It all started with an IPO. An initial public offering is usually a cause for celebration, but the biggest landmark in the history of Nio ended in dismay.

The company had initially hoped to raise $1.8 billion after landing on the New York Stock Exchange in September of last year. Instead, Nio ended up with just over half of that amount. The EV maker had also sought a valuation of $20 billion, according to Reuters. Nio eventually settled for $3.35 billion after listing.

It was too early to go public, observers had told TechNode. But the automotive business requires heaps of money, and Nio had been burning through its reserves. Its research and development, offices in Europe and the US, and manufacturing partnerships did not come cheap. Not to mention the payroll for their pre-IPO workforce—7,000 employees and counting.

The IPO was disappointing, but Nio quickly moved on. Only a couple of months later, in December 2018, the company had cause to celebrate as it launched the ES6, its second mass-produced SUV. Moreover, sales were improving. Between the third and fourth quarters of the year, Nio was able to more than double its deliveries to almost 8,000 vehicles. Things were looking up.

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Unbeknownst to Nio, as the year came to an end, a perfect storm was brewing. A combination of factors including bad planning, regulatory hurdles, and macroeconomic issues began to align, all of which would have a significant effect on the company, eventually leading to an exodus among shareholders.

In 2017, Nio began to move ahead with plans to build a production plant in Shanghai. Despite being one of China’s most promising new automakers, the company did not manufacture its own cars. Instead, it partnered with state-owned carmaker JAC to manufacture its flagship ES8, and later contracted the company to build the ES6.

Investors saw Nio’s outsourcing of production as temporary. After all, the company’s IPO prospectus had promised that a production plant would be built by the end of 2020. The factory would better enable the company to control costs, and also take the reins with manufacturing to ensure quality control.

Then, without warning, Nio hit the brakes. In March of this year, the company announced that it had abandoned its plans to build a plant, opting instead for a “joint manufacturing model” with its current partner JAC. The company said at the time that the move came in response to the Chinese government encouraging these sorts of partnerships and that it believed this model would allow for greater flexibility.

Behind the scenes, however, Nio had been hamstrung by a government-sanctioned program to minimize overcapacity in China’s bloated automotive sector. Since the US-based electric carmaker Tesla had already broken ground on a production facility in Shanghai, Nio would have to wait until that factory had reached capacity before beginning to build its own plant.

In the US, lawsuits against the EV maker began piling up. Investors claimed that they had been misled on a number of fronts: Nio had promised far more sales than the company was actually able to achieve; the anticipated plant would never materialize. The company’s stock price entered a downward spiral.

Meanwhile, the Chinese government was hatching plans to reduce consumer-facing subsidies on electric vehicles. Officials claimed that EV companies were relying too much on government support to sell their vehicles, while not working hard enough to improve their technology.

In fact, the anticipated subsidy cuts were the reason that ES8 sales had peaked in December 2018. Consumers had wanted to get their hands on a vehicle before they became more expensive. When the subsidy cuts were finally implemented in June of this year, they did make EVs significantly less attractive to potential Nio buyers.

Shortly afterwards, sales began to plummet. The company delivered nearly 1,400 vehicles in March, around 1,100 in April, and 1,090 in May. The company attributed the slowdown to macroeconomic factors and the resulting slowdown in China’s auto market. The prolonged trade war with the US was beginning to take its toll. China’s middle class, Nio’s customer base, didn’t have the same buying power it’d had when the company set its sales targets.

Then, in June, just when the company thought things couldn’t get worse, the company was forced to issue a massive recall of nearly 5,000 vehicle batteries, which affected around a quarter of all vehicles sold. The recall followed a crackdown on EV makers after a spate of car fires in China. The news came a week after the company began deliveries of its second SUV, the ES6.

Nio’s recall had a massive impact on the company’s ability to fulfill orders. In July, deliveries slumped to 800 vehicles. Around this time, Nio also began losing executives, both inside China and abroad. Angelika Sodian, managing director of Nio UK, and Zhuang Li, head of Nio’s software team, both announced their resignations at the end of June. In mid-August, a Nio co-founder and executive executive vice president left the company, creating more uncertainty for the embattled company.

As sales flagged, Nio began to tighten its belt. Rumors of layoffs began to abound, and the bad news was later confirmed in Nio’s Q2 earnings. The company began investigating other ways to cut costs. Its costly Formula E team was sold off to the Shanghai-based racing company Lisheng. This sale was a big deal: Nio had made its name by winning the FIA Formula E championship in 2015, one year after the company was founded.

The company is also reported to be spinning off its autonomous driving unit and combining it with Didi Chuxing’s, which is already independent. Because fully autonomous vehicles are years—if not decades—away from becoming a reality, these AV divisions are often costly, putting a strain on any EV company’s books for the foreseeable future.

Nio’s latest blow came in late September when the company reported its Q2 results. The company reported losses in excess of RMB 3 billion. In the week following its earnings release, the company’s share price dropped below $2 for the first time in its history.

For Nio, scaling back its workforce and cutting costs will only buy it time. The company needs to drastically increase its sales numbers, analysts tell TechNode. Despite receiving a RMB 1 billion bailout by a Beijing-based state-backed investment firm and announcing plans to build a production plant in Beijing, Nio’s future remains uncertain.

Some observers say that if Nio and other struggling EV makers don’t manage to sell more cars, they risk becoming the in-house design division for larger automakers through acquisition.

Manufacturers need to sell at least 100,000 vehicles a year to reach profitability, and Nio is no exception. The EV company needs to triple its monthly sales at a minimum, observers say.

Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen

Chris Udemans

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