Nio reduces prices and postpones business expansion plans.
On Monday, June 12, Chinese electric carmaker Nio announced that it will be reducing the prices of its cars by approximately $4,200 with immediate effect. Additionally, the company will no longer offer free battery swaps for new buyers.
This move is unexpected as Nio CEO William Li had previously stated in April 2023 that the company would not participate in a “price war”. However, competitors such as Tesla and other Chinese electric carmakers had already announced price cuts earlier this year to attract more customers.
Interestingly, last Friday, the Nio CEO also announced that the company would be delaying its capital expenditure plans and some research and development projects. Li explained that this delay was part of their efforts to address issues relating to cash flow due to fewer car deliveries.
As of the March-ending quarter, Nio reported cash and cash equivalents of 14.76 billion yuan ($2.07 billion). This was much lower than what it had disclosed at the end of 2021 and 2022. Analysts at China Merchants Bank International noted on Monday, June 12:
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“Nio’s decision to cut non-core projects is too slow. It now also faces a dilemma between brand positioning and profitability, as it has started to cut service benefits, which could dent its brand image and thus sales more severely than expected.”
As a result, the analysts have downgraded their rating for Nio’s stock from “buy” to “hold”.
Nio Failing on Timely Deliveries
According to the latest monthly figures for March 2023, Nio’s total deliveries stood at just 6,155 vehicles. This was down from the first-quarter average deliveries of just over 10,000 vehicles per month. During the fourth quarter, the monthly average deliveries stood at a staggering 13,350 cars.
Despite this, Nio remains optimistic and has set a target of at least 20,000 monthly car deliveries during the second half of the year. Nomura believes that the Chinese electric carmaker will improve deliveries with its new models – the ES6 SUV and ET5 touring sedan.
“That said, we expect NIO’s implied upside to be capped by intensified competition and limited market share improvement in 2023F,” Nomura analysts wrote.
By the end of 2019, Nio’s available cash had dropped to less than $1 billion. However, in 2020, the company received a lifeline of around $1 billion from investors, including government-backed entities, which helped them recover. Recently, Li stated that the company has enough cash to support its business operations.
Unfortunately, Nio experienced a significant decline in gross margin during the first quarter. It dropped to 1.5%, down from 14.6% compared to the previous year and 3.9% from the fourth quarter.
With strong government subsidies in place, the Chinese automotive market is the largest in the world. As a result, the electric car industry is growing rapidly, with one in three cars sold being electric. In a note on Friday, analysts at Mizuho Securities said:
“Despite short-term headwinds, we believe NIO remains well-positioned with multiple upcoming ramps including its lowest cost SUV ES6, a multi-year EV adoption tailwind and market leadership in premium EVs in China, the largest EV market, EU/Global expansion, and an expanding product portfolio.”
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