‘I learned that we can do anything, but we can't do everything...at least not at the same time. So think of your priorities not in terms of what activities you do, but when you do them. Timing is everything,’ – American author Dan Millman.
Let’s take a journey back to eight years ago, when Wall Street was getting excited about a landmark initial public offering (IPO) from a small but high profile company that was unlike anything that had come to market before.
Tesla was not only the first American car company to go public since Ford back in 1956, but it was the first one to exclusively produce electric cars and was boasting of how it had broken away from the methods of traditional automakers. Although investors had a rare opportunity to gain direct exposure to what had long been agreed was the future of transportation, it was also at higher risk. Markets may now have become accustomed to new companies listing even if they are still losing billions each year – 75% of businesses that joined the US market last year were in the red - but it was less common when Tesla joined the market.
By the time it had completed its IPO Tesla had sold about 1000 Roadsters, its first and only car at the time, and was preparing to spend big on its expansion plans and introducing new models, despite having burnt through over $300 million and never making a profit. The market still lapped up its IPO and Tesla shares rocketed over 40% on the first day of trading. That’s because Tesla was, and still is, all about the future.
Move forward to today and you may get a feeling of déjà vu. Having sold over 1600 vehicles and burnt through $1.6 billion of cash, NIO has become the first of what is thought to be over 300 Chinese electric car companies to list in the US, selling its ideas of how it will capture the huge opportunity in China over its accounts that are covered in red ink.
NIO’s IPO however, failed to spark the excitement that Tesla’s did back in 2010, and the market is in a very different mood. When Tesla listed, the hope that had buoyed its share price was the belief that self-sustaining profitability would come in 2012 – but six years on and having raised over $19 billion and burnt through $9 billion – Tesla shareholders are still waiting for the company to become cash flow positive. Patience has run out, investors are refusing to cough up any more cash and at the bottom line, those considering investing in NIO fear history could repeat itself.
Learn more about whether Tesla will ever make a profit
What is NIO?
‘We design, jointly manufacture, and sell smart and connected premium electric vehicles,’ – NIO.
NIO is an electric car company that sells exclusively in China. The company’s current model and its upcoming one are both aiming to cater to the premium SUV market, where there is very little competition. This ‘multi-year’ lead that it holds over domestic competitors has been possible because, instead of spending big on building a new plant and securing costly manufacturing licenses, NIO has gained a jumpstart by ‘outsourcing the things we can’t do’, including making the actual cars. Using an established carmaker, JAC Motors, meant the company could get its first car to market at a quicker rate and at a lower cost.
NIO’s manufacturing partner: who is JAC Motors?
JAC Motors is a Chinese car maker that has been in operation for over 50 years, selling its own range of sedans, SUVs, MPVs, trucks and vans across South America, Europe, Africa and Asia. Starting from April this year JAC has a deal to produce NIO’s ES8 model for five years and will also make the next model, which will start rolling off the production line next year.
One key reason why JAC has been open to producing cars for another company could be down to the gap in capacity, as it is able to manufacture about twice as many cars as it can engines. With NIO developing its own powertrain with suppliers the partnership puts JAC’s excess capacity to good use. The company’s global status in electric cars has been raised since releasing new models under a partnership struck with German giant Volkswagen.
JAC has spent ¥2.2 billion ($320 million) on the Hefei plant where NIO’s cars are made, alleviating a hefty cost burden for the company, which is still finding ways to spend its cash. NIO currently pays JAC for each vehicle made on a monthly basis, but has agreed to cover the company’s losses for the first 36 months which, considering it paid $14.5 million for the first of what will be 12 quarters covered by the agreement, suggests that the firm has had to pay the price for getting a head start over the competition.
NIO: focusing on the interior
With manufacturing in better hands, NIO is focused on what it knows. The three co-founders that remain at the helm today all come from an automotive background, but not from the manufacturing department. NIO’s chief financial officer (CFO) and vice-president Hsien Tsong Cheng has largely been involved in finance at FIAT and Ford. President Lihong Qin comes from a sales and marketing background, and chairman and chief executive officer (CEO) Bin Li, the lead founder, currently heads New York Stock Exchange (NYSE)-listed Bitauto Holdings which provides in-car services such as internet content and shopping.
NIO designs its cars and sells them directly through its own NIO Houses (‘brand centres’ that boast galleries, libraries, kitchens and bookable workspaces) and focuses on the interior of the cars, providing ‘worry-free’ ownership to its customers.
The experience its cars offer is handled by its own artificial intelligent (AI) assistant, NOMI, which feeds users services from its partners and shareholders. Tencent and Baidu, both investors, supply their music and video content streaming services to NIO users through NOMI, and it even has a deal with JD Sports that has trainers delivered directly to your car. This might seem an odd area to concentrate on but it is forward-thinking. When your car starts driving itself then you suddenly find yourself bored. This frees you up to stream your favourite tunes or films, shop online or browse the Internet – you could theoretically have a self-driving office or shop, or a home away from home. NIO estimates in-car ecommerce is currently worth $1.4 billion but set to double to $2.9 billion by 2022 as autonomous driving takes off. As far as NIO is concerned, this is the real opportunity and where it wants to take the lead, and why developing NOMI and its autonomous driving will be critical if it is to chase this model. There are currently five levels of autonomous driving, the fifth being the complete self-driving cars that we would even be allowed to sleep in, and both NIO and Tesla believe we can have cars drive us around a lot quicker than most.
Read more about how AI could make autonomous vehicles safer
Tesla, which has not earned a reputation for staying on schedule or delivering promises, said in 2016 it would launch ‘full self-driving’ capabilities by 2019, which is apparently still on schedule. NIO has more conservative ambitions and has (rightly) been more vague about what it can introduce and when, stating its current aim is to reach level four of autonomous driving ‘in the coming years’. No one is expecting to see a fully autonomous car zipping around next year – there may be self-driving pods following pre-programmed routes around the likes of Milton Keynes, but having an autonomous car capable of going anywhere like any other car is a whole different story. It is coming and NIO’s strategy is clear, but it could be premature to focus on the future before getting a grip on the present.
NIO power: ‘critical to success’
China is an unrivalled leader when it comes to adoption of electric vehicles, driven by the sheer size of its population and the government support. However, there is a big problem that NIO and others in China need to tackle.
Anyone purchasing an electric vehicle will only do so in the comfort of knowing they can charge their vehicle when and where they need to. This is again an issue of ensuring electric cars are in no way limited compared to traditional cars. In developed markets like the US and Europe the primary solution has been installing charging units at people’s home and then supplementing them with public ones in areas of high-density parking, such as train stations. Home charging gives users the confidence to complete all their everyday journeys, and, as long as the batteries and therefore the range continue to improve, they will increasingly be comfortable completing longer journeys.
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The story in China however, is different. The way electricity is wired means that most residential buildings can’t have a home charging unit installed, including NIO’s Power Home. More than half of China’s 450,000 charging units are privately owned, suggesting that the government is failing to roll out as many public chargers as fast as consumers are purchasing electric vehicles. But while building 214,000 public chargers may seem insufficient for 1.4 billion people, it is already more than double the amount of petrol stations in the country.
An even bigger problem could be the lack of standardisation. The type of plug connections vary across the country, as does the amount of output power, meaning the time it takes to charge vehicles and the cost both change depending on your circumstances (one output charges a car in one hour and another eight). NIO says a staggering 41% of Chinese consumers refuse to buy an electric vehicle because of this alone.
One admirable characteristic of Tesla was its refusal to wait for the infrastructure to be built. There wasn’t enough charging points so they built them. NIO, on the other hand, is taking a slightly different approach. While it provides home installation where possible, China’s unique challenges mean it has had to think outside the box. It has a three pronged approach to charging: Swap, Valet and Mobile. Swap allows users to swap their dead battery for one that is charged, Valet sees users request their car is picked up by NIO who then take it to the nearest unit (including public ones), charge it, and then drop it off where you want it and Mobile sees NIO trucks travel around to offer charging infrastructure where it is needed. By the end of this year it expects to have between 40 to 80 Swap stations open and 400 Mobile trucks whirling around the country, capable of refuelling a car for a 100 kilometre journey (about one-third full) in just ten minutes.
Customers can buy a complete service package covering everything from third-party insurance, basic servicing and maintenance, more mobile data and free use of its power solutions for a monthly fee (which can be cancelled at any time) or on a per-charge basis. Everything is requested and controlled through its mobile app which, with 520,000 registered users, has proven much more popular than its cars.
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Expanding its power solutions is by no means cheap - through June 2018 NIO spent over $10 million - and the company openly admits it is untested not only when it comes to making cars but also providing the crucial services needed.
NIO launches ES8 just before coming to market
NIO has proven its pedigree through its first model, a concept supercar named the EP9 that was launched in 2016 and went on to become the fastest all-electric car round the famous Nürburgring Nordschleife track in Germany. NIO was also the title sponsor for the winning team of the first FIA Formula E season in 2015, which, just like traditional automakers and Formula 1, is a good place to be at the forefront of, regardless if you build internal combustion engines or high-power batteries.
NIO’s challenge is proving it can cope with producing and delivering a mass model. The first deliveries of the seven-seater ES8 SUV were made at the end of June this year, only months before its IPO, and in the first three months it has shipped over 1600 units and secured 16,000 reservations, with the latter outpacing the former.