How can Nio win the EV competition?
As part of my Cap Stone Project, my team and I had to pick up a company and craft a turnaround strategy by deploying our two years of HKU MBA learning. We came across Nio, a very interesting company, for many reasons, and thanks to my teammates Ann, Annie, Tomo, Celine, Alci, Orville & Livia we managed to pull out an excellent presentation and report. And special thanks to Nio’s Investor Relations Director, Mr Rui Chen, for talking to us and answering all our questions which made our research more insightful.
NIO is a Chinese multinational automobile manufacturer headquartered in Shanghai, specializing in designing and developing electric vehicles. The company develops battery-swapping stations for its vehicles, as an alternative to conventional charging stations. NIO was founded in 2014 by William Li.
NIO has four models in production: ES8, ES6, EC6, and ET7. The ES8 is a full-size SUV, the ES6 is a mid-size SUV, the EC6 is a coupe SUV, and the ET7 is a sedan. NIO also has a concept car called the EP9, a high-performance electric supercar. NIO’s battery-swapping stations are a vital part of its business model. The stations allow NIO owners to swap their depleted batteries for fully charged ones in minutes, which can be much faster than charging the battery at a traditional charging station. NIO has over 1,300 battery-swapping stations in China and plans to expand its network to other countries. It has raised over $5 billion from investors and is valued at over $60 billion.
Overview Global EV Market:
The global electric vehicle (EV) market is proliferating. 2022 global EV sales exceeded 10 million, with 14% of all new electric cars sold. This represents a significant increase from 9% in 2021 and less than 5% in 2020. Several factors, including government policies, are driving the growth of the EV market, increasing consumer awareness of the environmental benefits of EVs, and falling battery prices. China is the largest EV market in the world, accounting for around 60% of global sales in 2022. Europe is the second-largest market, followed by the United States. The EV market is expected to continue to grow in the coming years. By 2028, global EV sales are projected to reach 22 million, representing a market share of 25%.
Here are some of the key trends in the global EV market:
- The rise of battery-electric vehicles (BEVs) over plug-in hybrid electric vehicles (PHEVs). BEVs are now the dominant type of EV, accounting for over 80% of global sales in 2022.
- The growth of the EV charging infrastructure market. As more and more EVs are sold, there is a growing need for charging infrastructure. Governments and private companies are investing heavily in EV charging infrastructure, which is helping to drive the growth of the EV market.
- The increasing popularity of SUVs and large cars in the EV market. These segments are growing faster than the overall EV market, as consumers demand more spacious and versatile EVs.
The global EV market is a rapidly growing and evolving market. The trends mentioned above are just some of the factors shaping the future of the EV market. However, the industry still needs to overcome the following challenges regarding demand.
China EV Market:
China is the world’s largest electric vehicle (EV) market, accounting for over 50% of global EV sales in 2022. The Chinese government has been a significant driver of the EV market, with generous subsidies, tax breaks, and other policy incentives. As a result, there is a vibrant and competitive EV market in China, with over 94 brands offering more than 300 EV models at different price points.
Local brands, including BYD, Wuling, Chery, Changan, and GAC, dominate the Chinese EV market, holding an impressive 81% share in 2022. However, international automakers are also making inroads into the market, with Tesla, Volkswagen, and General Motors all selling EVs in China. The Chinese EV market is expected to overgrow in the coming years. The government has set a target of having 20% of new car sales in China be electric by 2025. This would make China the first major economy to reach such a milestone. The Chinese EV market is one of the world’s most exciting and dynamic markets. It is a market poised for rapid growth in the coming years.
Nio’s Customers: NIO’s customers are primarily young, affluent professionals in China looking for a premium electric vehicle with a unique battery-swapping business model. NIO vehicles are priced higher than some of its competitors, but they offer several features like luxurious interiors and premium service experience with features such as free charging and home delivery of vehicles; battery swapping in a few mins.
Nio’s Competitors: Xpeng, Li Auto, Tesla, and BYD also face competition from international automakers entering the EV market — Volkswagen, General Motors, and BMW.
Nio’s Suppliers & Complements:
NIO’s battery suppliers include CATL, BYD, and SVOLT.
NIO’s electronics suppliers include Bosch, Continental, and Valeo.
NIO’s automotive suppliers include Magna, Faurecia, and Lear.
NIO partners with charging companies to give its customers access to charging stations. NIO’s charging partners include ChargePoint, Electrify America, and China EV Charging.
Nio’s Finance Performance: NIO’s consistent losses in the last five years can be attributed to high operating expenses and significant investments in research and development. The increasing net loss in 2022 and Q1 2023 is draining the company’s cash flow, which could challenge its future growth and expansion plans. However, they have raised more capital in the last few months, and they are confident with their upcoming sales, their cash flow will be positive.
Nio’s Resources and Opportunities:
Strong financial backing: NIO has raised over $5 billion in funding from investors, including Tencent, Temasek, and Baillie Gifford.
Unique battery-swapping technology: NIO’s battery-swapping technology is a key competitive advantage. NIO owners can swap their depleted batteries for fully charged ones in minutes, much faster than charging the battery at a traditional charging station.
Growing customer base: NIO’s customer base is growing rapidly. In 2022 the company delivered over 91,000 vehicles, up from 43,000 in 2021. NIO is targeting annual deliveries of 200,000 vehicles by 2023.
Expanding international presence: NIO is expanding its international presence, with plans to launch its vehicles in Europe and the United States in the near future.
Committed management team: NIO is led by experienced and talented executives.
Nio’s Current Challenges:
• The global economic slowdown: The global economy faces several headwinds, including rising inflation, interest rates, and the war in Ukraine. This is hurting demand for all sorts of products, including electric vehicles.
• The ongoing COVID-19 pandemic: The COVID-19 pandemic has significantly impacted NIO’s operations. The company’s factories have been forced to shut down multiple times due to lockdowns, and its sales have been disrupted.
• The EV price war in China: Tesla has been aggressively cutting prices for its electric vehicles in China, which has put pressure on NIO and other Chinese EV makers.
• Supply chain disruptions: The global supply chain faces several disruptions, making it difficult for NIO to get the necessary parts to build its cars.
• Competition: Tesla is the world’s leading EV maker and has a significant advantage in brand recognition and market share. Other Chinese brands like BYD, X Peng, and Li Auto are growing rapidly in China, which makes it difficult for NIO to compete.
• Not enough buyers: The growing mismatch between EV supply and demand indicates that even though consumers are showing more interest in EVs, they’re still wary about purchasing one because of the price or charging concerns.
- High costs: NIO has high costs associated with its battery technology, research and development, and sales and marketing.
• Small market share: NIO has a relatively small market share in China, the world’s largest electric vehicle market.
• Early stage of development: NIO is still in the early stages of development, and it is taking time for the company to scale up its operations and become profitable.
- Marketing strategy: NIO’s marketing strategy has been criticized for being too focused on the Chinese market. The company has not done enough to reach out to international markets, where there is a growing demand for electric vehicles.
• Product lineup: NIO’s product lineup is relatively complex, with many models making it difficult for consumers to differentiate and choose.
Turn Around Suggestions:
NIO is a Chinese electric vehicle company struggling in recent months. The company has reported losses for the past three quarters, and its stock price has fallen sharply. NIO needs to take decisive action to turn things around. Here are some possible turnaround strategies for NIO by our team:
- Reduce costs: NIO spends too much on research and development, marketing, and sales. The company must find ways to reduce costs without sacrificing quality or innovation.
2. Sales Boost: As Chinese EV manufacturers enter intense market competition, players need to secure a larger market share. As the rank shown above, BYD, Tesla, and Volkswagen are still taking the lead in EV market in terms of sales share. NIO must capture its market share by boosting sales as fast as possible.
3. Improve production efficiency: NIO must produce its vehicles more efficiently. The company must improve its production process to reduce costs and increase profits.
4. Increase the customer base: NIO only offers a few electric vehicle models focusing on high-end customers. The company should launch low-end models under a sub-brand to get customers in their eco-system
5. Power Swap Investing: NIO’s power swap system and power station layout make it outstanding in EV market and become a selling point for NIO. With such obvious advantages, NIO needs to continue investing in power swap stations in urban and high-speed service areas, to be prepared to face more and more users. With increased users, the advantage of those infrastructures will be outstanding.
6. Focus on China market: Currently, NIO is selling its vehicles in China & EU. Given that China is such an important market, Nio should focus and spend more resources in its home country as EU penetration will be expensive and won’t give the sales Nio needs to be case positive at this stage.
7. Improve its customer service: NIO needs to make it easier and faster for customers to get the service they need.
8. Strengthen its brand: The company must differentiate itself from its competitors and create a strong brand identity. They can do it by focusing on its unique battery-swapping technology and its commitment to innovation.
9. Build a solid financial foundation: The company needs to reduce its debt and improve its cash flow, giving NIO the necessary resources to invest in its future growth.
NIO is a young company with much potential. If the company can execute its turnaround strategy effectively, it has the potential to become a significant player in the global electric vehicle market. The Chinese electric vehicle (EV) manufacturer, NIO, has been grappling with fierce competition in the market. Despite rising sales and deliveries, it lags behind leading players such as BYD and Tesla. Most of NIO’s revenue comes from EV sales, underscoring the need for increased sales to sustain revenue.
NIO’s sales strategy needs to be fine-tuned to increase its market share. This includes consolidating its vehicle models and focusing on popular ones, including the entry-level models, ET5 and ES6, while still catering to the high-end market with ES8 and ET7 models. This strategy would reduce production costs and increase efficiency.
Attracting a broader customer base is also crucial for NIO. One approach could be demonstrating the value of NIO’s service to non-NIO users and allay their concerns about the price. Offering an entry-level model at a competitive price, financial support, and used car replacement services could attract hesitant buyers. Separating the car and service package could also provide flexibility for customers based on their budget.
Addressing “electricity anxiety” is another area NIO needs to invest in by expanding its power swap stations. This unique feature gives NIO an edge and could be further leveraged by opening it up to other EV manufacturers, thus generating additional revenue. Lastly, NIO can enhance its marketing efforts by targeting its core demographic — young, educated, high-income individuals. Initiatives could include corporate collaborations, group purchase discounts, and marketing at high-traffic areas such as airports.
To summarize: NIO’s path forward involves consolidating its vehicle offerings, expanding its customer base, investing in power swap stations, and ramping up its marketing efforts. These strategies should help the company increase sales, dilute costs, and enhance its market share and brand awareness.
