 500 vehicles. Public opinion of the upstart EV maker began to shift.