Drive I/O | Auto China 2021: A banner year for Nio, Xpeng, and Li Auto

Just a year ago, Nio, Xpeng, and Li Auto faced a cloudy future. All three had burned through hundreds of millions of investors’ dollars and were beset by lackluster sales. Most observers thought they had yet to hit bottom. Not anymore.

Despite the lingering impact of the pandemic on China’s automotive industry, 2021 has been a fantastic year for Tesla’s major Chinese challengers. The three companies all reached their 100,000-vehicle production milestones, racked up big war chests from new investors, and recently set records for their vehicle deliveries. Their cars are going mainstream in major domestic cities, according to Xpeng President Brian Gu, as internal-combustion vehicles and legacy automakers are increasingly being regarded as outdated.

The Chinese trio, all listed in the US, not yet profitable, but all poised for stronger growth in the coming year, have become the poster children for the country’s EV revolution. Despite a 20% cut in subsidies this year, the world’s biggest EV market in September witnessed an unexpected growth rebound, as the NEV (new energy vehicle) penetration rate surpassed 20% of all new car sales for the first time. 

We round up the most significant milestones in the three companies’ turbulent histories this year and forecast what’s next for them in the coming year.

Nio — Mounting a comeback

With deliveries beating those of BMW and Audi EV at a price tag comparable to those of German auto giants, Nio is literally the first Chinese automaker to have gained a foothold in the country’s premium vehicle segment. Formerly referred to by Deutsche Bank analysts as number one among the promising local EV makers, Nio was overtaken by its peers, as measured by deliveries, due to its relatively slower pace of growth this year.

Once maintaining a leadership position in the non-Tesla piece of the Chinese premium EV segment, Nio found itself in a bittersweet position over the past few months as rivals’ sales grew at a stunning speed. Li Auto and Xpeng in July recorded deliveries of 8,589 and 8,040 vehicles, respectively. Those numbers surpassed Nio’s monthly output for the first time ever. Nio produced only 7,931 for the month.

Then Nio’s monthly deliveries decreased to an even lower level of 3,667 vehicles in October. That number was less than half of both Li Auto’s and Xpeng’s for the month. The company blamed the drop on the restructuring of manufacturing lines in preparation for introducing new models. The most recent sales figure of 10,878 vehicles in November marked a strong rebound for Nio, despite an ongoing industry-wide chip shortage. Moreover, that figure lagged behind those of the other two US-listed EV makers by several thousand units.

More notably, Nio faced one of its worst public relations crises in China in August, when a 31-year-old driver was killed using Nio’s driver-assistance feature with his ES8 electric crossover. The incident not only put further dents into an already tough outlook for the regulatory environment and public confidence in China’s autonomous vehicle space: It also stoked criticism of Nio for overstating the capability of its technology and fragmented its once incredibly loyal fanbase. Details about the accident still have not been released.

Nonetheless, the Tencent-backed EV maker is ramping up efforts to regain its leading position in the market. It’s currently on track to deliver its first premium sedan model ET7, equipped with a Lidar sensor and Nvidia’s supercomputer, in March 2022. It also just launched a lower-priced new sedan model, ET5, as it aims to lift its sales in the country. At the same time, it is rushing to launch a mass-market EV sub-brand next year, targeting the most competitive and yet the biggest segment in China’s auto market.

Xpeng — Taking first place

Once chugging away in Nio’s tracks , Xpeng has raced ahead as China shifts from gasoline power to electric transportation. It is emerging as the new leader in the competitive mid- to high-end Chinese auto segments. The Alibaba-backed EV maker delivered a record-breaking 15,613 electric vehicles in November, bringing its annual deliveries to more than 82,155 vehicles. That figure surpassed Nio’s 80,940 deliveries in the year to date.

Xpeng’s strong performance comes at a time when the country has seen a major rebound in EV demand, signaling a tipping point for mass adoption. Sales of NEVs, comprising all-electrics and plug-in hybrids, are expected to more than double to 3.4 million units annually this year and could further increase by 47% to 5 million units in 2022, according to estimates made by the China Association of Automobile Manufacturers (CAAM) earlier this month.

To ride the wave of the EV recovery momentum, Xpeng has aggressively expanded its product lineup with the release of a premium sports utility vehicle (SUV) model and an affordable family sedan. The company boasts that both will offer the most advanced automated driving capabilities in China.

G9, Xpeng’s first luxury electric crossover, will be equipped with an 800V supercharging platform, which could boost driving range to 200 kilometers (124 miles) with only a five-minute charge. It also has advanced driver assistance software that will allow vehicles to cruise autonomously in gnarly urban traffic conditions. Aiming for a price range between RMB 300,000 and 400,000 ($47,100 and $62,800) according to Jefferies analysts, Xpeng’s G9 model is scheduled for delivery in the third quarter of 2022. It will then compete head-to-head against Tesla’s Model Y and Nio’s ES6, among other top-line EVs.

Meanwhile, Xpeng’s second sedan model, P5, is expected to be a hit. It is equipped with two Lidar sensors, offering urban automated driving capabilities, and is priced competitively, beginning at just RMB 157,900. With P5 deliveries started in October, President Brian Gu expects the company to continue to experience rapid growth in the coming months. Gu projected a monthly delivery target of 15,000 vehicles for the last two months of 2021 during an earnings call last month.

Analysts are bullish on Xpeng’s growth prospects, expecting its monthly sales momentum of 15,000 vehicles will continue in 2022, Chinese media reported in late November, citing Daiwa Securities Meanwhile, Citigroup analysts forecast that Xpeng’s deliveries could nearly double to 175,000 units in 2022.

Li Auto — Radically readjusting

Considered by many as taking a conservative yet non-mainstream approach in betting on the transitional extended-range technology, Li Auto also had a vintage year in 2021. In the year to date, the company has delivered nearly 80,000 Li One electric crossovers, its first and the only model currently on sale. That number is almost as much as the combined deliveries of Nio’s three SUV models.

Backed by Chinese food delivery giant Meituan, Li Auto pursues greater operational efficiencies than its peers. The strategy paid off, with the automaker reporting an impressive gross margin of 23.3% in the third quarter of this year, compared with Nio’s 20.3% and Xpeng’s 14.4%.

Also, each of Li Auto’s stores makes more money on average than those of Nio and Xpeng. The company in November sold nearly 80 vehicles per showroom, more than double Nio’s figure for the same period. Li Auto planned to expand its sales network to 200 stores by this year’s end. In contrast, both Nio and Xpeng said they will each operate more than 350 outlets by that time.

However, Li Auto’s competitiveness in self-driving technologies has lagged far behind rivals’. For example, earlier this month, it shipped an over-the-air update that includes an automated parking feature—the same feature Xpeng offered its customers three years ago. The company’s vehicles are also unable to cruise Chinese highways on their own while being supervised by active drivers. That assisted driving function, similar to Tesla’s Navigate on Autopilot, is already available to Nio and Xpeng customers.

To catch up with rivals and prolong its upward trajectory, Li Auto will shift its strategies radically in the coming years. Executives said the company would more than triple the annual research and development budget to RMB 3 billion ($500 million) this year. That number will be further increased to RMB 6 billion per year by 2024, financial chief Li Tie pledged to investors during an earnings call in February.

And yet, the EV maker claims that it will maintain a healthy gross profit rate while working on a significant expansion of its product lineup and production footprint over the long term. CEO Shen Yanan last month reaffirmed the plan to launch a full-size extended-range electric SUV next year, followed by the release of its first fully electric vehicle model in 2023. Its second manufacturing plant launched construction in Beijing in October. When production begins there in 2023, Li Auto hopes to double its total annual capacity to 200,000 vehicles.