On January 7th, according tomedia reports, Chinese electric car manufacturers such as NIO are trying to topple Tesla. But with Tesla’s strong entry into the Chinese market and its dominance, NIO is still a long way from becoming a “Tesla killer.”
NIO founder Li Bin, who is in his 40s, is a technology home, and while not as compelling as Tesla founder Elon Musk, he is a rock star to NIO customers. NIO has a market capitalisation of just $4 billion, a fraction of Tesla’s $ 75 billion. But NIO is best known among China’s more than 30 electric car start-ups. On top of that, NIO continues to push up and shatter investors’ expectations with Tesla-style frequency. NIO’s shares soared 54 per cent on December 30 when Mr Li said production in the fourth quarter could rise to 8,000 from nearly 4,800 in the third quarter. But throughout 2019, NIO lost almost 40% of its market value.
Musk has long been unique in the electric car industry, but NIO also has the advantage of the Chinese market. NIO represents China’s ambition to become a global hub for electric vehicle production, and in the 21st century it will dominate the electric vehicle market as the United States dominates the fuel-electric car market in the 20th century. Because of this, the Chinese market will be a place where the Tesla Killer will grow. In a 2019 interview with CBS News, NIO was called the “Tesla Killer.”
However, if NIO is trying to topple Tesla, it seems strange. For Tesla, it has invested heavily in cutting-edge technology, resulting in a number of cash flow holes. That has led to concerns about Tesla’s survival. NIO is replicating Tesla’s business models. If there’s anything that can kill Tesla, it’s more likely that it has its own long-term profitability difficulties than competition from NIO. The latter has long-term profitability problems. Ironically, it is the Chinese market where NIO is based that will ultimately ensure that Tesla has a bright future.
Not so long ago, NIO was considered a more promising electric car manufacturer. Sales of luxury electric cars are booming in China, the world’s largest car market. In 2014, electric car manufacturers and car buyers began to receive subsidies, boosting the industry. The support of venture capital is also well supported. NIO launched its first luxury electric SUV, the ES8, in 2018, for more than 500,000 yuan. Soon after, NIO was listed on the New York Stock Exchange to raise money and to raise its international profile in order to sell cars around the world. Its shareholders include Baillie Gifford, a leading British investment firm, and Tesla’s largest institutional investor.
However, Tu Le, of Sino Auto Insights, an automotive consultancy, says NIO’s ambitionto to kill Tesla is too great. It is reckless to think that it can quickly compete with an electric car company that is 11 years older than itself and has a huge global brand awareness and a number of models. NIO’s 2019 revenue is estimated at about $1.2 billion, dwarfing Tesla’s $24 billion revenue. Since the beginning of 2017, however, it has lost more than Tesla. NIO splurges on member clubs with libraries, coffee shops and nurseries, sometimes even directly across the street from the Tesla showroom. But unlike Tesla, it did not invest too much in car manufacturing, but outsourced production to Jianghuai Automobile, the state-owned carmaker.
In addition, cuts to subsidies for electric vehicles in China have hit investor confidence since June, raising concerns about investment strains. NIO raised $100m from technology giant Tencent in the third quarter, and Li bin himself is expected to spend the same amount. But while NIO’s third-quarter sales rose 22.5 per cent quarter-on-quarter, net debt reached $1.3bn, according to Bernstein, an investment firm. Although the company unveiled its third SUV on December 28th, NIO admits it needs more money if it wants to live another year.
Instead, Tesla continues to make breakthroughs in the Chinese market. On December 30th, the day NIO’s share price soared, Tesla’s Shanghai super factory delivered its first Model 3, which is now worth less than Rmb350,000. Although it is less than a year since construction began at the plant, production has reached about 1,000 a week. A few days ago, Tesla also received $1.3 billion from Chinese lenders to complete the construction of the Shanghai plant. Making electric cars in China makes Tesla less likely to pay import duties on vehicles and is eligible for subsidies for electric vehicles. Tesla’s share price has surged to a record high in recent days, despite continuing questions about its ability to increase sales, profit margins and cash flow.
Although NIO is a Chinese company, it does not have the same advantage. And because there are no factories of its own, it has less influence. It is competing for financing with a swathe of electric car start-ups such as Batten, Wima and Xiaopeng. No one can guarantee that all these companies will survive.
In this fickle market, fate may soon be reversed again. NIO said it may soon announce new financing arrangements. State-owned carmakers are likely to hold large stakes. Some analysts say NIO is unlikely to go bankrupt because it is a symbol of China’s technological ambitions.
Still, Tesla is in the lead. Michael Dunne, president of ZoZo Go, an automotive consultancy and a Tesla user, says China is, in fact, more like Musk’s home. China’s ambitions for the electric car market have given Tesla a rough ride in the U.S. market. China’s strong manufacturing capabilities will help Tesla overcome the “production hell” it faces in the U.S., and may promote autonomous driving faster than the U.S. (Chenchen)