Nio Inc. founder and Chief Executive Officer William Li said the Chinese EV maker may face a challenging first half as a cut in government subsidies and the broader economic slowdown erode local demand in the world’s largest new-energy vehicle market.
Customers are likely to try place orders before the end of the year, when the national subsidies for electric vehicles are expected to be phased out, Li said at a briefing after the company’s launch of its latest models at a weekend event in Hefei, central China.
“It will also take time for both the supply chain and consumer confidence to recover from the pandemic,” Li said, adding that he expects a full recovery in May or June.
The Shanghai-based automaker’s production has been upended by the effects of Covid. China’s initial strict adherence to its Covid Zero policy handicapped production, logistics, and delivery, before the government’s reversal in policy led to a sharp increase in infections, forcing Nio to miss its annual delivery target of 150,000 units.
The company needs “to actively strengthen our capabilities in demand forecast and rapid response” under such a volatile and uncertain situation, Li said in an interview with Bloomberg on Sunday. Nio aims to set up a system together with suppliers to disclose inventory conditions for semiconductors and raw materials, as well as staffing, equipment investment and production capacity.
If there are changes in supply or demand, each player would then be prepared in order to respond rapidly, Li said.
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Nio has taken precautions by storing more components, increasing orders from the original chip-makers and exchanging semiconductors with other automakers, Li said. He called on carmakers and suppliers to “reasonably place orders for chips” because of possible panic buying.
Covid outbreaks have the potential to cripple production and disrupt employee rosters, threatening the global supply of everything from cars and golf carts to kitchen appliances. Nio has in the past two years collaborated with component-making partners to support each other with workers when necessary, Li said.
Deliveries of new-energy vehicles — pure electric and hybrid cars — to dealerships in China are expected to reach 6.5 million by the end of the year, and may touch 8.4 million in 2023, China’s Passenger Car Association said at a briefing earlier this month. Still, the year-on-year growth rate is slowing.
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Overall profit for the industry, excluding Tesla Inc., could be negative, given the huge spike in costs of raw materials for EV batteries, Li said.
“There was in fact no actual shortage of EV batteries, at least not as severe as the chip shortage,” he said, “and it is obvious the upstream suppliers are making great profit, while carmakers like us are having a hard time.” Part of the reason for this is the lack of transparency in lithium pricing, Li said.
Premium Buyers
Nio, which until now has targeted premium buyers for its vehicles, plans to roll out its first mass market model in 2024, according to the CEO. The company is also focusing on developing and producing its own batteries and chips, he said.
“You have to take the vertical integration of key components if you want to enter the mass market and make profit,” Li said, “otherwise it would not be possible.”
The company plans to have a presence in 25 overseas markets by 2025, including in the US, and intends to break even in 2024. Because of the restrictions of the Inflation Reduction Act in the US, Nio may test the waters there by introducing models priced at more than US$80,000 ($107,910), above the qualification of IRA limitations, Li said.
The new US policy will not affect the company’s short-term strategy of entering the market, but Nio has to evaluate the longer-term effects.
“The automotive industry always has the backdrop of global competition,” Li said. “Our biggest challenge has always been how to get a real foothold in Europe and US,” particularly in today’s geopolitical environment, which might be “10 times harder then when we set up of the company.”
