Nios affordable cars carry luxury luggage

William Li, founder and chief executive officer (CEO) of Chinese electric vehicle maker Nio Inc, unveils Nio’s ET7 sedan at a product launch event in Chengdu, Sichuan province, China, January 9, 2021. REUTERS/Yilei Sun

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HONG KONG, Aug 25 (Reuters Breakingviews) – Chinese premium electric car maker Nio is following an unusual path. Founder and CEO William Li hopes that making cheaper products with Nio’s excellent services will capture market share for the loss-making company. But the strategy also risks prolonging the path to profitability.

Li built his $32 billion brand by going the extra mile to wow customers. Nio buyers enjoy benefits, including access to private clubs, and can opt for services such as battery rental and battery swapping, which cuts charging times from around 30 minutes to three minutes.

When Nio first sold cars five years ago, a little luxury helped convince consumers to try out new technology from an unknown brand. Today, its services set Nio apart in an increasingly crowded field of automakers. That will be more important from September, when Nio launches a new, cheaper model priced at around 300,000 yuan, roughly $44,000, to compete with Tesla’s ( TSLA.O ) popular Model 3.

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Affordable models would ideally allow Nio to increase volumes and move closer to profitability, but extravagant after-sales services drive up costs and undermine economies of scale. In the quarter ending in March, when auto revenue rose 25%, the company’s operating loss jumped 640% from a year earlier to $345 million. Management partly attributed the increased costs to battery replacement. Nio however is dedicated. It is currently implementing a plan to add thousands of new facilities over four years, and similar services will be available to shoppers when it introduces a mass-market brand in 2024, Li said in June, without elaborating.

Nio isn’t the only car company investing in infrastructure and services to encourage electric car adoption. Everyone from pioneers Tesla and Xpeng ( 9868.HK ​​) to venerable Volkswagen ( VOWG_p.DE ) own or operate charging stations. However, few are as extreme as Nio, which has gone so far as to send out mobile charging vans that meet drivers on the road.

Li can get smarter about extras as he moves down the market. Nio could continue to offer battery lease or even loan options, reducing car buyers’ down payments by around a fifth, without committing to regular battery swaps and infrastructure investment. Alternatively, it could raise prices, but that would be at odds with its push for more accessible and affordable models. More modest clients will bring rich challenges.

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Chinese electric car maker Nio will hold its annual general meeting on August 25.

Nio’s new mass-market brand, which is expected to hit the market in 2024, will feature models priced between 200,000 and 300,000 yuan, about $29,000 to $44,000, founder and chief executive William Li said in a conference call on June 9. The mass-market brand “will support battery swapping,” Li added, without elaborating. Battery swapping is a service where drivers can exchange their car batteries for new charged packs, instead of charging the batteries via the outlet.

Separately, Nio expects to deliver its new ET5 model in September, the company said in a press release in January. The vehicle will cost 328,000 yuan with the battery included, or 258,000 yuan for buyers who opt for Nio’s Battery-as-a-Service subscription, he added.

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Editing by Thomas Shum

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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