Chinese EV upstart Nio will continue its investment in battery and chips research and development and keep expanding into overseas markets, according to an internal speech (in Chinese) from the company’s chief executive William Li in which he also reaffirmed a goal to break even in 2024 despite challenging economic conditions.
Why it matters: Li’s comments come at a time when China’s electric vehicle sales start to slow amid potential recession worries, growing competition, and supply chain disruptions due to frequent Covid comebacks. As a result, EV startups like Nio are facing pressure from the market as their sales slow and costs rise.
- Sales of passenger new energy vehicles, mainly all-electrics and plug-in hybrids, declined 9% in October from a month earlier to around 556,000 units, despite a 75.2% year-on-year increase, according to figures published by the China Passenger Car Association (CPCA).
In-house batteries and chips: Speaking to employees in Shanghai on Friday, Li highlighted the company’s strategy to enhance research and development across its batteries and semiconductor units. The chief executive said in-house battery and chip capability will be essential in lowering production costs and increasing vehicle margins.
- Li said the company would “have no chance at all” of turning a profit in 2024, or of with hitting a 20% gross margin for its entry-level EVs, if it cannot be more self-sufficient in battery and chip making (our translation).
- Making batteries and chips in-house could improve Nio’s vehicle margin by at least 10%, according to Li, who added that the automaker plans to maintain external collaboration with a long-term outlook of securing 30% of required batteries from suppliers.
Global push: Li also said that the company’s next-generation vehicles would be introduced to American customers, without providing a specific timeline, while a team of more than 700 employees in Europe is upping efforts to offer more test drives on the continent.
Cost control: The chief executive asked Nio’s nearly 30,000 employees to be more effective and control spending. The company nearly doubled its employees a year ago and now takes a more restrained approach in hiring.
- He urged the workforce to streamline business operations in a systematic way, such as using more efficient planning for building battery swap stations based on user data.
- He also promised the company would be deliberate with layoffs and shut-downs.
Context: Nio booked a record loss of RMB 4.1 billion ($577.9 million) in the third quarter of 2022, a significant increase of 392.1% from a year ago, while the firm’s vehicle profit margin fell from 18.1% to 16.4% over three consecutive quarters this year.
- The automaker is also making a foray into the competitive smartphone market with plans to launch its first phone model within the next 12 months, a defensive move against smartphone makers such as Huawei and Xiaomi making EVs.
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