Nio announced aggressive price cuts on Monday. The unusual decision from the premium EV maker, which has previously refused to join the ongoing China EV price war, has drawn mixed reactions from experts, with some speculating on a significant sales recovery for the electric vehicle maker while others remain concerned about worsening margin pressures.
The Chinese EV maker on Monday decided to cut prices by RMB 30,000 ($4,199) across all its vehicle lineups, reversing its previous decision to keep pricing stable as part of “the DNA” of the premium brand. For instance, the base version of Nio’s ET5 sedan, once expected to be a high-volume model, now costs RMB 298,000 ($41,630) after the price cut, and RMB 228,000 if a customer chooses the company’s battery leasing plan, with a monthly battery lease fee of RMB 980.
Nio’s share price surged 8.7% on the news on Monday. But at the same time, the company’s gross margin hit a historic low of 1.5% in the last quarter, and the price reduction could further impact this figure. The company’s changing attitude toward price cuts comes at a time when it has faced a persistent delivery decline this year.
Whether Nio’s lower-priced ES6 and ET5 cars prove to be popular could be the key to its very survival, as pressures mount on the smaller Chinese players in an increasingly competitive EV market. Nio’s deliveries in the first quarter fell by 22.5% to 31,041 vehicles from the fourth quarter last year; it also gave a weaker outlook for the second quarter: up to 25,000 units.
“Nio is playing a double sword game, and the outcome remains unknown,” said Yale Zhang, managing director of Shanghai-based consultancy AutoForesight.
Sales and efficiency boost
Nio’s recent price cuts could drive sales, especially in lower-tier Chinese cities where battery swap facilities remain inaccessible, according to Sun Shaojun, founder of consumer behavior research agency CarFans (our translation).
Sun expects the move, coinciding with the end of free battery swaps, to help Nio control costs and improve recharging network efficiency. Nio’s public chargers often lie idle as owners use the free swap service instead, Sun told TechNode on Monday.
Lei Xing, an auto industry analyst and former chief editor at China Auto Review, saw Nio’s decision as “a long overdue change” to better adapt to the environment, and the first step in a series of potential measures to save costs and improve efficiency. Xing added that Nio should also eliminate under-performing models from its overly large lineup.
Long-term uncertainty
In a market where most major EV makers are offering big price cuts in recent months, some experts are skeptical about the sustainability of Nio’s sale-boosting move.
Nio is anxious to reverse its declining sales trend and prevent further loss of market share from competitors such as Li Auto and some bigger players, AutoForesight’s Zhang said when contacted by TechNode. The price cuts will further damage Nio’s gross margins, as well as its ability to maintain its premium brand reputation long-term, added Zhang.
Xing thinks the price cut will help Nio deliver 180,000 vehicles this year, its current best-case scenario. Even this figure will fall short of an earlier prediction by the company: double last year’s unit sales of 122,486 cars.
“We believe there is an opportunity for us to still achieve deliveries of 20,000 units per month,” Nio chief executive William Li told analysts during an earnings call on June 9. “We need to make sure we can find a better way to meet user needs and expand their demands.”