NIO on July 26 gave updates on some of its most important technological developments, including the world’s first five-nanometer chip for automated driving, its in-house developed operating system for vehicles, and a voice assistant powered by its large language model.

Why it matters: NIO’s fullest disclosure yet of its technological roadmap reflects how the Chinese electric vehicle maker spends its research and development money, and how it has made a strategic bet on artificial intelligence, hoping to redesign all aspects of its vehicles including self-driving and the so-called digital cockpit.

Details: Speaking at the firm’s annual Tech Day event in Shanghai, NIO founder and chief executive William Li unveiled new details of what he called the world’s first five-nanometer (5nm) processor for autonomous driving, said to offer cameras with top-notch image signal processing (ISP) functions.

• The Shenji NX9031 system on chip (SoC) delivers high pixel throughputs of 6.25 Gigapixels per second, which NIO said makes it capable of capturing pictures with higher quality resolution in minimally lit environments, compared with flagship offerings from leading chipmakers.
• Li confirmed that the company had completed the tape-out for its self-designed autonomous driving semiconductor, which marks the end of the design phase and the beginning of production, without revealing which company has been contracted to produce it. 
• Meanwhile, NIO is on track to release its advanced driver assistance system, the Navigate on Pilot Plus (NOP+) 2.0, in the second half of the year. The Shanghai-headquartered EV maker is one of the Chinese players looking to harness the power of AI to provide cars with point-to-point navigation on Chinese highways, city streets, and parking spaces in a race led by Tesla.
• NIO also announced the launch of its proprietary operating system, the Sky OS, with which the company said it would have central control of all vehicle domains, allowing it to provide more advanced user experiences. An alternative to the open-sourced Linux OS and Blackberry’s QNX, the Sky OS forms the basis of the entire car all the way from vehicle control through to intelligent driving and infotainment, NIO said.
• This will enable a NIO vehicle to have a used battery pack exchanged for a new one fully automatically at one of the company’s nationwide recharging facilities, allowing the user to leave the car to get a coffee, according to vice president Wang Qiyan.
• The Chinese EV maker will also release its Banyan 3.0 in-car user interface through over-the-air updates in late August, featuring an enhanced version of its NOMI conversational assistant, powered by generative AI large language models (LLMs), for more human-like voice interactions. NIO owners will be able to request a chauffeur to drive them via voice commands, the company said.

Context: Only a few global chip powerhouses, such as Qualcomm and Ambarella, have announced the production of their chips using a 5nm process node with manufacturing partners such as Samsung. Tesla reportedly plans to produce its next-generation full self-driving (FSD) computer on 4/5nm processes with TSMC.

• NIO previously implied that its sophisticated chip could handle more than 1,000 trillion operations per second (TOPS), comparable to the combined total of four NVIDIA DRIVE Orin chips on 7nm, and is scheduled for mass delivery with the company’s ET9 executive sedan in early 2025.
• NIO’s research and development expenditures grew 23.9% annually to RMB 13.4 billion ($1.89 billion) last year. CEO Li told the event that the company has more than 11,000 R&D personnel, adding that its years-long efforts on in-house chip development will be “of great significance” to the industry of self-driving cars (our translation).

READ MORE: Chinese EV makers Nio, Xpeng, and Li Auto expand bets on self-produced chips: report

Chinese carmakers Geely, NIO, and Huawei-backed Aito on Monday reported record deliveries of electric vehicles for June as the country’s EV segment recovery gathers momentum. Meanwhile, Huawei and Li Auto are emerging as the leaders among the newer players, despite BYD and Tesla still enjoying a near-duopoly position in the world’s largest EV market.

Why it matters: The rally, which contrasts with overall flat sales in the market, comes amid a temporary cooling-off period for the industry-wide price war on electric autos in the country. It also reflects companies’ sprints to make deliveries by the end of the first half of 2024. A new wave of consolidation and some reshuffling is also speeding up within the sector, with fewer smaller players staying in the game and some legacy giants falling behind.

Details: Li Auto topped the ranking among young EV makers by delivering 47,774 cars to customers in June, up 36.4% from a month earlier, as sales of its most affordable extended-range hybrid crossover the L6 started to ramp up after its April launch. Chief executive Li Xiang also attributed the sales recovery to improved efficiency, as the company restructured its sales and delivery teams recently following a failed launch of its first all-electric model, the Mega, in March.

• Huawei continues to put pressure on Li Auto despite delivering 1,633 fewer vehicles than the Nasdaq-listed EV startup in June. The Chinese technology giant said its Harmony Intelligent Mobility Alliance (HIMA), which for now includes Aito and Luxeed brands only, delivered 194,207 vehicles from January to June, which is more than the 188,981 units posted by Li Auto. Huawei will launch a new premium brand called Stelato with partner BAIC next month after it began taking orders for the first model, the S9, on May 31.
• Among traditional competitors, Geely set a new record for EV sales of 65,959 units in June. In particular, deliveries of its mainstream luxury brand Zeekr surpassed the threshold of 20,000 units for the first time since its inception. Geely management on Tuesday announced it was raising this year’s sales goal by 5% to 2 million units, while Zeekr’s annual outlook of selling 230,000 units remains on track. Lynk & Co sold 24,439 cars last month, 62% of which were EVs, a record high percentage for the Geely-Volvo joint brand.
• Changan’s EV sales rose 61% year-on-year and 14.7% month-on-month last month to roughly ​​64,000 units, of which 16,659 were Deepal-branded EVs. The automaker said it received more than 15,000 refundable orders for its first off-road sports utility vehicle, the Deepal G318, priced from RMB 175,900 ($24,186), five days after it was launched on June 13. Chery’s EV sales surged 181.5% to 180,947 units during the first half of this year, thanks to strong overseas demand for its budget cars, such as the QQ Ice Cream and Little Ant.
• Both NIO and Leapmotor reached the 20,000-unit milestone in June. NIO has sustained the growth momentum that it’s seen since April and is demonstrating the potential to deliver 30,000 cars a month once its first mainstream car goes on sale in September. Leapmotor reached the milestone for the first time last month, as the Hong Kong-listed firm now positions itself as a cheaper alternative to Li Auto. Smartphone giant Xiaomi handed over more than 10,000 SU7 sedans to customers in its third delivery month.
• Meanwhile, Tesla is feeling the heat. Sales of its China-made vehicles declined 10.5% year-on-year to 426,623 units during the first half of this year, including exports, according to figures released by the China Passenger Car Association (CPCA). The US automaker said on Tuesday it delivered 443,956 vehicles in the three months to June 30, a smaller-than-expected 5% drop from a year earlier and up 14.8% from the previous quarter, sending shares up more than 10%, Reuters reported.

Context: China’s retail passenger EV sales volume is expected to reach 864,000 units in June, representing a 30% growth from the same month last year and a 6% rise from May, while overall car sales declined 8% year-on-year, the CPCA estimated on Wednesday.

READ MORE: China’s EV sales recovery picks up pace in May, helped by promotions

As Tesla’s most advanced driver assistance software (ADAS) is becoming an immediate threat due to its impending arrival in China, major Chinese electric vehicle makers and auto tech companies are hurrying to pivot their strategies towards a more pragmatic yet challenging approach to developing similar offerings. Although Tesla’s rivals have for years been looking to cut out expensive components and master the newest artificial intelligence models, the game seems to be different this time.

Both NIO and Xpeng Motors are now embracing the so-called computer vision approach, championed by Tesla, hoping their upcoming models will achieve human-like downtown driving in cities via the use of fitted cameras and radar, rather than more expensive laser sensor units. Sinpro.ai, a supplier to NIO of ultra-high-resolution four-dimensional (4D) imaging radar, said it is prepared for delivery later this year with an annual capacity of 800,000 units. Tesla has reportedly replaced radar sensors on some models after years of attempting to remove them.

“It will be a difficult task for Tesla’s Full Self-Driving (FSD) software to deal with scenarios in China where it is common that a large number of electric scooters are usually ahead in the same lane with motor vehicles,” Li Liyun, vice president of autonomous driving at Xpeng, wrote on June 27 on Chinese Twitter-like microblogging platform Weibo. Xpeng is planning to remove lidar from its upcoming sedan, scheduled for launch later this year, local media has reported.

Xpeng and NIO are also following Tesla’s suit by transitioning to an “end-to-end” autonomous driving method after using modular-based neural networks that are heavily reliant on explicit coding. Meanwhile, more traditional automakers are turning to domestic tech companies for help, such as Huawei and DJI, to catch up with the latest AI trend. Despite big challenges pressuring the industry, some early movers have the potential to compete with the US pioneer, Liu Guanghao, partner at Shanghai-based venture capital firm Befor Capital, told TechNode.

READ MORE: China opens door wider to Tesla as local giants disrupt the EV sector with AI-defined vehicles

Vision-based approach

A break from previous strategies of using expensive chips and sensors to enable ADAS capabilities, the latest approach centers on reducing the cost of components in hopes of making more room for further price cuts. Many now have their eyes on the use of radar, ditched by Tesla in 2021 due to limitations in identifying stationary objects with low image resolution, as some parts makers now said it is coming close to lidar in terms of performance – but at a lower price tag.

“There is more overlap between lidar and our sixth-generation radar systems as we significantly improve the resolution,” Juergen Brandl, Head of Market China, Business Area Autonomous Mobility at Continental Group, told TechNode. “Radar could soon see through [objects] but lidar has some problems with the distance especially in difficult situations like fog and rain.” The German firm’s newest front-facing radar boasts a detection distance of 280 and 140 meters (174 and 87 miles) for vehicles and slow-walking pedestrians, respectively.

Advanced radar solutions like this also create three-dimensional point cloud datasets like lidars, helping automakers and developers move towards fully end-to-end models with raw data collection from multiple sensors to train their self-driving systems. “We can play a big role in the development of Level 2 plus ADAS systems in China,” Brandl said, adding that the company’s product is below the price of a lidar unit with “very good“ output in terms of point cloud data.

Some disagree however, saying the technology is still at an early stage. Production of Continental’s latest-gen radar started early this year and the company began delivering the world’s first 4D radar in 2021, which detects an object’s vertical information in addition to distance, direction, and relative velocity, generating more dense point clouds than a contentional radar. Meanwhile, major Chinese lidar makers have consistently enhanced the performance of their products and lowered the prices to just over RMB 1,000 ($137.6) per unit in recent years.

The key is whether 3D/4D radar could prove to be a more “cost competitive” option compared with lidar, said Liu. “I believe both [radar and lidar] have their special advantages and disadvantages,” Brandl said. ”I think time or the market will tell whether we need both of them or one solution only.”

Either way, prospects for early players are bright. Momenta, a self-driving car company backed by General Motors and Toyota, expects the bill of materials, or total cost of components, for the City NOA (Navigation on ADAS) function to be slashed to RMB 4,000-5,000 from the current RMB 7,000-10,000 in the next two years. The intent is to survive an unprecedented price war in China that has been ongoing for more than a year.

End-to-end AI

Chinese carmakers used to brag about their coverage of cities where their assisted driving software is said to enable cars to handle on-ramp to off-ramp driving, automatic highway lane changing, and congested streets. However, many are now pivoting their focus to provide a more human-like driving experience and a full end-to-end AI model is now seen as key to winning the battle.

Described by Tesla chief executive Elon Musk as “basically photons in and controls out,” such end-to-end neural networks play an integral role in a vehicle’s decision-making process, taking raw sensor data as input and producing control actions as output. This contrasts with the conventional approaches that see each functionality, from perception to planning and action, developed individually using rule-based designs, which are often inadequate  in addressing the vast number of scenarios that occur on the road, a team of researchers said in a recent report.

The result is that people still feel their cars pilot themselves inhumanly even when kitted out with some of the most cutting-edge ADAS on the market, partly because human driving behavior tends to be consistent rather than discrete. It is very difficult for the current AV (autonomous vehicle) stack to make coherent, long-term decisions, said Wu Xinzhou, Nvidia’s vice president of automotive at its annual developer conference GTC in March.

Recent surveys have shown automakers that customers are generally dissatisfied with existing ADAS functions. Nearly half of respondents take the controls 1-2 times per 100 kilometers (62 miles) as the city NOA functions do not react appropriately, while others make more frequent interventions, according to a recent survey compiled by China’s Gaogong Industry Institute. “When the driver has to interfere pretty often, then you cannot say this is autonomous driving,” said Brandl.

Xpeng is aiming for less than one intervention per 1,000 kilometers in major traffic areas in China, CEO He Xiaopeng announced early this year, without giving a timeframe. This was followed by a new software update for its XNGP ADAS in May enhanced by the first end-to-end AI model for production vehicles in China, according to the EV maker. NIO reshuffled its autonomous driving department recently, rolling up its perception as well as planning and control teams into a single group with a focus on new AI models, Chinese media outlet LatePost reported on June 19.

It requires huge amounts of data, for example, millions of video clips, to train AI systems, as well as deep pockets and access to AI chips. Musk told investors in April that his company will increase the number of Nvidia’s flagship AI processors it uses from 35,000 to 85,000 by the end of this year. He wrote in a post on X earlier that month that the investment in training computers, gigantic data pipelines, and video storage will be well over $10 billion cumulatively this year.

Such major investment and effort is not something all companies can handle however. “It would be so hard for most traditional automakers to do this by themselves. The best way is to pick a supplier,” Liu said.

The entry of Tesla’s FSD into China may feel like a new challenge therefore, but it may also coincide with a new era of partnerships around self-driving technologies.

The European Union announced on Wednesday it has taken a case-by-case approach to deciding how much tariffs could increase on Chinese electric vehicles. In a move that surprised many industry professionals, the preliminary duties set to hit Chinese EV imports will rise from the general 10% basis on all of them to between 27% and 48%, with SAIC and those deemed incompliant with EU standards facing the hardest hit. The tariff hikes are relatively moderate for the likes of BYD and Geely, which have either committed to growing deep roots within the EU or have already done so in the past.

Broadly speaking, the additional duties are still in line with what many analysts had expected, despite the possibility of a massive but temporary plunge in China’s EV exports to Europe. Chinese battery EVs are priced in general around 80-100% higher in Europe than in their domestic market, creating room for price adjustments, said Jefferies analysts led by Johnson Wan. There could be very limited benefit for major European players, as the high-volume EV segment would remain intensely competitive with subdued margins, said Patrick Hummel, Head of European Autos Research at UBS.

Although Bernstein analysts expect the provisional tariffs to be a serious turn-off to smaller Chinese brands, prompting them to focus on other export markets, bigger Chinese players are likely to step up their localization efforts. Paul Gong, UBS’s head of China Autos Research, also wrote in a note to clients, “Localization of production may become an increasingly appealing option over longer run compared to direct shipping from China for exporters to take shelter from trade conflicts and geopolitical tensions.”

Below, we take a look at what the key Chinese players have been doing in Europe and their respective prospects in a continent home to some of the world’s most important automakers.

BYD

China’s top EV maker is widely considered the least affected by the newly announced tariffs, with the strength to still break even on an import model thanks to its significant cost advantage versus peers. BYD’s EVs would still be priced lower than the similar models launched by European rivals, even if the company raises prices by 17.4% to fully pass on the additional tariff to customers, although the measure could effectively prevent its dominance in destination markets.

The leading Chinese player would also have a 25% cost advantage over European counterparts even after localizing the production of its popular sedan in the region, according to UBS’s previous findings. Set to be the first major Chinese automaker with a production base in Europe, BYD expects its Hungary plant to begin operation before 2026, with an annual capacity of 150,000 units. Although exports to Europe only account for a single digit percentage of its total sales, it aims to “be in a leading position” in the regional market by 2030.

SAIC

China’s biggest car manufacturer got relatively unfavorable treatment, and analysts expect the measures will significantly curb its competitiveness in Europe. The European Commission will impose tariffs of nearly 50% on EVs from the Chinese state-owned automaker, along with those deemed to be the least compliant with the nine-month anti-subsidy investigation announced last September. The company, which owns the iconic MG brand of British origin, said earlier it had “fully cooperated” with the investigation and hinted that the EU regulators misused their investigative powers in order to view sensitive business information related to its supply chain.

SAIC responded on Thursday by saying, “As SAIC MG’s sales in Europe continue to grow, we are planning to introduce China’s new energy vehicle (NEV) technologies and green factories to the continent” (our translation). The firm also called for more cooperation between China and the EU. China’s top car exporter to Europe, with shipments of nearly 243,000 units to the region last year, revealed plans last July to build a manufacturing facility plant on the continent.

Geely, Chery, and Dongfeng

Volvo parent Geely was among the three Chinese companies selected for further scrutiny and saw a relatively moderate tariff increase of 20%, another individually calculated duty rate. The impact is likely to be very marginal to China’s third biggest car exporter, thanks to its ownership of Volvo and the currently limited scale of its own brands in the region. Geely’s EV brand Zeekr said on Tuesday it is looking to establish a presence in six to eight European countries by year-end.

Chery, as well as its state-controlled peers such as Dongfeng and Chang’an, faces an extra 21% charge in a category for those cooperating with the probe but not sampled. Jaguar Land Rover’s Chinese manufacturing partner in April reached a joint venture deal with Spain’s EV Motors to produce cars at a former Nissan plant in Barcelona later this year, Reuters reported previously. Meanwhile, Dongfeng’s Voyah brand, previously planning to enter Germany, France, and Italy, has for now been selling EVs mainly in Nordic countries.

NIO, Xpeng Motors, and Leapmotor

Like their bigger peers, Chinese EV makers NIO, Xpeng Motors, and Leapmotor are also set for extra charges of 21%. NIO, which currently sells four models from more than €60,000 ($64,361) in Europe, higher than most domestic competitors, said on Wednesday its commitment to the regional market remains unwavering and it will continue to explore new opportunities within the EU despite protectionism.

The company is still looking to introduce its lower-priced vehicles, including an upcoming third brand codenamed Firefly, in Europe, but the plan is now being adjusted based on the current situation. Delivery of the first model, a well-designed boutique car, will begin in the first half of 2025 in China at a price cheaper than the BMW Mini, CEO William Li recently told investors during an earnings call.

Zhejiang-based Leapmotor, which has Stellantis as its largest shareholder, is also making pivots. Chief executive Carlos Tavares said on Thursday the European auto giant will shift the output of some Leapmotor products to Europe due to the tariff hikes, having reportedly explored the potential of building EVs jointly in Italy. A similar scenario could unfold for Xpeng Motors and its European ally Volkswagen. President Brian Gu last September revealed plans to enter Germany, Britain, and France, with Italy also being included earlier this year.

Major Chinese automakers reported higher electric vehicle sales for May than in April, boosted by new government subsidies and the continued use of discounts to lure cost-conscious shoppers. Notably, NIO and Geely’s Zeekr were among the top-performing companies in the market, reporting their best-ever monthly deliveries.

Why it matters: The latest sales figures marked a swift turnaround for Chinese auto majors as they have been mostly grappling with weak consumer sentiment and intensifying competition in recent months.

• Demand was mainly boosted by China’s new subsidies encouraging consumers to trade in their old, less eco-friendly vehicles for new more energy-efficient ones. Meanwhile, several regional trade events have garnered more consumer attention than usual and boosted the appetite for new models, such as the recent Beijing Auto Show, wrote the China Passenger Car Association (CPCA) on May 29.

Details: Both NIO and Zeekr witnessed triple-digit growth year-on-year in May, with monthly deliveries reaching a record high.

• NIO said on June 1 that it surpassed the 20,000 vehicle sales limit last month for the second time since its inception, with its delivery numbers up 31.5% from April. The growth was driven by additional cash rebates totaling RMB 1 billion ($138 million), offered by the company in the name of car trade-ins since April 1, as well as a more than 25% price cut on its battery leasing program in March.
• Zeekr’s May deliveries reached 18,616, up 16% in a month, thanks to strong demand for its redesigned 001 shooting brake, of which sales surpassed 10,000 units for two months since delivery began on March 1. The Geely affiliate on May 10 became the fourth Chinese EV maker to go public in the US. Sales at its parent company also picked up momentum to 58,673 units over the month.
• Meanwhile, Li Auto saw its best-ever monthly sales this year in May, buoyed by a recent price reduction of up to RMB 30,000 on its existing vehicle lineup and the strong demand for the L6, which went on sale in mid-April. The company said the L6 accounted for more than 15,000 units out of its total deliveries in May and that it expected the number to surpass 20,000 units in June.
• Sales of Huawei-backed EVs took a slight hit in May while the Chinese tech giant was busy launching the redesigned versions of its existing Aito cars with partner Seres. Huawei’s Harmony Intelligent Mobility Alliance (HIMA), which currently consists of Aito and Luxeed series models, reported combined deliveries of 30,578 units last month, up 3.2% from April, with no breakdown.
• State-owned manufacturers Chery and GAC’s Aion also reported strong May sales, as both companies introduced big discounts in a move to respond to Beijing’s call to boost consumption. Chery on May 9 began selling the Sterra ET crossover at a competitive starting price of RMB 189,800.
• Xiaomi reported a 22.3% improvement in deliveries from April and aims to deliver more than 10,000 units starting in June.

Context: Retail sales of new energy passenger vehicles, which include all-electrics and plug-in hybrids, increased 27% year-on-year and 2% month-on-month to roughly 574,000 units during May 1-26 in China, when passenger car sales fell slightly to 1.2 million units, the CPCA figures showed.

• BYD, by far the dominant player in the market, on May 4 began offering subsidies of up to RMB 8,000 to consumers trading in their old cars. The auto giant on May 28 rolled out two new models with a driving range of 2,100 kilometers (1,305 miles), enabled by its latest plug-in hybrid technology.

The first electric vehicle model of NIO’s lower-priced, family-oriented sub-brand Onvo finally made its debut in Shanghai on Wednesday, the International Day of Families, after three years of development. The coupe-style sports utility vehicle was surrounded at its unveiling by not only hundreds of journalists but also Chinese parents who took their children to the event, and who the company hopes will form the very first owners of the long-anticipated car.

The Chinese EV maker on Wednesday began taking reservations for the Onvo L60 at a pre-sale price tag of RMB 219,900 ($30,471), cheaper by RMB 30,000 than the entry-level Tesla Model Y but with a longer driving range and a roomier interior space, among other advantages. The SUV, scheduled for launch in September, is expected to be priced at under RMB 200,000, and come with NIO’s Battery-as-a-Service (BaaS) program, in which customers buy a car and pay for a battery rental service, similar to the company’s scheme for NIO branded cars.

Confident in the strong competitiveness of its offering and a large customer base in China, NIO management said it has “high expectations” for Onvo, which is short for “on voyage” in English. Its Chinese name Ledao translates as “path to happiness.” Speaking to reporters after the debut on Thursday, William Li, founder, chairman, and chief executive of NIO, shared additional details about NIO’s ongoing partnerships for battery swapping with some of China’s most established car manufacturers, including Geely, Changan, and GAC. 

First Onvo EV

NIO’s first mainstream crossover, with a similar shape to its more premium siblings, competes with Tesla’s Model Y, the world’s top-selling electric SUV, from nearly every perspective. The entry-level L60 comes with a driving range of 555 kilometers (345 miles), a bit longer than that of the rear-wheel-drive Model Y (554 km), while the other two variants travel more than 730 km and 1,000 km on a single charge, respectively. 

The company also said that the L60’s outstanding wind resistance, measured by a drag coefficient of 0.229, increases its effective range, while a 900-volt electrical system reduces energy loss to heat, giving it a longer range. The total energy consumption of the car is 12.1 kilowatt-hours (kWh) per 100 kilometers, compared with the 12.5 kWh achieved by the Model Y, according to NIO. 

Li said that NIO will make a “pretty decent” gross margin from the L60, by focusing on core values that matter to Chinese families, rather than producing a vehicle with a dazzling array of unnecessary specs, a move that keeps the car’s overall costs under control. Cost savings also come from NIO and Onvo sharing research and development costs, among other synergies.

The Onvo L60 embraces the vision-based approach advocated by Tesla, which uses cameras and artificial intelligence and gets rid of lidar sensors for autonomous driving. It also uses a smaller and more affordable lithium iron phosphate (LFP) battery pack from BYD, according to Reuters.

Battery swaps

NIO also provided details about its extensive power infrastructure network, which is claimed to be the largest of its kind in China with more than 2,415 battery swapping stations as of Wednesday. It has long been a loss-making effort for the company but is now emerging as an attractive option for charging availability and cost reduction for a growing list of Chinese auto giants. 

Onvo owners will only be able to use the company’s newer swap stations (the third- and fourth-generation ones) and will share the facilities with NIO’s partners. Each of the newer swap stations, which can hold more than 20 battery packs of different sizes, can offer more than 400 swaps per day, with each pack being used roughly up to 20 times. Li mentioned the company’s plan to charge partners a service fee of roughly RMB 20-30 per swap. NIO itself completed nearly 70,000 battery swaps per day as of May 8. 

Meanwhile, NIO owners can “refuel” their vehicles at any swap shop, giving them more charging availability and a premium user experience. The company said it is on track to build 1,000 battery swap facilities on its own this year and expand the network for NIO and Onvo from the 2,316 stations available as of the end of last year, while its partners are also set to provide additional resources. 

Li added that he envisaged there being six to seven EV battery sizes at most over the long term, with partners set to use batteries of the same kind as Onvo. NIO currently uses batteries in four sizes with an energy density ranging from 70 to 150 kWh.

READ MORE: Drive I/O | Big bets on battery swaps

An increasing number of automakers are looking to make their vehicles compatible with the battery swapping standard NIO is pushing for in China, as GAC Group said on Wednesday it will partner with NIO to expand swapping infrastructure for electric vehicles across the country. 

Why it matters: The collaboration highlights increasing efforts by carmakers, along with various stakeholders such as battery suppliers and energy firms, to tackle the issue of range anxiety – fear of an EV running out of power – which has hindered greater EV adoption. The move is also expected to allow NIO to cut expenses further as it opens the money-losing power network to other automakers. 

• GAC and NIO have a collaborative history that dates back several years. They set up a joint venture for EV manufacturing in April 2018 with a registered capital of RMB 2.5 billion ($350 million), although the following few years brought lackluster sales results for their joint brand Hycan. NIO completely retreated from the JV in the summer of 2022.

Details: According to a Wednesday release, the two automakers plan to develop a standardized battery module that would facilitate the roll-out of swap station-compatible passenger EVs from both sides. 

• They also expect to establish scale advantage by creating an extensive, unified power infrastructure network, as well as capture more value from repurposing used EV batteries throughout their lifespans. 
• Although a detailed timeline has not yet been released, owners of both brands’ vehicles will be able to use their own apps to access and pay for charging at a fast charger from either company by the end of this month. 
• ”With this as a starting point, we hope to build more battery swap stations with which our GAC Aion users will have a better swapping experience,” said Feng Xingya, president of GAC Group. 

Context: Guangzhou-headquartered GAC is the latest Chinese automaker to announce that its EV owners will have access to NIO’s nationwide infrastructure network, following deals with Changan, Geely, JAC, and Chery, as well as the company’s link-ups with state-owned utilities Wenergy Group and China’s Southern Power Grid. 

• State-owned manufacturer GAC, a manufacturing partner of Toyota and Honda in China, said it operated a network of roughly 1,000 battery refueling facilities nationwide as of December, of which dozens were swap stations. It has sold an undisclosed amount of Hyper-branded EVs with swappable batteries. 
• NIO operates 2,413 battery swap facilities as of Wednesday, already the country’s biggest network of its kind, and 3,828 charging outlets mostly for non-NIO cars. The company’s upcoming brand Onvo, with plans for an official debut on May 15, will share its latest-gen battery swap stations with those partners. 
• Battery heavyweight CATL and ride-hailer Didi are also jointly building battery swap stations in a move to answer Beijing’s call to further increase EV penetration, especially in lower-tier Chinese cities and the country’s rural areas. International carmakers are reportedly embracing Tesla’s EV charging system or forging their own alliances meanwhile.

READ MORE:  Drive I/O | Big bets on battery swap

Sales of Chinese electric vehicle makers Li Auto and Huawei-backed Aito dropped sharply in April as rivals Zeekr and NIO managed to post major improvements, in the latest indication of how competition in the country could be impacted by price cuts and new model launches. 

Why it matters: The latest sales figures in April showed the world’s largest EV market is slowly recovering from a sales slump due to an economic downturn and inclement weather early this year. Some potential EV buyers are still waiting on the sidelines for possible stimulus measures and for new cars shown at this year’s Beijing Auto Show to make it to market, experts say. 

READ MORE: Global carmakers take on Chinese giants in EV showdown at Beijing Auto Show 2024

Details: GAC’s Aion, Li Auto, and Huawei-backed Aito – which are among the biggest Chinese EV makers – all reported double-digit declines in EV deliveries in April from a month earlier. Huawei saw sales of Aito-branded EVs fall 21% last month, with monthly deliveries of the redesigned M7 falling to 10,896 units from its peak of nearly 30,000 units. Aion and Li Auto delivered 28,113 and 25,787 EVs in April, 13.6% and 11% fewer than a month earlier, respectively. 

• All three EV makers have launched new cars and ushered in steep price cuts for their existing models in order to maintain demand throughout 2024. Huawei said on Monday it had secured 11,000 reservations with non-refundable deposits for the Aito and Luxeed lineups over the recent five-day Labor Day holiday, while there were more than 41,000 pre-orders for Li Auto’s L6 range-extended hybrids between April 18 and May 5. GAC is currently putting the redesigned versions of its Aion V and Hyper HT battery crossovers on display in its showrooms nationwide. 
• In the meantime, Zeekr achieved record deliveries of 16,089 vehicles in April, up 24% month-on-month and 99% from a year earlier, mostly driven by a strong performance for its revamped 001 shooting brakes. NIO also saw sales hitting 15,620 vehicles, up from 11,866 a month earlier, as the company’s multiple sales pushes started to pay off. The EV startup has been offering a RMB 10,000 ($1,386) price reduction for those who trade in their old, gas-powered vehicles for a NIO car since the beginning of April. 
• While bringing attention to its rivals such as Zeekr and NIO for their similar offerings, Xiaomi posted impressive April sales to officially start its career as an electric car maker. The smartphone giant handed over 7,058 SU7 battery sedans to customers in its first delivery month and secured nearly 89,000 reservations with non-refundable deposits as of April 30. Chief executive Lei Jun expects the company to achieve an annual delivery target of 100,000 cars this year, with its production ramp-up already underway at its Beijing factory. 
• Xpeng Motors saw a slight recovery in April sales, delivering nearly 2,000 units of its first multi-purpose vehicle and bringing the total deliveries of the RMB 359,800 van to almost 10,000 units in the four months since its launch. The Volkswagen-backed EV maker has been under pressure from larger rivals, and declined to give detailed figures for the rest of its models. Sales of its G9, G6, and P7 models dipped to less than 1,700 units in March, figures compiled by Chinese auto service platform Dongchedi showed.

Context: China’s new energy vehicle sales in April are expected to be on par with March at roughly 720,000 units, partly because wait-and-see sentiment has grown among Chinese customers, the China Passenger Car Association said in an April 25 post.

READ MORE: ​ Explainer: How a new round of price cuts are reshaping China’s EV market ​

Global carmakers from Volkswagen to Toyota are introducing new models at the Beijing Auto Show 2024 with the help of Chinese tech companies in an effort to defend market share amid a major shift to electric vehicles led by local car giants. 

The biannual trade event, which on Thursday witnessed a return to pre-pandemic attendance levels after a brief pause in 2022, also represents another landmark moment for the Chinese EV sector where domestic players are once again on the offensive with an array of new models. A similar event in Shanghai a year ago reportedly prompted the industry’s legacy players to either increase their efforts or rethink their brands in order to adapt to the changes.

Below, TechNode provides a summary of some of the biggest releases from both international and Chinese automakers, including BYD, GAC, Geely, Honda, Toyota, and Volkswagen. There are also some notable updates from younger players such as Xiaomi, NIO, and Xpeng, which might give a clue as to where the most competitive EV market in the world is heading. 

BYD

China’s biggest EV maker on Thursday unveiled a higher-end variant of its Qin vehicle, the top-selling compact sedan in the country last year. The new car is scheduled for launch in the second quarter with an expected price tag of RMB 120,000 ($16,560). The Qin L measures 4.8 meters in length and spans a 2,790-millimeter-long wheelbase, placing it between the Qin Plus and the Han in terms of size. It features the company’s next-generation plug-in hybrid platform DM-i 5.0, which could suggest an improvement in range and fuel efficiency. The company also introduced the Seal 06, a plug-in hybrid EV under the Ocean lineup which is about the same size as the Qin L but loaded with more stylish design language to attract younger customers. 

GAC

Aion, the third best-selling EV brand in China last year after BYD and Tesla, showcased its first global model, replete with modern technologies and angular styling, as its state-owned parent beefs up its strategy to woo customers worldwide. GAC said its all-new Aion V, scheduled for launch in July, will maintain a driving range of over 750 kilometers (466 miles) even when the mercury dips to -30 degrees Celsius, and offers a large interior space comparable to the likes of the BMW X5. The all-electric sports utility vehicle, which incorporates traditional Chinese dragons into its design, can navigate varied urban environments worldwide with features such as lane switching by utilizing advanced artificial intelligence algorithms to process sensor data instead of high-precision maps, the company said.

Geely

Volvo’s parent showed its ambition to become a disruptive force in the global automotive industry with the debut of what it described as the world’s first production model with two sliding doors and front swivel seats. Geely has taken a radical approach to how EVs are put together, giving the 4.7 meter-long Zeekr Mix an extended wheelbase of three meters achieved through a more compact electric motor, shorter front overhangs, and repositioning of the air conditioning system, among other components. This, along with the front seats that can rotate 270 degrees, would allow kids to play or families to dine together in a 1.5 square meter interior flat space. The five-seater multi-purpose vehicle, offering a 1.5 meter width opening area for passengers, targets three-generation Chinese families, especially those with elders and pregnant mothers.

Honda

Japan’s Honda on Thursday began selling its second all-electric model with time-limited discounts in China in the company’s latest effort to boost sales. The move comes after entrenched rivals such as BYD and Tesla recently rolled out more price cuts amid slowing growth. The e:NP2 SUV has a driving range of 545 km at a price tag of RMB 159,800, providing buyers with a RMB 30,000 reduction compared to its original plan, according to Li Jin, a deputy general manager of Honda’s China joint venture with GAC. Honda also debuted the Ye, a new series of all-electrics with technologies sourced from Huawei and iFlyTek among other Chinese tech firms, as part of its plan to sell only EVs in China by 2035.

Toyota

Toyota said on Thursday it will integrate lidar sensors into its two upcoming models under the “Beyond Zero” (bZ) all-electric series, as the world’s top-selling automaker looks to provide consumers with the same level of assisted driving technology as Huawei and Xiaomi. The bZ3x and the bZ3c compact crossovers will be able to automatically change lanes, and enter and exit Chinese highways when they go on sale within the next 12 months. Toyota also announced it is exploring the uses of generative AI in collaboration with Tencent, as Chinese consumers expect their future vehicles to be more capable and personalized. This follows reports that the Japanese giant is using Huawei components to enable autonomous driving functions on its China-made EVs. 

Volkswagen 

Germany’s biggest carmaker participated in Auto Beijing 2024 with major global debuts including the ID.Code concept – which offers a glimpse into its upcoming, China-specific all-electric lineup ID.UX – as well as the Audi Q6L e-tron, the first production model based on its PPE electric platform. The coupe-styled ID.Code will be equipped for highly autonomous driving and come with a sophisticated AI assistant with contributions from local designers, as Volkswagen plans to introduce the first model under the new series later this year. In addition to partnerships with Xpeng and Horizon Robotics, the automaker confirmed it is working with Chinese tech giants including DJI, as its latest Tiguan L SUV now features an advanced driver assistance system (ADAS) sourced from the drone maker.  

Xiaomi, NIO, and Xpeng

Xiaomi was the center of attention on Thursday when the Chinese smartphone giant said it had secured 75,723 reservations with non-refundable deposits for the SU7, its first EV, with a competitive price range between RMB 215,900 and RMB 299,900. Chief executive Lei Jun expects monthly delivery to exceed 10,000 units in June and the company is set to reach a milestone with 100,000 EV deliveries by this year, which would be a record speed for any Chinese EV brand. The 55-year-old entrepreneur is an icon in the Chinese tech and auto industries, with his visits to rivals’ booths becoming one of the hottest topics at this year’s Beijing Auto show.

Xpeng Motors could take on its major frenemy with the mainstream brand MONA, short for ‘Made of New AI,’ CEO He Xiaopeng told reporters during a press conference. 

Meanwhile, one of NIO‘s new affordable brands, called ONVO, is scheduled for launch in the second quarter of this year. The luxury EV maker on Thursday launched a redesigned version of its ET7 sedan with a starting price of RMB 428,000, which is RMB 20,000 lower than its original version launched three years ago.

READ MORE: Huawei, Xiaomi, and Geely’s new EVs have details leaked on Chinese government site

Major Chinese automakers, including Geely and Changan, have strategically introduced big discounts to their car prices or new variants of existing models despite posting a pickup in March deliveries, in a defensive move after Xiaomi’s first car reached nearly 90,000 pre-orders in just 24 hours. 

Xiaomi’s smash hit: The initial success of Xiaomi’s first EV, rolled out on March 28 with a lower-than-expected price tag, is having a knock-on effect on most other automakers which are being forced to take immediate action in order to hold on to their market shares. 

• The reservation-to-order conversion rate of the electronics brand’s SU7 has currently reached more than 35%, according to Sun Shaojun, founder of consumer behavior research agency CarFans. 
• Around 40% of Xiaomi customers canceled their pre-orders partly due to an expected long waiting time for vehicle delivery, Sun said in a Tuesday post on WeChat. Some were also frustrated by awkward sales-service interactions at overcrowded Xiaomi stores in major cities, Sun added, as the Chinese smartphone giant is gradually expanding its sales network for car retail. 
• Nevertheless, this is equal to a volume of at least 31,000 non-refundable orders in just four days, still an impressive performance for a new entrant and one that sees it surpass the early sales figures of Aito, a rising player launched by Xiaomi’s long-time rival Huawei.

March sales, discounts: Sales of Geely’s new energy vehicles (NEVs) rose 65% year-on-year and 34% month-on-month to 44,791 units in March, of which roughly 13,000 were Zeekr-branded battery EVs, partly driven by the strong sales of its refreshed 001 sports wagons, delivery of which began on March 1. 

• Geely on Monday launched a new rear-drive Zeekr 007 sedan, turning a bundle of add-ons into standard features including a large head-up display unit and heated and ventilated seats, at a price tag that is RMB 6,000 ($829) cheaper than Xiaomi’s SU7. 
• This comes after a similar move by Changan which two days earlier introduced a new entry-level variant of its Avatr 12, lowering the starting price of the premium sedan by 12% to RMB 265,800. Avatr’s deliveries more than doubled to 5,016 units last month. 
• Meanwhile, Huawei-backed Aito, which sells both battery EVs (BEVs) and plug-in hybrid EVs (PHEVs), edged out rival Li Auto for a third month in March with 31,727 deliveries compared to Li Auto’s 28,984, buoyed by strong demand for both the M7 and M9 crossover. 
• Aito claimed the M9 was the top-seller in the RMB 500,000-plus price segment in China last month, a title Li Auto had previously aimed for (and failed to reach) with its Mega van. Still, the EV brand, co-launched by Huawei and Seres, on Monday slashed the starting price of its best-selling five-seater by 8% to RMB 229,800. 
• NIO and Xpeng Motors deliveries also jumped significantly through March, and yet both are either slashing prices or using other promotions to lure customers. NIO’s ET5 and Xpeng’s P7i sedans compete in the same price segment as the Xiaomi SU7. 
• NIO said on Monday it will offer a reduction of RMB 10,000 for those who replaced their gasoline cars with a new EV. Xpeng’s G9 crossover now costs RMB 20,000 cheaper than its original list price, following a more than RMB 10,000 price reduction across its lineups a month earlier. 

READ MORE: Explainer: How a new round of price cuts are reshaping China’s EV market

Context: The March sales figures – which showed a rebound from the annual Chinese New Year holiday slump – also indicated a stronger growth momentum for PHEVs than BEVs with a growing number of carmakers pivoting to more affordable PHEVs as they look to expand NEV sales in China’s vast majority of underdeveloped regions.

• PHEVs accounted for more than half of BYD’s sales and enjoyed a higher growth rate than BEVs over the first three months of this year, according to a regulatory filing posted on Monday (in Chinese). The country’s biggest EV maker was followed by the likes of Geely, Aito, and Li Auto, all preferring a broader product portfolio to purely BEVs.
• Ouyang Minggao, an academic at the Chinese Academy of Science, said last month that PHEVs could grab substantial market share from internal combustion engine cars in the coming years, especially in the entry-level price segment, and expected more widespread adoption of BEVs over the next decade.
• EV adoption in China’s lower-tier cities and rural regions is slower than in the country’s more developed areas. A growing number of EV owners from lower-tier cities said they will go back to conventional automobiles for their next purchase due to a lack of charging infrastructure, according to an annual report by consultancy McKinsey released on March 12. 

READ MORE: Chinese officials reaffirm commitment to EV ambitions and promise raft of support measures amid industry doubts

Chinese electric vehicle makers are taking a ferocious price war to a new level as BYD and its peers kicked off 2024 with dozens of redesigned models that boast improved specifications at lower price tags. 

For conventional carmakers, the situation is different from previous stages of the battle, as their Chinese counterparts claimed for the first time that “electric is cheaper than gas,” meaning their EVs now reach or even surpass price parity with similar combustion engine models. This milestone was supposed to take place as early as 2026, according to forecasts from BloombergNEF. Its ahead-of-schedule arrival is ushering a new phase for China’s car industry.

The world’s biggest EV market is being reshaped by a seemingly endless price war that has been going on for a year, and 2024 will likely be a defining moment for those faced with flagging sales, persistent losses, and cash flow pressure, analysts say. The following explainer looks at the causes and implications associated with the recent price cuts by automakers in China, as well as what we might expect in the future. 

The good: reduced costs, innovation

Among the key reasons for the price reductions is the plunging cost of raw materials for EV batteries, as the spot price of battery-grade lithium carbonate fell from more than RMB 500,000 ($69,450) per ton to just over RMB 100,000 throughout the last year. Jefferies analysts calculated that Chinese EV makers saw their gross profit margin recover by 2.3% in the third quarter of 2023 with average lithium prices falling by RMB 200,000. 

A vertically integrated supply chain stretching from batteries to chips has also granted EV leaders BYD and Tesla the ability to achieve economies of scale and innovate products rapidly. BYD, which has had strong “pricing power” especially in the price segment between RMB 100,000 and RMB 200,000, will embrace a proactive approach to competition, chairman Wang Chuanfu told investors during an earnings call last March (our translation). 

Analysts expect the downward trend in lithium prices to continue, as vast amounts of capital were poured into new mines in China following the price rise in 2022, resulting in a severely imbalanced market. Lithium prices could come in as low as RMB 90,000 a ton in the fourth quarter of this year, creating more room for most companies to make price adjustments, Jefferies strategists said in a Jan. 10 note. Meanwhile, EV makers such as Xpeng Motors are likely to improve vehicle margins “to some extent” thanks to innovations in fields such as automated driving. 

The bad: overcapacity, slowing growth

On the other hand, however, Chinese EV makers have been under pressure to boost sales volumes as they grapple with a clear capacity glut and slowing growth against the backdrop of weak momentum and insufficient demand. 

Only 20 out of 77 car manufacturers in China ran at more than 60% of their maximum operating capacity last year with numbers from the rest coming in under industry-competitive levels, according to public records. Tina Zhou, chief executive of auto parts trading platform Gasgoo, commented on social media on Dec. 17, citing this overcapacity as a major reason for the industry-wide price war over the past year. In January, the Chinese government said it would take “forceful measures to prevent superfluous projects” related to EV manufacturing, Reuters reported. 

Although China’s leadership in EV is seen as a bright spot in a faltering global economy and amid a domestic economic downturn, experts have painted a picture of a resilient but slowing market, flagging more price cuts to come as sluggish consumption abounds. Bernstein expects China’s EV sales growth to be “still impressive” but slower at 25% for 2024 compared to 35% last year, with a combined total of approximately 185 new EV models set to go on sale this year. 

“Consumers are getting spoiled by deep discounts and believe they will eventually negotiate a better price even for those new cars coming to the market,” Bernstein analysts wrote in a Jan. 10 note. 

Could it get ugly?

The unprecedented battle for the world’s biggest and most competitive EV market has pressured international auto majors from Ford to Toyota to scale back their operations since last year, with their market share (Tesla excluded) declining from 51.6% to 38.3% during 2021-2023. Citic Securities on Feb. 22 forecast (in Chinese) that number to drop to below 20% over the long term, with only German luxury carmakers able to maintain their presence. 

Meanwhile, a new wave of consolidation and some reshuffling is underway among Chinese EV makers as repeated price cuts allow the bigger ones to grab more market share and put their smaller rivals under financial pressure. The top 10 players could together claim a combined 85% of the market in 2024, driving smaller players out of business, Changan Automobile chairman Zhu Huarong, a delegate of the National People’s Congress, told Chinese reporters on Tuesday on the sidelines of the Two Sessions meetings in Beijing.

Not everyone agrees. NIO founder and chief executive William Li told TechNode during a media event in December that the company is preparing for a long drawn-out fight, while UBS envisioned China could be big enough to allow 10-12 domestic carmakers to sell significant volumes with different success stories by 2030 in the best-case scenario. 

Either way, it could be an almighty battle – it will be thrilling to see who emerges victorious.

Sales of major Chinese electric vehicle makers including BYD and Geely fell by nearly half in February from a month prior, hit by the week-long Chinese New Year holiday and a prolonged cold snap, as well as ongoing economic uncertainty. 

Why it matters: The slump largely reflects the increasingly fragile position of smaller EV makers, already struggling to maintain reasonable sales volumes while larger rivals compete for market share with new models on offer for lower prices. 

• Consolidation within the world’s biggest EV market is expected to accelerate as competition intensifies and growth slows. Li Auto president Ma Donghui told investors last week that the top three brands could together claim 70% of the segment in which an EV is priced from RMB 200,000 ($27,780) by the end of this year. 

Details: BYD on March 1 reported its lowest sales since June 2022, with 122,311 vehicles sold last month, a 39.2% fall from January. New energy vehicle (NEV) sales of rival Geely, including battery EVs and plug-in hybrids, dropped 49% month-on-month to 33,508 units. 

• Great Wall Motor saw a bigger decline from a month earlier than its rivals as the auto major sold 12,253 EVs in February, a drop of 51%, while sales of Aion, a subsidiary of China’s GAC Group, were 33.2% lower than a month before. 
• Jefferies analysts attributed the decline to a seasonal demand lull in the just past Lunar New Year holiday, which reduced working days and dampened buying interest, accompanied by an unexpected cold snap that swept through most of China. 
• Smaller EV makers were hit harder than large ones, as monthly sales of both Leapmotor and Hozon Auto fell below 7,000 units, while February deliveries of Xpeng Motors and Voyah were down roughly half to 4,545 and 3,182 units respectively. 
• Most automakers have either launched cheaper new models or offered big incentives to drive sales in recent weeks. BYD kicked off 2024 with the launch of at least eight lower-cost version cars over the past two weeks, forcing rivals including Geely, Changan, and Leapmotor to follow suit.
• Huawei-backed EV maker Aito and Nasdaq-listed Li Auto, are among few carmakers to enter 2024 in decent shape, each delivering over 20,000 units last month. General Motors’ joint venture Wuling and NIO saw deliveries drop 18.4% and 19.1% from January respectively. 

Context: Analysts expected NEV sales to bounce back in March following recent price cuts by China’s major automakers, as store traffic returns to pre-Lunar New Year levels, according to a March 1 note from Jefferies, citing a Chinese dealership. 

• Overall, NEV sales in China declined 29.5% month-on-month to roughly 668,000 units in January, in part due to a high base in December when most automakers made a year-end sales push, according to figures from the China Passenger Car Association. 
• The industry group warned that numbers would drop in February to their lowest level of the year as the market entered a traditionally low season. It remains to be seen whether March will witness a sales rebound.

NIO Capital, a venture capital firm founded by Willliam Li, chief executive of the namesake electric vehicle maker, has raised a new China-focused fund of more than RMB 3 billion ($416.8 million), despite a global market lull and domestic economic challenges. 

Why it matters: The fundraising milestone will allow NIO Capital to further explore the “transformative potential of innovative technologies in the automotive and energy sectors,” said Ian Zhu, a managing partner at NIO Capital, in a Monday announcement. 

• The NIO-related growth-stage investor has backed some of the rising stars in the Chinese automotive world, from battery material manufacturer Ronbay to self-driving car startups Momenta and Pony.ai. It has also invested in battery giant CATL. 

Details: The deal shows the strength of NIO Capital’s ties with its limited partners, which include venture capital investment guidance funds set up by Chinese regional governments, national funds, family offices, and listed companies, according to the announcement, which did not provide further details. 

• The Shanghai-based venture firm said it will maintain its focus on areas such as auto tech and sustainable energy with the new RMB 3 billion fund, which brings the total assets under its management to about RMB 15 billion. 
• Speaking to Chinese reporters, a NIO Capital representative stressed the fund’s independence from NIO in its final investment decision-making. “We don’t require that a parts maker only supplies to NIO,” the person said as an example of its open-mindedness, 36Kr reported.

Context: The deal comes as global private investment remains soft due to interest rate hikes and economic headwinds. 

• Fundraising totals were on track to drop 28% in 2023 compared with 2022, and the number of funds could decline by almost half, US management consultancy Bain & Company said in a note dated July 17. 
• In China, roughly 5,300 private capital funds raised a total of RMB 1.35 trillion during the first nine months of 2023, down 2.1% and 20.2% from a year earlier, according to consultancy Zero2IPO (in Chinese).

The Chinese electric vehicle segment briefly lost momentum in January as a majority of automakers reported a significant sales drop on Thursday during the traditional low season, a contrast to December when big promotions and exciting discounts gave a short-term sales boost at year-end. 

Why it matters: The decline was especially marked for BYD, which accounted for nearly a third of the country’s green energy vehicle sales last year. The biggest Chinese EV maker maintained its leading position with sales of more than 201,000 units last month, although that number represented a 41% decrease compared to December. 

• Geely and Huawei-backed Aito are among the few bright spots that have bucked the trend with their new models, becoming potential challengers to BYD’s dominance. Meanwhile, international carmakers such as Volkswagen and General Motors posted decent sales with local partner SAIC, showcasing their efforts to play catch-up. 

Ups: Geely posted its best-ever month with sales of 65,826 fully electric and plug-in hybrid vehicles last month, roughly 5,400 units more than in December and nearly six times greater than what Volvo’s parent achieved a year ago. This growth was partly due to strong sales of its Galaxy and Lynk & Co brands, which sold 19,223 and 28,176 units over the month, respectively. 

• Aito also delivered a record 32,973 cars in January. That is in line with the company’s outlook and stands in stark contrast to the same month last year when it reported deliveries of only 4,475 vehicles. The brand, launched by Huawei and its manufacturing partner Seres, said on Thursday (in Chinese) that it has secured 140,000 non-refundable orders for its redesigned M7. 
• Avatr, another Huawei-backed and Changan-owned EV brand, also posted improved sales volume for January buoyed by the positive demand for its second model launched in November. However, an ongoing shortage of Huawei’s key components may add uncertainty to the outlook of the premium brand and its peers, as reported by Reuters. 

Downs: On the other hand, China’s US-listed EV trio are the ones under pressure by reporting their lowest monthly deliveries since June, as they engage in a relentless price war with larger tech and auto forces. Both Li Auto and NIO slashed prices on current lineups last month as they prepare to launch revamped models in March, potentially causing some customers to postpone purchases. 

• Sales of Aion, which has sold a large proportion of its vehicles to ride-hailing fleets, also dropped 46% month-on-month to 24,947 units in January. The EV maker, affiliated with state-owned automaker GAC, is now ramping up efforts to go abroad, as sales in the overseas markets reached the threshold of 3,000 units for the first time last month. 
• Deliveries of Great Wall Motor and Deepal, another Changan subsidiary, also decreased by 16.2% and 7.1% to 24,988 and 17,042 units respectively, from December. Meanwhile, IM Motors, a premium EV brand launched by China’s SAIC, saw a bigger drop with its January number more than halved from a month earlier to 5,305 units.

Context: China’s sales of new energy vehicles, mainly all-electrics and plug-in hybrids, increased 92% year-on-year from Jan.1-28 partly due to the year-ago low base effect marked by a wave of Covid cases after Beijing dismantled pandemic controls in December 2022. However, that number was 24% down compared with December when most automakers made a year-end sales push, figures from the China Passenger Car Association (CPCA) showed.

Top Chinese automakers BYD and Geely on Monday reported record sales of electric vehicles in 2023 on the back of year-end momentum from their home turf and strong shipments to overseas markets, as China’s booming industry ramped up its push for global expansion.

Why it matters: The latest sales figures come at a time when China is set to surpass Japan to become the world’s largest car exporter, according to estimates by the China Association of Automobile Manufacturers (CAAM)  as reported by Nikkei, buoyed by a growing demand for green energy vehicles worldwide.

• Exports of new energy vehicles, mainly all-electrics and plug-in hybrids, grew 83.5% year-on-year to almost 1.1 million from January to November, while internal combustion engine vehicles remain the major export commodity, accounting for 75% of China’s total car shipments abroad, according to CAAM.

Details: BYD posted record sales at more than 3.02 million EVs in 2023, marking 62% growth from a year ago and putting the Chinese carmaker in pole position to retain its title of the biggest-selling EV brand in the country. In particular, exports surged 334% to 242,765 units compared with the previous year, with the company now having established its footprint in more than 70 countries.

• Sales of SAIC-GM-Wuling, General Motors’ minicar joint venture in China, also reached a record high of 1.4 million units, of which 211,512 were overseas exports, representing a 9% year-on-year growth. The automaker currently sells its budget models including Mini EVs in Southeast Asian countries such as Thailand, Vietnam, and Indonesia. 
• Geely said its EV sales rose 48% year-on-year and were also record-breaking last year, at 487,461 units, including 274,101 gas-powered and green energy vehicles abroad. Its premium EV brand Zeekr delivered 118,685 units over the year, up 65% year-on-year but missing its delivery goal of 140,000 units set earlier this year. 
• GAC’s EV unit Aion was also around 20,000 units short of its annual delivery target of 500,000 EVs, closely followed by Changan Automobile at more than 470,000 units. Huawei’s manufacturing partner said overseas shipments grew 35.4% to roughly 230,000 units, as construction of its overseas production base started in Thailand last month. 
• Li Auto maintained its solid momentum throughout the year as it reported deliveries of 50,353 plug-in hybrid crossovers in December, bringing the company’s total deliveries for the year to 376,030. Young EV makers such as NIO and Xpeng Motors are catching up with annual deliveries of 160,038 and 141,601, respectively. 
• SAIC-Volkswagen, the joint venture of the Wolfsburg-based automaker and China’s state-owned automaker, said it became the most visible player among its peers with sales of almost 110,000 units of its China-made ID family electric models. The German automaker in July reportedly cut the price of its ID.3 hatchback by more than 20% to RMB 125,900 ($17,500).

Context: CAAM expected car sales in China to reach the threshold of 30 million units for the first time in 2023 and that number will be further increased to 31 million in 2024, Caixin reported. NEV sales are set to total 9.4 million units in 2023, up 37% from a year earlier. The growth rate could slow to 22% in 2024, however, as the domestic EV market is maturing.

Xiaomi held its most significant media event of the year in Beijing on Thursday: the debut of its first electric car. With a size comparable to the BMW 5 Series and a shape similar to the Porsche Taycan, the four-door sedan boasts some of the Chinese car market’s highest specifications, as cut-throat competition from maturing rivals rises.

The sleek, gadget-full all-electric sedan is aiming to become a top choice for China’s increasingly tech-savvy consumers, and certainly aroused widespread curiosity judging by the more than 46 million people who logged on for the three-hour-long unveiling on the country’s Twitter-like site Weibo. Yet from journalists and insiders alike, the reaction was mixed. 

From the event, TechNode has selected some of the car’s highlights. 

Main specs

The high-performance SU7 can sprint from 0 to 100 km/h (62 mph) in 2.78 seconds, as it climbs to a top speed of 265 km/h. It is claimed to be the world’s most aerodynamic production car with a drag coefficient (Cd) of 0.195. By comparison, the Taycan Turo can hit 260 km/h and Tesla’s Model S has a Cd of 0.208. It also comes just a month after rival Huawei launched the Luxeed S7 sedan at 0.203Cd. 

Xiaomi said it uses two 9,100-ton mega casting press machines to produce the front and rear underbody pieces, giving the car a torsional stiffness of 51,000 Nm/degree, nearly twice the number of the Ford F-150 Raptor and higher than any other car on the road. The technology, first adopted by Tesla, has since been embraced by Chinese EV makers from Geely-affiliated Zeekr to Huawei-backed Aito.

Vehicle autonomy

Xiaomi’s chief executive Lei Jun presented aspects of the company’s self-driving initiative for public viewing, highlighting that the premium version of the SU7 will incorporate two Nvidia Drive Orin processing chips plus a laser sensor unit on the car’s roof to carry out certain partially autonomous driving functions. Xiaomi also showed a short video of the car drawing into a tight garage space autonomously.

The Chinese tech company has set a goal for its advanced driver assistance software to be available to drivers in 100 major Chinese cities by the end of the next year, according to Lei. Huawei and Xpeng Motors are for now the leaders of this booming market, with established carmakers from BYD to Great Wall Motor trying to catch up.

Smart cabin

The SU7 will be the latest Chinese car model powered by Qualcomm’s smart cockpit computing platform SA8295, after the Zeekr 001 FR and its sibling Jiyue 01, and its infotainment system will turn on in just 1.5 seconds. It is also integrated seamlessly into the Xiaomi ecosystem with the adoption of the company’s self-developed operating system, the HyperOS, which takes only 30 minutes or so to carry out important updates, according to the company. 

CEO Lei said the SU7 would create the same smooth experience that anybody with a Mi Phone is used to, as various apps are pushed from their phones to a 16.1-inch in-car dashboard once they sit in the car. Other devices, from tablets to home appliances, also seamlessly work with the vehicle, an integration trend led by auto and tech majors such as Huawei, Geely, and NIO.

Conclusion

Xiaomi will have to pick an appropriate price tag, given it starts with a somewhat broad, unclear positioning, said You Xi, a seasoned economic and financial writer and co-founder of Chinese online media platform Communication Planet. “It remains challenging for the company to extend its brand into EVs,” You added, citing similar offerings from multiple competitors among his reasons (our translation).

The smartphone giant plans to introduce two variants of the SU7 to “contemporary elites with taste in lifestyle and technology” in China over the next few months, said Lei. Some experts have predicted the premium version of the car, with an estimated driving range of 800 kilometers (497 miles), could cost consumers at least RMB 300,000 ($41,124).

Chinese EV maker NIO on Dec. 23 unveiled a long-wheelbase executive sedan model, the ET9,  with a price range of $112,160. The model boasts its own self-driving chip, marking the first utilization of the five nanometer process technology in China’s auto industry. 

The four-door executive flagship, equipped with proprietary technologies such as a sophisticated yet lightweight chassis system and a superfast-charging battery pack, reflects NIO’s commitment to redefining the upper premium vehicle market, William Li, the company’s founder, chairman, and chief executive, told press at the annual NIO Day event on Dec. 23. Li further referred to the target segment as ”a spiritual home base“ for international luxury carmakers (our translation). 

With a pre-sale starting price of roughly RMB 800,000 ($112,160), NIO’s answer to the Porsche Panamera could serve as a low-volume halo car and is scheduled for delivery in the first quarter of 2025. Larger rivals from BYD to Geely have also launched similarly-priced offerings, indicating their aspirations to upscale and grab a slice of the luxury market.

Here are some of the key specifications of the ET9 presented by NIO at the company’s annual gathering held in the northwestern Chinese city of Xi’an. 

Design highlights: Different from old-money cars that Western brands typically offer, the NIO ET9 features a sleek and contemporary look with high ground clearance, large 23-inch wheels, and cutting-edge gadgets such as laser sensors on the roof and sides for an all-round view of the car’s surroundings. 

• The interior boasts a modern design language. The car features an almost two-meter (six-feet) console that extends through the length of the cabin and is integrated with equipment such as a 10L fridge and folding tables, offering passengers first-class-style seats and comfort.
• The grand tourer measures 5.3 meters in length and 1.6 meters in height with a wheelbase of nearly 3.3 meters, making it longer than the Bentley Flying Spur and almost as tall as a regular off-roader. The back seats can be reclined as much as 45° and come with full-body massage programs. 

Autonomous driving: The ET9 will be powered by NIO’s first self-developed system on chip (SoC), the Shenji NX9031, for partially automated driving. NIO stated it will be the first Chinese automaker to use chips with five-nanometer process technology, providing its vehicles a computing power comparable to the combined total of that created by four industry-leading processors. 

• By comparison, NIO’s existing lineups are equipped with four Nvidia DRIVE Orin chips that handle up to 1,016 TOPS on seven nanometers. The purpose-built chip is a strategic move as it could improve processing efficiency and machine learning algorithm coupling for autonomous driving, Jefferies analysts said on Monday. 
• Li declined to provide further details about the semiconductor. Tesla has reportedly turned to Taiwan’s TSMC to produce its next-generation full self-driving (FSD) computer on 4/5 nm processes. Homegrown rivals Li Auto and Xpeng Motors are also developing their own chips for vehicle intelligence. 

Large cylindrical battery: The ET9 will incorporate NIO’s in-house developed, 46105-type cylindrical lithium-ion battery cells. This implies a size of 46 millimeters in diameter and 105 mm in length with a cylindrical shape, a technology also embraced by Tesla in the hopes of increasing ranges and lowering costs. 

• NIO asserts that its new batteries have a cell-level energy density of 292 watt-hours per kilogram (Wh/kg), and a 120 kWh pack can provide a range of 255 kilometers (159 miles) after five minutes of charging at a 5C rate, facilitated by a 900-volt electrical system. By comparison, CATL’s latest Qilin battery would allow Li Auto’s Mega van to cover 500 km on a 12-minute charge at a 5C rate. 
• NIO did not reveal many further details, except for Li’s comments to investors during a Dec. 5 earnings call stating plans to outsource battery manufacturing for reduced investment and improved margins. The EV maker is reportedly in talks with Great Wall Motor-backed Svolt to set up a joint venture for making batteries in its car manufacturing base of Anhui. 

Smart chassis: NIO also launched an intelligent chassis suspension system which the company claimed would provide a refined driving experience featuring a steer-by-wire system, rear-wheel steering, and adjustable suspension altogether for the first time in a mass-produced consumer car.

•  NIO said the so-called SkyRide Intelligent Chassis System, in combination with hydraulic components, could be raised or lowered by 50 millimeters in one second to help passengers in and out of the car. In April, BYD introduced a similar offering that could automatically adjust to different road conditions and driving styles.
• In a 50-second video clip presented by NIO on Dec. 23, an ET9 prototype offered an apparently smooth ride when driving over multiple speed bumps and showcased a four-tier tower of Champagne glasses on the front body panel which remained in place despite the road surface. The flagship sedan is also highly maneuverable with a turning radius as low as 5.45 meters, a record also achieved by Xpeng with its upcoming X9 van.

Major Chinese electric vehicle makers from BYD to Xpeng Motors have collectively posted strong delivery figures in November as they attempt to hit their annual targets and as competition shows no signs of subsiding in the world’s biggest auto market. 

Why it matters: Jefferies analysts wrote in a Dec. 1 note that they estimated sales of China’s new energy vehicles (NEVs), mostly all-electrics and plug-in hybrids, to reach 1 million units in November with a solid month-on-month growth rate of 10% from a high base. 

• However, analysts warned of an intensified price war as 2023 comes to a close, as major EV brands including BYD and Li Auto have either cut prices or increased the royalties for customers since late November to boost year-end sales. 

Details: BYD on Dec. 1 revealed monthly sales figures of its premium Fangchengbao and Yangwang marques for the first time following their launches earlier this year, announcing it handed over 626 and 408 units to customers, respectively. Delivery of the RMB 1 million ($150,000) Yangwang U8 and the Bao 5, with a price range of RMB 289,800 to RMB 352,800, began in late September and November separately. Overall, the EV giant outsold its October figures by 70 units in November. 

• Geely’s NEV sales increased 4.7% month-on-month to 65,034 units last month thanks to a wide product portfolio under a multi-brand strategy. Volvo’s parent said it delivered 13,770 units under the Galaxy marque and 13,104 Zeekr-branded battery EVs, while sales of its Lynk & Co 08 extended-range hybrid EV surpassed the 10,000 mark over the month. The numbers of GAC’s Aion and Great Wall Motor rose 0.15% and 0.23% from a month previously, respectively. 
• Huawei-backed Aito posted its best-ever month by delivering 18,827 units, which is nearly 50% higher than its deliveries in October and surpassed the top end of the guidance provided by Huawei’s head of consumer business group a week ago. The number is expected to exceed 23,000 this month and to hit 30,000 in January, as the EV maker said it has secured more than 100,000 non-refundable orders for the revamped M7 crossover over the last two months or so.
• Growth momentum has been sustained for both Li Auto and Xpeng Motors which once again reported record-setting deliveries of 41,030 and 20,041 vehicles last month respectively. Li Auto’s founder Li Xiang said it is aiming for deliveries of 50,000 EVs this month, while Xpeng on Nov. 15 forecasted the fourth quarter delivery of up to 63,500 units. NIO‘s November delivery of 15,959 vehicles is basically flat from the previous month. 

Context: China’s NEV sales were partly boosted by the opening of the annual Auto Guangzhou show on Nov. 17 with dozens of debuts of all-new cars, as major players try to enhance their presence among a crowded field. 

• More than 5.9 million NEVs were sold during the first ten months of this year, representing a year-on-year growth of 34.2% and accounting for 34.1% of total car sales in China, according to figures from the China Passenger Car Association. 
• Miao Wei, former minister of Industry and Information Technology, expects the NEV penetration rate to exceed 50% of all new car sales as early as 2025. That would be 10 years ahead of Beijing’s schedule. Miao made the comment on Nov. 29 during this year’s China Automotive Industry Forum, reported media outlet The Paper.

More Chinese automakers are planning to adopt NIO’s battery swap technology as two giants join the program – Changan and Geely. NIO on Wednesday said it will partner with Geely to develop a common standard for electric vehicle battery packs and create a sprawling network of swap stations for both consumer cars and commercial fleets, just a week after Changan said it had become NIO’s first ally in a similar effort. 

The move could give a further boost to NIO’s long-term plan to split its money-losing recharging infrastructure unit into a standalone business with financing from outside investors, two people with knowledge of the matter told TechNode on Wednesday. Meanwhile, Geely and NIO will explore the possibility of establishing a shared battery swap network in overseas markets, said one of the people, without elaborating further. 

NIO and Geely declined to comment when contacted by TechNode on Thursday, referring instead to the announcement published by the two companies.

Car industry experts foresee the acceleration of the Chinese EV industry’s migration to a more unified standard for battery specifications and swap techniques originated by NIO. Still, the EV maker and its bigger allies could face a bumpy road despite their eagerness for a unified swapping standard until a number of business and technical hurdles are cleared. 

A common standard? 

It is clear that Chinese authorities are behind the move given that Changan is state-owned and given Geely’s position as the poster child for the Chinese privately-owned car industry, said Lei Xing, former chief editor at China Auto Review. Xing expects no real progress to be made within the next 12-18 months given the challenges in achieving a clear consensus for designing new batteries compatible with their recharging networks. 

A market-wide standardization may also not happen without government intervention. It’s one thing to require a certain plug type, and quite another to force standardization of batteries and chassis configuration, said Daniel J. Kollar, head of automotive and supply chain at business development consultancy Intralink Group. 

“This could have major effects on several design aspects and possibly even lead to certain limits on innovation and supplier choice,” Kollar added.

NIO may also find the need for considerable back and forth with its partners in order to get its swap technology closer to becoming the industry standard. It’s going to be NIO dictating its intellectual property to swapping partners, but Geely and Changan may want to have a say as well, said Tu T. Le, founder of business intelligence firm Sino Auto Insights. 

“There’s a lot that needs to be settled still,” Le added, citing Geely running its own swapping system as one reason. Volvo’s parent began operating its first battery swap station for commercial fleets in the southwestern municipality of Chongqing in late 2020, with plans to run 300 more by the end of this year.

A big relief?

Although it is too early to predict where NIO’s power business may end up, it is possible that a new entity jointly invested in by NIO and multiple other carmakers could be in play – something akin to what Huawei recently announced for its vehicle business unit, according to Xing. “This would ease the financial pressure on NIO and make them de facto outside investors of the startup.” 

The partnership would probably shoulder some of the investment burden for NIO with cash injections, although it may not help them sell cars, Le said. The increase in adoption of swapping will likely result in short-term improvements to their bottom line, but the big question is if it will result in more vehicle sales. 

The Shanghai-headquartered EV maker has built up a nationwide network of more than 2,100 swap stations, each reportedly costing more than RMB 3 million ($420,000) on average. That number is expected to surpass 2,300 by year-end. It delivered 126,067 vehicles for the first ten months of this year, in line with the industry’s average growth rate but lagging behind rivals such as Li Auto. 

“It’s hard to see how this is going to change NIO’s fortunes in the long run to a significant degree without added help from their new partners – either via providing a boost to their marketing reach or supporting the development of mid-market solutions,” said Kollar.

Chinese electric vehicle makers Xpeng Motors and Aito on Wednesday posted record-breaking figures for monthly deliveries, as the pace of adoption of self-driving technology accelerates among local customers despite slowing growth in China’s electric vehicle segment as a whole. 

Strong orders for Huawei, Xpeng, and DJI’s city NOA (Navigation on ADAS) products mark the start of the commercialization of smart driving, Jefferies analysts wrote in an Oct. 24 note. They added that Chinese automakers are becoming more willing to “test the waters” with chips by Huawei on some of their vehicles.

Why it matters: The latest figures highlight a brutal price war that has been continuing for months in the market, and the struggle automakers are facing in having to choose between lower prices or losing market share. 

• Xpeng in June unveiled the G6, its crossover answer to Tesla’s Model Y, at a price tag 20% lower than its US rival in China. Aito’s all-new M7 sports utility vehicle now costs RMB 40,000 ($5,468) less than the version launched a year ago.

Riding the self-driving boom: Xpeng Motors handed over 20,002 electric cars to customers in October, crossing the 20,000 unit milestone, nearly a threefold increase from a year ago and  31% growth from September. 

• Aito also reported a record delivery number of 12,700 units last month. The Huawei-backed brand does not report its delivery figures consistently, but its Shanghai-listed manufacturer Seres posted sales of 40,389 EVs for the first nine months of the year. 
• The two companies appear to have taken an early lead in an emerging battlefield for partially autonomous technology among consumer carmakers. More than half of the orders of Aito’s redesigned M7 SUV were placed for versions with Huawei’s Advanced Driving System, Chinese media outlet Caixin reported on Oct. 7, citing company insiders. 
• The Max versions of Xpeng’s G6 crossover, which features the company’s XNGP assisted driving technology, accounted for 70% of total orders in the first month after the launch, chief executive He Xiaopeng said in August. Both companies said their vehicles would be able to travel autonomously most of the time in dozens of major Chinese cities by the end of the year. 

EV startups: Li Auto also accomplished a delivery milestone last month, distributing 40,422 vehicles, making its year-to-date deliveries 284,647 units, the highest among the country’s nascent EV startups. The company has upped its goal to 50,000 units for the remaining two months of the year, CEO Li Xiang said on Wednesday on the Chinese Twitter-like platform Weibo.

• NIO’s October delivery of 16,074 units represented a 59.8% growth from this time last year and a slight 2.8% increase month over month. The company has delivered 126,067 vehicles as of October this year, still far from the annual goal of 245,000 units revealed by CEO William Li in March. It is now aiming for monthly delivery of more than 20,000 units in the fourth quarter of 2023. 
• Leapmotor’s delivery of 18,202 EVs last month comes after the Zhejiang-based EV maker recently announced a deal with European major Stellantis for a $1.6 billion war chest and turned its negative gross margin into a positive for the past quarter. Rival Hozon delivered 12,085 units, representing a decrease of 32.9% year-on-year and 8.5% month-on-month. 

Established majors: BYD’s growth momentum continued to some extent in October as the company saw sales surpassing 301,000 vehicles with a mild 5.2% rise from a month earlier. Analysts expect China’s biggest EV maker to achieve its annual goal of selling 3 million cars this year, as the company on Monday launched a wagon version of its popular Song SUV and readied to sell its long-anticipated Bao 5 off-roader.

• Sales for Aion declined 19.6% from a month earlier to 41,503 units, as the GAC subsidiary ramps up production of its new models, company insiders told financial media outlet CLS. Changan-affiliated Deepal delivered 15,513 vehicles in October, a 10.7% decrease from September. 
• Zeekr delivered 13,077 vehicles last month, up 29.2% from a year ago and 8.5% from September. On Aug. 11, the two-year-old premium EV brand, set up by Volvo parent Geely, cut the price of its 001 hatchback by up to RMB 37,000 to RMB 269,000 for a limited period until the end of this year. 
• Voyah saw its deliveries grow 21% on a monthly basis in October after the Dongfeng-backed EV maker launched its redesigned Free SUV in August, with the model arriving 15% cheaper than the previous version and equipped with Baidu’s advanced driver-assist system. 

Context: Retail sales of new energy passenger vehicles, including all-electrics and plug-in hybrids, are expected to reach 750,000 units in October, up 34.6% year-on-year and 0.9% month-on-month, according to estimates from the China Passenger Car Association. The past two months, known as “Golden September, Silver October,” are traditionally peak seasons for auto sales in China.

NIO may consider bidding for two manufacturing plants in the eastern Chinese city of Hefei put up for sale by partner Anhui Jianghuai Automobile Group Co (JAC) on Oct. 20, reportedly in an effort to exercise more control over its production process.

Why it matters: Acquiring existing plants is one of the easiest ways for electric vehicle companies to obtain a production license in China, as NIO rival Li Auto did previously. The move could be a big positive for NIO in improving operational efficiency over the long term, a person with knowledge of the matter told the Chinese financial media outlet National Business Daily (NBD) on Oct. 20. 

• In 2020, Xpeng Motors, another competitor to NIO, announced that it had obtained a production license for its fully-owned factory in the southern Chinese city of Zhaoqing. This achievement followed years of collaboration with Haima Automobile, a former partner of Japan’s Mazda, to manufacture EVs, Reuters reported.

Details: State-owned JAC said on Oct. 20 that it plans to look for buyers publicly for part of its assets under its third factory and its Xinqiao plant for a combined value of approximately RMB 4.5 billion ($610 million). 

• This would represent a premium of nearly 6.8% to its book value and include some inventory, equipment, construction, and land use rights that belong to its passenger vehicle subsidiary, according to a regulatory filing (in Chinese).
• The two factories that JAC referred to were in fact the two advanced manufacturing bases established by the automaker for EV production with NIO, according to the person who spoke with NBD and noted the latter’s likely intention to reach a deal.
• A NIO spokesperson neither confirmed nor denied the news when contacted by TechNode on Monday, saying that the company will share more details on relevant matters “when the time is right” and that the decision by its partner has no impact on NIO’s production and operations.

Context: JAC, also a manufacturing partner for Volkswagen in China, completed construction of the so-called first advanced manufacturing base, or the F1 plant, with NIO in the Shushan district of Hefei in late 2017. The facility, which had an initial annual production capacity of 120,000 vehicles, was built after the two companies reached an outsourcing agreement in mid-2016. 

• New York- and Hong Kong-listed NIO and JAC began operating their second facility, or the F2 plant, in the Xinqiao Science and Technology Innovation Demonstration Zone in the city last September. 
• The annual capacity of each of the F1 and the F2 plants can be increased to 300,000 vehicles, and the agreements for manufacturing in the two plants are set to expire in May 2024 and September 2025 respectively, according to NIO’s annual report. 

READ MORE: Visiting the NIO plant in Hefei, China’s rising EV capital

Nio took a giant leap into the smartphone arena on Thursday with the much-anticipated launch of its Nio Phone, the first handset designed by a Chinese automaker. The new device is hitting the market at a price comparable to the latest flagship offerings by Apple and Huawei. 

Having developed its own phone from the ground up, the electric vehicle maker expects to create an ecosystem across vehicles, devices, and services, which will provide a seamless experience for Nio users. The handset offers the purest form of the Android experience without any pre-installed apps or banner ads, chief executive William Li said during a press event in Shanghai on Thursday.  

Some of the standout features Nio highlights are a master remote control for vehicles with options to control everything from windows to seats, as well as seamless streaming of videos, music, and meetings from smartphone to car infotainment screen. Here’s what impressed us most about Nio’s first Android phone. 

Ultra wideband technology

Nio said the phone offers remote control for in-car devices which differs from most competitors by using Ultra Wideband (UWB) technology, an emerging wireless communication protocol that enables precise, speedy, and secure location tracking.

During a hands-on session where TechNode was present, a Nio ES8 SUV “greeted” the phone by turning its lights on when a Nio employee approached and automatically unlocked shortly before he reached for the door handle without taking out his phone. The smartphone also serves as a central hub to remotely operate the car’s air conditioning among other options at the touch of a single button. 

The short-range, high-bandwidth digital radio technology allows fast data transmission with increased security compared with other wireless standards such as NFC and Bluetooth, which are often absent from existing phone models produced by domestic makers such as Huawei and Xiaomi, according to Nio staff. The first initiative of this kind was announced by Geely-backed rival Meizu a month earlier. 

Several global automakers are also investing in the technology in collaboration with Apple. The US smartphone maker has reportedly been allowing BMW’s iX owners to unlock their cars using select iPhones or wearables since 2021, although most carmakers are currently unable to leverage the technology with Apple’s devices, Nio CEO William Li previously told Chinese reporters.

In-car connectivity

TechNode reporters also played the hit racing game title Asphalt on the in-car display with a Microsoft Xbox wireless controller. It offered a smooth experience which did not freeze or crash, as it runs in the smartphone’s background enabled with 5G services and a Qualcomm semiconductor. 

Nio’s in-car experience also allows users to stream videos on Bilibili, follow turn-by-turn navigation on Amap, or transition to live meetings on Dingtalk from their phones through the car’s infotainment screen. Huawei earlier announced a similar Super Terminal feature, while Geely claimed such capabilities with the recent launch of its new Meizu flagship series and operating system, Flyeme Auto.

It is worth pointing out that the feature is different from screen mirroring, as it actually creates a “doppelganger” of the Nio Phone on the in-car dashboard so that users can use the smartphone and the in-car system simultaneously yet separately. 

With its first self-branded device, Nio is one of the few Chinese automakers capable of integrating users’ smartphones with their car’s infotainment system at the operating system level. Such integration for Aito and Geely was enabled by their respective smartphone partners Huawei and Meizu. 

Specifications and prices

The Nio Phone is powered by a Qualcomm high-end Snapdragon 8 Gen 2 processor, the same as existing flagship offerings such as Xiaomi’s Mi 13, Oppo’s Reno 11 Pro, and the Meizu 20. It also comes with a 6.81-inch 2K+E6 Samsung screen, providing a resolution of 3,200 x 1,440 pixels, a 120Hz refresh rate, and a peak brightness of 1,800nits.

The device features a triple-camera system that includes three 50MP cameras and has a large battery of 5,200mAh, supporting 50 W wireless charging and 10 W reverse charging. An entry-level version weighs 212 grams and measures 165.19 x 75.54 x 8.9mm. 

The Nio Phone’s three versions come in seven colors, and are priced between RMB 6,499 and RMB 7,499 ($890-$1,027). Shipment is scheduled for Sept. 28. For comparison, Huawei’s latest Mate 60 Pro flagship phone costs from RMB 6,499, while Apple on Sept. 15 began selling its iPhone 15 series with a starting price of RMB 5,999 in China. 

China’s Great Wall Motor (GWM) will bring its next-generation in-car operating system to market next year, and stick to the ambitious goal of rolling out its semi-autonomous driving function nationwide by the end of 2024, according to a press event held on Tuesday. 

The company is undertaking a targeted push to create a scalable and unified software platform for future vehicle models across multiple different brands, a concept that has become mainstream in the years since Tesla entered the market. A significant increase in the number of software updates, aimed at improving the driving experience, is expected from next year, vice president Nicole Wu told TechNode at the event, held in the northern city of Baoding, where the company is headquartered. 

China’s third biggest private automaker by sales volume, GWM had a relatively early start in autonomous driving and in-car technologies. It began testing self-driving cars with the creation of a dedicated division called Haomo.ai in 2019 and became the second Chinese automaker after Xpeng Motors to build a supercomputing center, this January. Now, the company has set up a new artificial intelligence research lab to bring generative AI tools into play in future car models. 

Here are some of the highlights of TechNode’s interview with GWM executives, including vice president Nicole Wu, senior director Jiang Haipeng, director She Shidong, and Yang Jifeng, head of the AI lab. 

Major digital cockpit progress

GWM will roll out an app store and implement it across all brands, as part of its upcoming in-car operating system, Coffee OS 3.0, scheduled for release in the first half of 2024. The store will give users access to common third-party services and infotainment apps fine-tuned for car-friendly usage, as more customers expect a smartphone-like experience in the car. 

By working with smartphone makers such as Huawei and Xiaomi, the new system will allow drivers to use a handset while operating their vehicle. She Shidong added that owners will be able to play video games and watch movies in their cars by connecting gaming consoles, augmented-reality glasses or other devices, with the car dashboard using wireless or bluetooth connections.

By making constant updates of driving and infotainment features possible, the Coffee OS 3.0 is intended to take the in-car experience to a new level. Wu envisions each new GWM model getting a major software update every two to three months. Tesla and Nio released 2.8 and 1.3 software updates per month on average respectively in China during the first half of 2022, according to figures from domestic consultancy Ways. 

Ambitious self-driving goal

GWM has maintained its goal of launching Navigate on HPilot (NOH), a function similar to Tesla’s full self-driving (FSD) technology, to drivers in 100 cities around China by 2024. The software will first be available to owners of its Blue Mountain flagship SUVs in Beijing and Shanghai by next March, according to Jiang. 

This will enable vehicles to change lanes, overtake, and make turns automatically on Chinese city streets without high-precision maps. Jiang added that a set of common middleware plays an important part in creating a platform for assisted driving software that is updateable and scalable at a reasonable cost. 

Chinese auto and tech companies have been competing for a leading position in this space at a time when Tesla’s FSD function has yet to become available in the country. Xpeng’s XNGP advanced driver assistance system is set to be available in 50 major cities by the end of this year, while Li Auto’s EVs will be capable of traveling on fixed routes by themselves after training for weeks in 100 cities. 

Bring generative AI to vehicles

GWM is also looking to greatly expand its in-car system capabilities through the integration of emerging technologies such as generative AI tools. Its first aim is to use AI to anticipate user preferences and create high-quality infotainment content in some new car models in the fourth quarter of this year.

The company’s newly established AI Lab has been exploring the use of large language models in GWM vehicles. Yang expects significant improvement with the upcoming Coffee OS 3.0, especially in voice recognition and natural language understanding, expecting that the latest operating system will be able to give detailed, relevant responses to users’ queries using AI.

Rival players are all developing ChatGPT-like virtual assistants for use in future car models. Geely is scheduled to launch its RMB 128,000 ($17,600) Galaxy L6 SUV on Saturday with a proprietary AI model that can read children’s picture books. Both GWM and Geely-affiliated Ecarx earlier partnered with Baidu to develop AI assistants based on the latter’s GPT-style large language models.

In July, more than 10 Chinese automakers reported deliveries of over 10,000 units of their electric vehicles, signaling a significant shift in China’s car market as newer entrants and previously smaller brands continue to increase their sales. Notably, Nio saw remarkable growth, nearly doubling its figures from the previous month, while Xpeng Motors surpassed the 10,000 threshold following months of lackluster performance. 

Why it matters: The latest ranking of the best-selling EV brands in China reflects the changing landscape in the world’s biggest car market. Although BYD and Tesla are still miles ahead of their competitors, local rivals are capturing market share with new product launches and aggressive price cuts as the sector’s intense battle shows no signs of abating.

Bright spot: On Tuesday, Nio announced that it had exceeded the monthly delivery threshold of 20,000 vehicles for the first time in its nine-year history. The firm’s July deliveries reached 20,462 units, nearly doubling its figures from a month earlier. 

• This achievement follows the company’s decision to implement an RMB 30,000 ($4,199) price cut across its vehicle lineups on June 12. Additionally, Nio began delivering the redesigned versions of its popular ES6 crossovers and ET5 sedans starting late May, when monthly sales hit a record low. 
• Xpeng’s July deliveries of 11,008 units also marked an important milestone, one which the EV maker attributed to a smooth production ramp-up of the G6. The mainstream sports utility vehicle recorded shipment of more than 3,900 units immediately after its launch on June 29. 
• The Guangzhou-based automaker is aiming to deliver at least 15,000 units as early as September and has recently received backing from Germany’s Volkswagen. However, its year-to-date deliveries fell 35% year-on-year to 52,443 units as of July. 

Other results: While BYD maintained its dominant position in July with a new sales record, GAC’s EV arm Aion made progress with its new premium marque, Hyper. Aion sold 45,025 units during the month, with 2,011 of them being the Hyper GT coupe, which it began selling on July 3. 

• Li Auto said it has sold more than 30,000 plug-in hybrids for two consecutive months as July deliveries grew 5% month-on-month to 34,134 units. Great Wall Motor followed closely behind with sales of 28,896 units, representing an 8% increase from the previous month. 
• Leapmotor also posted impressive growth in July sales, with a notable increase of 8% to 14,335 units compared to the previous month. Additionally, the Zhejiang-based automaker is reportedly in discussions with Volkswagen’s Jetta brand regarding the licensing of its technologies. 
• This was followed by Changan’s subsidiary Deepal and Geely’s affiliate Zeekr which delivered 13,172 and 12,039 units last month, up 64% and 14% on a sequential basis, respectively. However, Hozon’s numbers declined for the third month in a row, reaching 10,039 units. 

Context: In addition to Chinese automakers, several global auto majors also revealed some details of their July sales in China.

• Volkswagen’s joint venture with state-owned SAIC reported securing more than 10,000 pre-orders of its ID.3 after the German auto giant slashed the price of the locally-made electric hatchback by RMB 37,000 to RMB 125,900 ($17,523). 
• General Motors announced that it shipped around 10,000 EVs with its local partner SAIC last month, of which 8,692 were Buick EVs. Furthermore, SAIC-GM-Wuling, another venture between SAIC, the US automaker, and Guangxi Automobile Group, sold 35,000 units, up from 31,246 units a month ago.

Chinese EV maker Nio will roll out a single-motor version of its first mass-market Alps model, as part of a lineup scheduled for delivery in the second half of next year, Chinese media outlet 36Kr reported. 

Why it matters: The plan to produce a more affordable single-motor car marks a rare shift for Nio, which has so far insisted on a dual motor on all its offerings to date, as this is responsible for Nio’s impressive acceleration and premium performance. 

• The move is expected to help the Chinese electric vehicle maker adapt and appeal to a wider group of customers as the country’s months-long EV price war pushes down prices. 

Details: The upcoming sedan under Nio’s mass market Alps marque will come with the company’s self-developed electric powertrain featuring a next-generation induction motor, the 36Kr report said, citing people familiar with the matter. 

• The car, priced between RMB 200,000 and RMB 300,000 ($27,951-$41,927), will be built on the third generation of Nio’s NT vehicle architecture, which features an 800-volt battery system that allows much faster recharging than existing offerings, the report said. 
• The decision was, says the report, made after Nio announced an RMB 30,000 price cut across its lineup on June 12 in a move to defend market share as rivals reduce prices to boost sales. 
• Nio did not respond to TechNode’s request for comment. 

Context: Nio’s chief executive William Li on June 9 told investors that the company is on track to launch the first model under the Alps marque in the second half of 2024. 

• It is also reportedly in the development phase for another lower-end, budget sub-brand codenamed Firefly. The car has a target price range of between RMB 100,000 and RMB 200,000 ($13,985-$27,969) and is expected to first launch in Europe later next year. 
• Year-to-date deliveries of the Shanghai-based EV maker reached 54,561 units as of June, representing a year-on-year growth rate of 7.3%. It currently has eight models on sale, all equipped with dual motors. 
• China recorded sales of more than 3 million new energy passenger cars (a combined total of pure battery EVs and plug-in hybrids) over the same period, up 37.3% from a year ago, according to figures from the China Passenger Car Association. 

Nio announced on Thursday that it has updated its battery leasing program to allow drivers to replace their battery packs with a higher energy density one daily rather than after months or years, as was previously the case.

The Chinese EV maker also reaffirmed an earlier commitment to expanding its battery swapping and supercharging network, as a way to showcase what it sees as the superior experience offered to Nio owners, including easy access to recharging ports.

Why it matters: The daily package may present new challenges for Nio, given its already large and dispersed power infrastructure deployment across China. Despite this, it is expected to draw in revenue as it offers greater convenience to users and lowers the purchase prices of Nio’s EVs, senior company executives told reporters at a press briefing in Beijing. Nio has recently experienced cashflow pressure amid slowing sales.

Details: Customers who currently have a 70/75 kilowatt-hour (kWh) battery pack for their Nio EVs may now swap the battery for a so-called “long-range” one (100kWh) for an extra fee of RMB 50 ($7) per day and will be able to return it to any Nio swap station in China.

• The service option is part of Nio’s Battery-as-a-Service (BaaS) leasing program, which was launched in August 2021 and has since allowed Nio owners to upgrade their batteries for longer driving ranges with a monthly and yearly fee of RMB 880 and RMB 9,800, respectively.
• In the last two years to Thursday, Nio has provided 80,000 upgrades, according to the company’s president Qin Lihong. He added that number could surge by “several hundred thousand” over the next year, as customers take advantage of the flexibility afforded by a longer driving range at a relatively low cost.
• Still, senior vice president Shen Fei acknowledged that the move could put the company under “exponential” pressure to operate its consistently growing swapping network when it comes to the transport and allocation of battery packs across the nation (our translation).
• He cited an extreme case in which 100 kWh battery packs could be in short supply during hot weather in Beijing as owners travel to summer resorts. “I believe we’re well prepared, but we haven’t foreseen all the potential problems with this,” said Shen.
• Qin reaffirmed Nio’s efforts to double its number of swap stations to more than 2,300 by the end of the year, adding that the company has established 500 ultra-fast chargers since April, with a maximum power output of 500 kW and a maximum current of 660A.

Context: Nio owns and operates one of the largest recharging networks in China with 1,564 swap stations and 16,745 public chargers as of Thursday. It has swapped over 25 million EV battery packs, meaning a Nio car is starting up with a replenished battery pack every 1.6 seconds, said Qin.

• The automaker faced cashflow issues until recently when Abu Dhabi’s CYVN Holdings provided relief with a $1.1 billion investment. As a result it has scaled back production of its proprietary EV batteries. It cut prices of its vehicle lineups by RMB 30,000 ($4,199) on June 12, with year-to-date deliveries growing by 7.3% to 54,561 units as of June.

READ MORE: Nio bets big on battery swap stations amid growing EV price war

Chinese electric vehicle makers Nio, Xpeng Motors, and Zeekr on July 1 reported significant volume gains in June after months-long dips amid intensifying competition. Nio’s aggressive price cuts and Xpeng launching new models have spurred each to improved numbers.

Although BYD remains the dominant player in China, Aion, Li Auto, and Great Wall Motor are emerging as rivals with enhanced technologies and competitive prices, with the sector’s intense competition showing no signs of easing anytime soon.

Why it matters: Jefferies analysts forecast an 8% monthly growth in the wholesale volume of new energy vehicles to around 774,000 units in June and a 20% sequential increase in foot traffic in the industry. 

• Still, the ongoing price war could intensify across the industry during the upcoming summer slow season, as global automakers such as BMW and Mercedes widen their retail discounts and compete on price, Jefferies analysts wrote in a July 1 note.

Major improvements: Li Auto crossed another monthly delivery threshold, reporting delivery of 32,575 plug-in hybrid crossovers to customers in June, up from the 28,277 units a month earlier. The automaker’s year-to-date deliveries of 139,117 units have already surpassed its total unit sales from 2022. Chief executive Li Xiang previously stated he expects that number to get to more than 40,000 units later this year.

• Great Wall Motor also saw strong growth last month, as sales of its new energy passenger vehicles, including pure electrics and PHEVs, surged 110% year-on-year to 26,643 units following the recent launches of its new Haval-branded SUV and six-seater Blue Mountain. Jefferies analysts said sales of the Blue Mountain reached a similar level to Li Auto’s L8 in some areas last month, citing information from dealerships.
• Nio’s delivery figures bounced back to 10,707 units in June, following two consecutive months of lackluster sales of less than 7,000 units. The firm’s June figures were buoyed by its recent price cut across all lineups. 
• Zeekr reported slightly fewer deliveries of 10,620 units last month when it began shipping its third model Zeekr X, a compact crossover with a starting price of RMB 189,800 ($27,590). This figure was up 22.4% from May.
• Xpeng Motors also saw a solid recovery in June with deliveries of 8,620 units, which marked a 14.8% growth from a month earlier. That figure was still 44% lower than a year ago, however, yet the company’s newest model G6 SUV might give it a chance to get further back on track. Jefferies analysts expected the G6, with delivery scheduled for this month, to “surprise on the upside” with monthly sales likely to reach more than 10,000 units.

Other results: BYD sold 253,046 EVs in June (of which 11,058 were Denza-branded multi-purpose vehicles), a new record compared to the 240,220 it achieved in May. The company had projected monthly sales of its D9 premium vans to reach 15,000 units and is set to begin sales of its second model, the N7 crossover, on Monday.

• Aion maintained its growth momentum and delivered 45,013 vehicles last month, slightly more than the 45,003 units it reached a month earlier. The EV arm of state-owned GAC Group is also moving upscale with the launch on Monday of its Hyper GT, a coupe with a price tag of RMB 219,900.
• EV startups Leapmotor and Hozon are still catching up in the sector, with June deliveries of 13,209 and 12,132 representing a mild growth of 9.5% and a 6.9% reduction from a month earlier, respectively. They’re followed by Changan’s EV brand Deepal with deliveries of 8,041 units.
• Huawei-backed EV brand Aito continues to face growth challenges in an increasingly competitive market, reporting deliveries of 5,668 units last month. That figure brings its total delivery numbers for this year to just 27,541 units.

Context: UBS analysts expect Chinese carmakers to continue market share gains as foreign rivals see a shrinking demand for internal combustion engine vehicles. Chinese EV makers “are acting fast in terms of new model launches, with a better understanding of consumer’s needs,” wrote UBS analysts led by Paul Gong on June 19.

China’s government on Wednesday announced a detailed plan to provide a full exemption of electric vehicles from purchase taxes in the next two years, an exemption that will be gradually rescinded from 2026. Beijing is also planning a pilot scheme to regulate passenger cars with partially and highly autonomous functions for potential large-scale operation, according to a deputy minister.

Why it matters: Industry players have responded positively to Beijing’s recent efforts to stabilize the EV market, where competition has heated up significantly in recent months.

• The extension of the EV purchase tax credit is “a big positive” from the market perspective, since automakers will be able to plan for new models and cost control going forward following Beijing’s early disclosure, BYD said on Wednesday (our translation).
• The government also underscored its strong support for EVs with swappable batteries, as battery prices will not be included in the dutiable value if a customer purchases an EV with a battery lease scheme, Nio’s chief executive William Li said on microblogging platform Weibo.

Analysts’ take: Bernstein analysts have voiced cautious optimism about the prospects for the world’s biggest EV market, as consumer confidence and credit impulses could be supportive of auto demand in the next few months after a slow recovery in car sales early this year.

• The long-term growth outlook for EVs “remains intact” as demand has shifted from government policy-led to consumer-driven, although EV sales growth is set to decelerate amid growing competition and overcapacity issues, Bernstein analysts wrote in a June 21 note.
• Jefferies analysts also hailed Beijing’s longer-than-expected tax credit as a positive sign, on Thursday forecasting China’s new energy vehicle sales, including all-electrics and plug-in hybrids, will reach 830 million units this year, up 27% from the 654 million units sold last year.

Details: EV buyers will be entitled to a 10% purchase tax exemption, or a credit of up to RMB 30,000 ($4,178) until the end of 2025. From 2026 to 2027, they will be taxed by 5% of the purchase price of their EVs, and the reduction amount will not exceed RMB 15,000 per vehicle, according to a government filing published Wednesday.

• The move is intended to maintain Beijing’s efforts to sustain the development of the EV industry and underpin China’s advantage in green car technologies, Xu Hongcai, deputy minister of finance said during a media briefing on Wednesday in Beijing.
• The Chinese authorities have put a limit on the amount of EV tax relief in an aim to ensure fair play and avoid luxury EVs, with some priced as high as RMB 1 million, taking extra resources, Xu said. He estimated total tax breaks to reach RMB 520 billion by 2027, up from RMB 200 billion as of last year.

L3 deployment: Meanwhile, the central government is planning a pilot scheme to officially lift the barriers to entry of passenger cars with semi-autonomous functions, or with the so-called Level 3 automation, said Xin Guobin, deputy minister of industry and information technology.

• Regional government authorities will also issue more permits for the commercial adoption of highly autonomous cars to operate in pilot projects, according to Xu, an endeavor that has been undertaken by a number of Chinese tech companies such as Baidu.
• Automakers are currently not allowed to market cars with L3 capabilities by Chinese regulators. In Level 3, or the partial autonomous level, the driver is required to take over the vehicle in emergencies, according to the definitions set by the Society of Automotive Engineers (SAE).

Note: This article was first published on TechNode China (in Chinese). 

Chinese EV maker Nio announced on June 12 that it would be cutting prices by RMB 30,000 ($4,200) across all lineups and discontinuing its free battery swapping service, an unusual decision from an automaker that has repeatedly refused to enter China’s EV price war.

Among the leading Chinese EV startups (Li Auto, Xpeng, and Nio), Nio is currently facing increasing market pressure. As Chinese EV makers head into a critical competitive period, Nio has to adapt and strategize to secure a larger market share for itself. After all, maintaining a substantial scale is essential for newcomers to survive in the automotive industry. The second half of 2023 and early 2024 is a critical period for young EV makers to secure a healthy market share, as more new models are launched and more traditional major auto companies enter the competition.  

Nio has announced a price reduction of RMB 30,000 ($4,200) across all its new vehicle lineups, as well as adjustments to the rights of first-time buyers for newly purchased cars. Alongside these changes, the company has discontinued its free battery swap policy, replacing it with a paid service effective immediately. According to Nio’s announcement, starting from June 12, 2023, the first owner will receive a 6-year or 150,000 km warranty for the entire vehicle, and a 10-year unlimited mileage warranty for the main electrical systems (battery, motor, and control), among other benefits. The free battery swap service will no longer be included as a basic car benefit; instead, users may opt for a pay-per-use system when using Nio’s battery swapping service. Nio also mentioned plans to introduce flexible charging and swapping service packages for its customers.

In essence, Nio is separating its battery swap service from the vehicle price, leading to a lower overall purchase cost. Instead of a straight price cut like Tesla’s previous approach, Nio is offering a reduced package, by removing perks such as lifetime free battery swaps, extended vehicle warranties, etc. From August 1, Nio will charge new customers for battery swaps at an average cost of about RMB 80 to RMB 100 ($11.2 to $14) per swap. Theoretically, this change should have a positive impact on the company’s financial results.

Nio’s CEO, William Li, disclosed that the company had been internally discussing this change for quite some time. He revealed that they had been taking into account the opinions and suggestions of various users, using the Nio App. Despite the numerous factors involved, the discussions continued, right up to the morning when the news was finally announced. The decision-makers believed that it was the most appropriate time to implement the adjustment. Li recognized the impossibility of pleasing everyone and acknowledged that there may still be some aspects that were not fully considered. 

This drastic price change decision represents Nio’s response to mounting pressure. The pressure stems from multiple sources, and we will explore it from three aspects: 

The first aspect to consider is the product’s competitive edge. Back when new players first entered the EV market, there were fewer EV offerings, and the available models were not as diverse as they are today. However, as the market has matured and charging infrastructure has improved, an increasing number of models have been introduced. This competitive landscape now includes Li Auto and Xpeng, as well as traditional foreign manufacturers and established local Chinese automakers, all of whom have expanded their product lines. Additionally, numerous enterprises and companies from other industries, such as smartphone manufacturer Xiaomi and technology giant Baidu, are now venturing into the EV sector. 

When it comes to competition within its product line, Nio is set to face numerous rivals, particularly in the next one or two years. EVs have a shorter update cycle, and amidst the challenging economic climate, overall consumer demand is unlikely to grow significantly. In such a situation, securing customers is crucial for market dominance. For Nio, adjusting its models’ prices will significantly boost its products’ market competitiveness. From a practical standpoint, the quality of Nio’s vehicles is not in question; they are widely regarded as top-notch products. Strategically implementing price adjustments at this crucial juncture is undoubtedly a means to capture a larger market share for the company.

Additionally, regarding charging infrastructure and policy changes, Xin Guobin, the Vice Minister of China’s Industry and Information Technology, stated that it is essential to guide social capital toward rational investments while avoiding blind expansion and disorderly development. He emphasized promoting the standardization of battery-swapping technology, including the size, interface, and communication protocols involved. Such policy shifts could potentially affect Nio’s future charging and swapping operations, although the extent of the impact remains uncertain. However, leveraging price adjustments might serve as a strategic move to alleviate some pressure on the company’s battery-swap operations, preemptively addressing any potential criticism that may arise.

On June 1 of this year, Nio reduced its battery swapping benefits: originally, customers without a home charging station could enjoy six free battery swaps per month, but this was decreased to four. After only 12 days, the benefits were reduced again, indicating that the once-celebrated battery-swapping feature had become a source of operational pressure. Some users wondered if Nio’s fees for battery swaps were too high compared to supercharging, and whether the prices would be adjusted. In response, Nio’s Vice President, Shen Fei, addressed the issue via Weibo, acknowledging the concerns as valid and promising prompt changes. Soon after, Nio changed accordingly and said the fees for battery swaps will be determined by duration, while the cost of charging will be based on electricity usage. With this change in strategy, Nio’s swap stations should be able to operate more efficiently in the future, potentially leading to a positive impact on the company’s financial performance.

Besides, it is evident that the mounting pressure from sales has compelled Nio to implement this price adjustment. Before the price reduction, Nio had faced two consecutive months of weak sales, with 6,658 and 6,615 units sold in April and May, falling short of the 10,000-unit benchmark. On June 9, Nio announced its first quarter financial results, which displayed a considerable decline in several key metrics: revenue grew by only 7.7% year-over-year to RMB 10.676 billion ($1.5 billion), falling below the anticipated RMB 11.7 billion ($1.64 billion); net loss widened by 166% year-over-year to RMB 4.74 billion ($0.67 billion), marking 19 consecutive quarters of losses since the company’s IPO; the gross margin and automotive business’ gross profit margin decreased to 1.5% and 5.1%, respectively. 

Li Xiang, Li Auto’s CEO, expressed his perspective on the Chinese social media platform Weibo. He said, “For an auto company to be healthy and sustainable, attaining a revenue scale of RMB 100 billion and a product gross margin of 15% to 25% is essential, as demonstrated by sales leaders BYD and Tesla.” In that sense, Nio has to adjust its pricing strategy to increase sales and revenue scale. Only then can the cost per vehicle be reduced. In the intensely competitive EV market, Nio’s price reduction is a strategic move for survival. 

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.”

Chinese EV makers saw a flat month overall in May, with 0% growth in the market from April. However, some EV makers are squeezing out growth more than others. BYD, Aion, and Li Auto managed to report monthly growth of around 10% to 14%, while Nio saw delivery figures sink to its lowest level in 12 months. Xpeng Motors and Zeekr look on track for a modest recovery. 

Why it matters: Total sales in China of new energy vehicles, including all-electrics and plug-in hybrids, were relatively flat in May despite an outstanding performance by major Chinese electric vehicle makers, highlighting the growing advantage of domestic players over foreign counterparts amid rising competition.

• Automakers mostly saw a slowdown in new order intakes and foot traffic at showrooms during the second half of May due to a new surge in Covid cases, weak consumer sentiment, and the phase-out of regional subsidies by some local Chinese governments, analysts at investment bank Jefferies wrote in a note on Thursday, citing Sun Shaojun, founder of auto consumer service platform Carfans.
• Sun expects a strong recovery during June and July, as multiple domestic players begin mass delivery of new models. Sales of passenger EVs were around 483,000 units during May 1-28, up 82% thanks to a low base from a year ago due to Covid lockdowns. However, May deliveries showed no growth from the previous month, according to figures from the China Passenger Car Association.

Strong growth: BYD reported a record high in monthly vehicle sales at 240,220 units, up 108.9% from a year ago and 14.2% from April. This was buoyed by price cuts from dealerships and the launches of multiple cheaper models, including the new Han and Tang models with smaller batteries and the entry-level Seagull. Its premium brand Denza also posted impressive results of 11,005 vehicles delivered.

• GAC’s EV unit Aion and EV startup Li Auto also hit new milestones with deliveries of 45,003 and 28,277 vehicles last month, representing a monthly growth of 9.73% and 10.1%, respectively. The two companies have set goals of selling up to 600,000 and 300,000 vehicles this year, which would more than double their totals from last year.
• Hozon and Leapmotor both reported strong May sales of 13,029 and 12,058 units, respectively, after announcing “price protection” measures in March to counter a months-long price war ignited by Tesla. Historically a budget carmaker, Hozon said it delivered 1,716 Neta GT sports cars, launched last month and priced from RMB 178,800 ($25,276).

Under pressure: Nio on Thursday revealed that its monthly delivery figures have fallen for four months in a row to 6,155 units in May, as fierce competition and an aging product lineup continue to weigh on the Shanghai-based EV maker. On May 24, the company began handing over its all-new ES6 crossovers to customers and said mass delivery of its redesigned ET5 sedans would begin later this month.

• Xpeng’s May delivery was 6% higher from a month earlier, as the EV maker began delivering the P7i, a revamped version of its popular P7 sedans in March. The modest growth was due to supply chain constraints, with chief executive He Xiaopeng recently telling investors the company would “significantly” ramp up production of the key components for P7i with partners in June.
• Geely’s premium brand Zeekr posted deliveries of 8,678 units last month, a 7% increase from April. Its new compact SUV, the X, is scheduled for delivery this month. Rival Deepal began shipping the S7, its second model, on Tuesday, with monthly deliveries of Changan’s EV marque reaching 7,021 units in May, a 9.5% decline from April.
• Aito’s sales rose 22.8% month-on-month to 5,629 units in May. The Huawei-backed EV maker began selling a top-end version of its M5 plug-in hybrid crossover equipped with Huawei components and software for automated driving in April, with delivery scheduled to begin on June 18. Meanwhile, sales of Dongfeng’s EV unit Voyah fell 10.1% to 3,003 units from a month ago.

Nio on Wednesday launched a new version of the ES6, the brand‘s top-selling SUV. The EV maker has priced the new vehicle from RMB 368,000 ($52,027) and said it offers a driving range of 930 kilometers (578 miles) with its new 150 kWh solid-state battery pack. 

Why it matters: First launched in 2018, the ES6 has long been Nio’s top seller and performed strongly in China’s electric SUV category. The new version of the ES6 has the potential to become a high-volume car for the luxury automaker, which has faced slow growth as more established automakers enter the EV sector.

• Nio first unveiled details of its 150 kWh battery packs in January 2021, when the company claimed the battery would use a solid electrolyte instead of the liquid electrolyte found in existing offerings, providing high energy density and improved safety.
• The EV maker initially planned to deliver its ET7 sedans with the battery pack in the fourth quarter of 2022. However, in September 2022, CEO William Li told investors during an earnings call that production would be delayed “for several months.”

Details: The new ES6 with a 75 kWh battery pack is on sale for RMB 368,000 ($52,027) and offers a 490 kilometer driving range. The 100 kWh battery pack version is priced at RMB 426,000, offering a 625 kilometer driving range. Delivery began immediately after the launch on Wednesday night.

• The price of the ES6 can be reduced to RMB 298,000 if buyers choose Nio’s “Battery-as-a-Service” program, but they will have to budget in a monthly RMB 980 battery leasing fee. 
• The company did not reveal the pricing for the 150 kWh version of the new ES6, but CEO Li promised that delivery would begin in July during an online press conference on Wednesday, without providing any further details.
• The compact SUV can accelerate from 0 to 100 km/h (62 mph) in 4.5 seconds and has a dedicated computer to control chassis components, which the company said would improve the car’s balance and control.

Context: The five-seater ES6 has been Nio’s most popular vehicle model since it was first introduced in December 2018 and was the top-selling electric SUV in 2020, according to figures from the China Passenger Car Association. Nio has delivered more than 120,000 units of the original ES6 as of writing.

• The company currently has seven models on sale and covers a price range between RMB 300,000 and RMB 650,000. Li said it had set a target to double the company’s delivery volume from the 122,486 units it achieved last year.
• However, it delivered just 31,041 vehicles for the first three months of this year amid fierce competition, a 20.5% increase from a year earlier but a 22.5% decline from the previous quarter. By comparison, peer Li Auto delivered 52,584 units over the same period.

The Chinese government has approved an action plan to push for the buildup of charging infrastructure across the country, a move Beijing says will step up the adoption of electric vehicles especially in the country’s vast rural regions, state broadcaster CCTV has reported.

Why it matters: The plan could pave the way for a sales boost of green energy cars in Chinese lower-tier cities and rural areas where EV penetration has so far remained low, according to Cui Dongshu, secretary general of the China Passenger Car Association (CPCA).

• China’s countryside is expected to provide a new source of growth for what is already the world’s biggest EV market, Cui wrote in a May 7 article (in Chinese). Less than 20% of new car sales were EVs in small-sized Chinese cities and towns in March, compared with 34% in first-tier cities, official figures showed.

Details: The plan will adopt a “forward-thinking and moderately progressive” (our translation) strategy to scale up the number of charging stations for EVs across the country, state broadcaster CCTV reported on May 5, citing a meeting of China’s top executive body, the State Council.

• The cabinet said it would also release measures that would facilitate businesses’ expansion of their EV sales and service networks in less developed regions, as well as boost the training of technical workers for EV maintenance from vocational schools.
• The Council said these efforts would allow it to step up its focus on removing the major bottleneck for EV popularity in rural areas. Policymakers expect a nationwide charging network to sustain at least 20 million EVs traveling on Chinese roads by 2025.

Context: China’s EV market has seen slower growth this year, after being partly disrupted by a major price war amid fierce competition and Beijing’s scrapping subsidies for EV purchases in December.

• Sales of new energy passenger vehicles, mainly all-electric cars and plug-in hybrids, increased 22.4% year-on-year to 1.3 million units during the first three months of 2023, significantly slower than the 93.4% growth last year, CPCA data shows.
• China operated an EV infrastructure network of more than 1.9 million public chargers as of March, of which nearly 60% were less powerful AC chargers with the rest being DC ones, according to figures from the Chinese Electric Vehicle Charging Infrastructure Promotion Agency.
• Multiple automakers have pledged to expand their EV charging networks. Nio and Xpeng Motors have set goals of making 2,300 swap stations and 500 fast charging stations available nationwide this year, respectively, while Li Auto opened its first batch of charging facilities last month.

Traditional Chinese automakers GAC and Geely, along with market leader BYD, have reported impressive electric vehicle delivery figures in April, taking market share away from young competitors such as Nio and Xpeng. 

Why it matters: April deliveries show the growing importance of traditional auto manufacturers in the Chinese EV market, putting additional pressure on EV upstarts, especially Nio and Xpeng.

Details: BYD has maintained its dominant position as sales nearly doubled to 210,295 vehicles in April from a year earlier. In particular, it sold 10,526 units of the Denza D9, a multi-purpose vehicle under its premium brand Denza, surpassing the threshold of 10,000 units for a second month.

• GAC’s EV unit Aion has also enjoyed strong growth momentum with sales of 41,012 units, representing a year-on-year increase of 302%. Li Auto also saw impressive growth, becoming the top-performing brand among EV startups with reported deliveries of more than 20,000 vehicles for a second consecutive month in April.
• More traditional Chinese manufacturers, namely Geely and Dongfeng, showed small but gradual rises. Geely reported deliveries of 8,101 of its Zeekr-branded vehicles, up 22% from the previous month. Dongfeng’s Voyah family cars reported 3,339 deliveries, a 10% growth from the previous month.  
• Meanwhile, deliveries of Changan’s EV arm Deepal declined by 9.5% to 7,756 units from a month ago. Yet, that number surpassed those of Nio and Xpeng for the first time following the launch of the brand by Ford’s manufacturing partner last April.
• Nio and Xpeng now face serious pressure. Xpeng saw relatively flat deliveries of 7,079 units for the month, although the automaker has managed to stall the delivery declines that began late last year, thanks to the launch of its revamped P7 sedan in late March, which began to offset the slump in sales of its G9 crossovers.
• Nio’s April deliveries plunged by 36% month-on-month to 6,685 units. Speaking on the sidelines at the Auto Shanghai show last month, president Qin Lihong said the company is in a period of model transition, clearing out most of its older models and still racing to introduce redesigned and new models.
• Seres did not reveal the numbers for its Aito brand. However, a total of 4,585 units were handed over to customers last month, according to data obtained by Chinese financial media outlet Caijing. The Huawei-backed car brand delivered 16,244 units from January to April.  
• Hozon and Leapmotor have settled into a period of steady growth, with deliveries of 11,080 and 8,726 vehicles, respectively. Both companies are increasingly focusing on higher-price segments rather than the budget offerings they are known for. Leapmotor said its pricier C series accounted for 83% of April’s sales.

Context: Established Chinese automakers commanded 67% of the country’s passenger EV market in March, a 6% increase from a year ago, according to figures published by the China Passenger Car Association. For “new forces,” which refers to younger EV startups, market share declined by 6.7% annually to 10.4%. In addition, Tesla took a 14.1% market share in China.

• The CPCA has yet to reveal detailed April figures but estimated on April 25 that passenger EV sales would decline by 8.4% month-on-month to roughly 500,000 units, as the market faced disruption from the recent price war and continued to slowly recover from the Covid-19 pandemic.

The biennial Auto Shanghai Show is traditionally a time for global automakers to flex their muscles and woo Chinese consumers. Yet this year’s edition, China’s first major auto exposition since the country reopened after Covid, has been very much dominated by local manufacturers.

The growing presence of Chinese brands reflected the mounting pressure on traditional global carmakers and also new makers such as Tesla, a notable absence at this year’s event. The US electric car pioneer launched one of its biggest-ever price cut campaigns this January, sparking a price war in China’s competitive EV market.

Below, TechNode highlights new releases and updates from major Chinese EV makers at the Auto Shanghai Show 2023, including BYD, Geely, Nio, Xpeng, and Li Auto, which all displayed an impressive portfolio of electric vehicle models.

BYD: Song L concept, Chaser 07, and Seagull

As China’s best-selling new energy vehicle brand, BYD came to the exposition with a wide range of updates covering all major price points, from budget-friendly compact cars to luxury off-road sports vehicles, as well as everyday SUVs. 

BYD’s main brand focused on three car models. The first one is the Song L concept car, a pure electric sports SUV equipped with an electric rear spoiler and BYD’s e-platform, and DiSus electric body control technology. BYD said it will be launched within the year but did not specify the exact model that will be made available or a launch time. The Song L may be a new supplement to BYD’s best-selling Song Plus SUV.

The brand also showcased the Chaser 07, a medium-sized plug-in sedan that is a new model in the Ocean family. It will be priced at RMB 200,000 to RMB 250,000 ($31,000-$39,000) and will be launched in the third quarter of this year. It is BYD’s effort to attract young car owners with an everyday hybrid. 

At the same time, BYD also announced the start of pre-sales of its entry-level mini car Seagull, which is priced at a budget-friendly RMB 78,800 to RMB 95,800 ($12,200-$14,800), and has two driving ranges of 305 km or 405 km. The car is equipped with four safety airbags, an ESP electronic vehicle stability system, and a fast charging capability of 30kW or 40kW.

BYD’s luxury car brand Yangwang unveiled new versions of its U8 and U9 models at the auto show on Tuesday. 

The U8, a new energy off-road vehicle with 1100 horsepower and the ability to accelerate from 0 to 100 km/h in 3.6 seconds, has officially started pre-sales and comes in two versions: the luxury edition and the off-road player edition. The official pre-sale price for the luxury edition is nearly RMB 1.1 million($170,000) and the model is expected to be delivered in September. The off-road player edition will be delivered later, with no specific timeframe announced yet. This high-end off-road vehicle will use BYD’s independently developed core technologies, E4 technology and DiSus (Yunnian) intelligent hydraulic body control system.

Meanwhile, Yangwang also unveiled a new look for its luxury sports car the U9, which now features a rear wing design that was not present in the version unveiled in January this year. The delivery time and specific price of the U9 have not yet been announced.

Geely: Zeekr X, Lynk & Co 08, and overseas plans

Zeekr X, the first SUV model launched by the Geely-affiliated brand Zeekr, made its public debut during this year‘s Auto Shanghai. The vehicle is aimed at attracting the country’s growing young and affluent population with a price tag of RMB 189,800 ($27,590). This is lower than what one of the firm’s executives projected early this year, considered a reaction to a months-long price war first launched by Tesla and now engaged in by dozens of automakers.

Zeekr also announced detailed plans to expand into Europe. Regional CEO Spiros Fotinos announced on Tuesday that the company will open proprietary showrooms and begin delivering the X along with its 001 sedans in the Netherlands and Sweden later this year. The brand is expected to enter most western European countries by 2026, Fotinos added.

Geely on Tuesday also focused on the Lynk & Co 08, the first model equipped with its in-house produced in-car software co-developed with Meizu after the carmaker completed its acquisition of the Chinese smartphone maker last July. The plug-in hybrid will have a maximum driving range of 1,400 km and a power output of up to 400 kW, with vehicle delivery scheduled during the second half of this year, according to Lin Jie, a senior vice president at Geely Auto.

Volvo’s parent expects its Flyme digital cockpit system not only to offer a connected and seamless experience to users across devices with its latest crossover but also to provide additional computing power to existing vehicle models from Meizu smartphones. The mainstream luxury brand, jointly unveiled to the public by Geely and Volvo in 2016, plans to innovate its current dealership model by opening direct sales stores in major Chinese cities, Lin told the Economic Observer earlier this month.

Nio: 2023 ES6 crossover and ET7 sedan

Nio unveiled a new version of its popular ES6 sports utility vehicles, which the company boasts can hit a speed of 100 km/h (62 mph) within five seconds. The models also feature a supercomputer that can perform over 1,016 trillion operations per seconds (TOPS). Current Nio cars have a maximum driving range of 900 kilometers equipped with a 150 kilowatt-hour (kWh) battery pack. The EV maker has not yet revealed the driving range of the updated vehicles. 

The five-seat crossover has been the company’s most popular vehicle model since it was first introduced in December 2018, with total deliveries of more than 120,000 units at the time of writing. Official release dates and pricing details have yet to be announced, though the EV maker has now begun taking orders for the latest version of its ET7 sedans priced from RMB 458,000, which was first launched in January 2021.

Xpeng: G6 crossover

The G6 is Xpeng’s first offering built upon its latest SEPA vehicle architecture and is expected to be a key test of the company’s efforts to return to a leading position in the country’s crowded EV race. With an estimated price range of between RMB 200,000 and RMB 300,000, the midsize SUV is set to be a mainstream, high-volume model compared with its more premium-oriented G9 sibling.

The electric coupe SUV will be capable of traveling up to 300 kilometers (186 miles) on a 10-minute charge, empowered by an 800-volt silicon carbide power module. Meanwhile, the EV maker boasted of its assistant driving tech, claiming drivers will only need to control the car once per 1,000 kilometers in complex traffic environments with the latest version, which it will roll out later this year. 

Li Auto: details of first all-electric model

Li Auto shared further details regarding its all-electric strategy at this year’s Auto Shanghai Show, co-announcing with CATL that its upcoming battery vehicle will be the first in the market to install the latter’s next-iteration Qilin battery that could provide a 4C charge rate. Charging at a 4C rate normally means that the battery could be charged from 0 to 100% in just 15 minutes, according to Quantumscape, a Volkswagen-backed battery startup and a spinout company from Stanford University.

Set to go on sale later this year, Li Auto’s first battery EV will also be built upon an 800-volt architecture for a range of up to 400 km after 10 minutes of fast charging. Chief engineer Ma Donghui added that the company is rushing to build 300 supercharging stations on Chinese highways by year-end and expand the number to 3,000 in three years, by which time it will have a lineup of at least five battery EVs. Li Auto currently has three plug-in hybrid crossovers on sale.

Nio announced on Tuesday that it has begun deploying its latest generation battery swap facilities as part of an aggressive expansion plan to double its recharging network to more than 2,300 swap stations and 24,000 chargers across China this year.

The electric vehicle maker expects its expensive bet on power infrastructure to put it ahead of competitors amid a fierce price war, as most owners are turning to battery swapping as the main solution to refuel their EVs, senior Nio executives told TechNode.

“Many users can never have home chargers in China so they choose our vehicles for the battery swap technology,” senior vice president Shen Fei said on March 23 in Shanghai. “Rather than lowering vehicle prices, we prefer offering users an excellent recharging service and driving experience.”

Grappling with flat sales amid growing pressure from larger rivals, Nio is hoping the battery swapping stations can help achieve its annual delivery goal with greater service capacity. The move could also pave the way for the release of its mainstream sub-brand scheduled for 2024, according to executives.

Third generation swap station

Unlike many of its rivals, Nio has long preferred swapping over charging. Swapping stations give drivers a fully-charged battery pack in a few minutes compared to varying charging wait times, which can range anywhere from 30 minutes to several hours. But the former tends to come with a higher price tag to the provider, given the more complex infrastructure and equipment. 

On Tuesday, Nio announced that its third generation power swap station could offer up to 408 swaps per day, an increase of 30% compared with the previous generation. Each swap takes less than five minutes, meaning 20% less time spent for users.

Shen said that 90% of the 1,000 swap stations in the pipeline this year would comprise the latest version, creating the possibility of serving different brands – both those under the Nio umbrella, including the forthcoming Alps sub-brand, and those of other carmakers if compatible. The latest swap facility features the potential to accommodate more vehicle models with wheelbases between 2.8 meters and 3.3 meters, an increase from the upper limit of 3.1 meters of the previous generation.

Meanwhile, Nio is pushing for more hybrid locations that will include a swap facility and a number of charging piles. Such an approach could almost double the service capacity of existing charging stations offered by competitors with a field of the same size and for the same grid capacity, allowing the station to offer both swapping and charging during peak hours and charge batteries for future swaps during off-peak hours, Shen added.

The company did not reveal how much it would cost to manufacture and operate the latest version of its swap station. “The value is more important than its cost,” said Shen.

‘Power swap district’

For some Nio buyers, battery swapping (although a capital-intensive approach) is the reason they choose Nio over other EV brands since many have difficulties installing private chargers.

A Shanghai owner surnamed Dai picked Nio’s ET5 over Xpeng’s G9 late last year after finding he couldn’t set up a home charger in his residential area due to load safety considerations. Citing other reasons, such as vehicle design and customer service, Dai told TechNode he was also impressed by the fact that there are at least two Nio swap stations near his office.

Dai is among the Nio owners living in a so-called “power swap district,” a term coined by the company to describe areas where drivers have a swap facility within three kilometers of their residential or office buildings.

The EV maker said that at least 68% of Nio owners live in a “power swap district,” and the final goal is to push the proportion to 90% across the country. “Some of our users still have places 10 kilometers (6.2 miles) away from a swap station, and I believe we owe them one,” said Shen.

Nine-year-old Nio expects battery swaps to create a model for its luxury car business and underpin its goal of delivering 250,000 vehicles this year. One of the key focuses in 2023 for Nio will be the expansion of its infrastructure to Chinese lower-tier cities, as long as each city has a base of around 100-200 users, according to Shen.

READ MORE: Nio ramps up charging and battery swap network as execs remain bullish on 2023 growth

Nio and Li Auto this week reaffirmed plans to stick to their pricing strategy, bucking an industry-wide trend of significant price cuts in China initiated by Tesla and followed by dozens of auto majors from Toyota to Volkswagen. The young electric vehicle makers are looking to protect their superior brand images and achieve profitable growth despite concerns of a slowdown in sales in the short run, according to industry observers.

Why it matters: The ongoing price war in the Chinese auto market has created an unhealthy situation, as it might cause a growing number of consumers to wait on the sidelines in anticipation of further price reductions, UBS analysts told investors in a Wednesday note.

• Sales in provinces with local subsidies such as Hubei could see a temporary boost, wrote analysts led by Paul Gong. However, they also cautioned that for many companies, their brand premiums could be negatively affected, making it more difficult to sell their cars at normal prices in the future.
• China’s passenger EV sales increased 9% year-on-year to around 131,000 units during March 1-12, while total retail sales of passenger cars declined 17% against the same period last year to around 414,000 units, according to figures published Wednesday by the China Passenger Car Association.

No price cuts planned: Nio has no plans to cut prices for, or release affordable versions of, its flagship models to counter recent price cuts by competitors, Pu Yang, assistant vice president of sales operations, told Chinese reporters on Tuesday. A Nio spokesperson confirmed the report.

• In-store visits to Nio showrooms over the past weekend rose to a new three-month high, according to Pu, who added that some potential customers are holding off on purchases and waiting for prices to stabilize, which has affected order intake.
• Nio will compete for a larger market share by offering competitive prices in the premium car segment and shoring up services with the expansion of its battery swap facilities, Pu said, citing the strength of its products and brands.
• Nio’s domestic sales declined to 2,170 units during the week of March 6-12 from 3,345 units a week earlier, according to figures compiled by Chinese auto trade media outlet EV Observer. In comparison, Li Auto’s sales grew by 32% to 4,243 units during the same week.

Protection against price cuts: Li Auto also made a related move on March 11 by offering a price guarantee on its EVs until the end of the month to reassure customers that no price cuts are on the horizon. CEO Li Xiang said on March 2 that the company would stand by its pricing strategy.

• Four car brands are following suit. On Monday, Denza, BYD’s premium EV brand, announced an upfront price protection program through which it will give customers a rebate if there is a price reduction for its D9 multi-purpose vehicles within 90 days of purchase. This comes soon after the company slightly raised the price of its electric minivan to RMB 395,800 ($57,302) on March 1.
• Lynk & Co, owned by China’s Geely Auto Group, as well as younger makers Hozon and Leapmotor, had made similar moves as of Thursday. However, on Feb. 27, Lynk & Co began selling a cheaper version of its 01 models, which will be available until the end of April at a price of RMB 159,900, an 11% reduction compared to the 2023 version of the hybrid crossover.

An all-out price war: China’s car price war was in full swing last week when state-owned manufacturer Dongfeng Motor slashed the prices of some models, such as the Citroen C6, by up to RMB 90,000, with the help of incentives from the government of the central Hubei province.

• At least 30 domestic and international carmakers have joined the fight, Bloomberg reported. SAIC-Volkswagen on Monday announced a massive cut of up to 20%, or RMB 40,000, for EVs under the German automaker’s ID family, SCMP reported. Meanwhile, some local BMW dealers reportedly offered a discount of as much as RMB 100,000 on its i3 sedans.
• Experts cited excess inventory of gas-powered vehicles, waning competitiveness of joint brands by Chinese makers and their overseas partners, and Beijing’s full implementation of new emission rules this July as reasons for the price reductions. Analysts from China’s Huatai Securities expected most price campaigns to last until the end of March.
• Multiple EV makers have been tempted to follow Tesla’s lead and reduce the prices of their vehicles since late last year when the US carmaker launched price promotions to boost sales. This was followed by a reduction of up to RMB 48,000 on select models early this year, forcing rivals from BYD to Xpeng Motors to lower their prices to stay competitive.

READ MORE: Chinese EV makers rush to offer big incentives as sales slide

Two of Xpeng Motors’ vice presidents are stepping down after more than five years in their respective roles as the EV maker carries out a wider leadership restructuring, according to two people familiar with the matter.

Why it matters: The departures are Xpeng’s latest leadership reshuffle after it appointed Wang Fengying, a former executive at Great Wall Motor, as the company president on Jan. 30. Xpeng is undertaking a drastic reorganization in the hopes of turning its prospects around as falling sales add to its stresses in an increasingly competitive EV market. 

• The reshuffle is also meant to help chief executive He Xiaopeng reinforce his control over the company and give more weight to Wang, the sources said. Industry observers expect Wang to guide Xpeng through these difficult times.

Details: Liu Minghui, a long-standing vice president of powertrain engineering at Xpeng, stepped down last month after more than five years in the role and was replaced by Gu Jie, who recently joined the company from US auto supplier Delphi.

• Gu will report directly to CEO He Xiaopeng. Xpeng is looking to improve its development and manufacturing competitiveness, especially regarding electric powertrain and battery-related technologies, one of the sources told TechNode.
• As part of the overhaul, Liao Qinghong, a vice president of sales and chief of talent at Xpeng, handed over some of his responsibilities to Yi Han, a former executive at Geely, in preparation for leaving the company.
• Before joining Xpeng earlier this year, Yi led marketing efforts and brand execution for Volvo, Lynk & Co, and Smart within the Geely Group for more than a decade, public records show.
• The ongoing reorganization will dilute the authority of some founding members, a potential hindrance to the company’s refocus on efficiency and profitability, according to one of the sources and a third person with knowledge of the situation.
• This significant change follows the late January appointment of president Wang to a role that includes responsibility for major operations from vehicle planning to sales management, roles that used to be overseen by co-founder Henry Xia and Liao, respectively.
• An Xpeng spokesperson declined to comment when contacted by TechNode on Thursday. Chinese tech media 36Kr first reported the news.

Context: Xpeng has made a series of moves over the past months as it hopes to drive sales back up amid growing competition from larger players. Soaring battery material prices have also weighed on the company’s profitability in the past year.

• The Guangzhou-based automaker set up multiple cross-functional teams to encourage collaboration and boost efficiency last October, followed by new measures aimed at lowering costs and streamlining the company’s workflow weeks later.
• The company is rushing to launch two all-new vehicles and three redesigned models in the hope of reaching a modest delivery target of around 200,000 vehicles this year. P7i, a revamped version of the company’s best-selling model P7, launched sales on Friday with a starting price of RMB 249,900 ($35,904).
• Meanwhile, sales of the G9 crossover, initially supposed to be a flagship, high-volume model, flagged to 2,249 units in January from 4,020 units a month earlier, following heated criticism of pricing and specs from customers when it was launched in September. The company delivered a total of 6,010 vehicles last month without specifying the breakdown of models.
• Xpeng’s total deliveries were 11,228 units during the first two months of this year, falling further behind rivals Li Auto and Nio, who delivered 31,761 and 20,663 vehicles respectively. Li Auto reported a gross margin of 20.2% as of the fourth quarter of 2022, while Nio’s margin plunged to 3.9%. Xpeng generated a 13.5% gross margin as of the third quarter of last year.

READ MORE: Despite recovery in February, Chinese EV makers still face challenges as costs and competition increase

TechNode Chinese reporter Zheng Huimin contributed to the reporting of this story.

Chinese automakers mostly saw a return to their growth trajectory in electric vehicle sales in February after taking measures to ride out a seasonal lull worsened by Beijing’s phase-out of EV purchase subsidies. 

BYD, GAC’s Aion, and Nio saw strong recoveries, while Xpeng and Huawei-backed Aito continue to fall behind in the competition. However, sales are still down from the historic highs of the past year, and a tougher competitive environment could create more headwinds in the near term, according to executives.

Why it matters: The figures come as many automakers have said they face increasing pressure from competitors just as operation costs mount. 

• Li Auto chief executive Li Xiang told Chinese reporters on Thursday that the lingering impact of the end of EV subsidies and recent price cuts by bigger rivals will continue to weigh on sales in the first quarter.
• Nio also anticipates more pressure on its margins as the company currently undergoes “a transitional period,” CEO William Li told investors on Wednesday, adding that it was clearing out inventory of its older vehicles in preparation for the release of new models in the second quarter.

Strong recovery: BYD has continued its growth momentum in customer demand despite a slowdown in the overall Chinese EV market, reporting delivery of 193,655 vehicles in February, a jump of 119.4% from a year earlier and an increase of 28% from the previous month.

• BYD has retained its dominant position, especially in the price segment of RMB 100,000 to RMB 250,000 ($14,478 to $36,196), according to Sun Shaojun, founder of auto consumer service platform Che Fans.
• GAC’s EV unit Aion also saw a big revival, with sales almost tripling to 30,086 units from a month ago. Sun said Aion was among the few rivals to BYD that “can catch up a little bit in certain regions and car segments.” (our translation)

Back to normalcy: Li Auto’s February sales grew 97.5% year-on-year to 16,620 units, representing a mild increase of 9.8% from a month earlier. Nio and Hozon posted double-digit growth from a month ago with 12,157 and 10,073 vehicle deliveries, respectively.

• Hozon  began offering a de-facto price cut on Feb. 3, as customers who placed an order for its Nezha S electric sedan with a deposit of RMB 5,000 by the end of the month could secure a rebate of RMB 20,000.
• Li Auto and Nio are expected to deliver around 23,200 and 12,300 vehicles respectively in their best-case scenarios for March, as delivery guidance for the first quarter reached 55,000 and 33,000 units.

Lackluster sales: Xpeng Motors is still struggling to get back on track after facing poor sales and criticism over its pricing strategy in 2022. Its vehicle deliveries totaled 6,010 in February, despite a recent price reduction. This is just 15.2% higher than January’s sales and 3.5% lower than a year ago.

• Huawei-backed EV maker Seres also saw little improvement following major promotions on their Aito-branded EVs, as February deliveries fell 21.7% to 3,505 units on a sequential basis.
• Sales of Changan’s EV marque Deepal declined 33.1% sequentially to 4,103 units. On Monday, the automaker kicked off a spat with rival Geely about the design of the latter’s newest EV.
• Geely’s premium brand Zeekr posted deliveries of 5,455 vehicles last month, and sales at Hong Kong-listed Leapmotor were up 180.8% from a 12-month low to 3,198 units.

Context: Sales of new energy passenger vehicles, which include all-electrics and plug-in hybrids, rose 9% year-on-year to around 546,000 units from Jan. 1 to Feb. 19, according to figures published by the China Passenger Car Association (CPCA) on Wednesday.

• Gas-powered cars were worse off, as sales slumped more than 30% annually over the same period. The CPCA has estimated 31% annual growth for passenger EV sales to 8.5 million units this year.

Li Auto aims to double its China market share in high-end sports utility vehicles to 20% in 2023, encouraged by buoyant demand from the country’s emerging middle class, chief executive Li Xiang said on Monday.

The electric vehicle maker also reported a solid rise in fourth quarter revenue and an upbeat outlook for the current quarter. Despite intensifying competition and slowing demand in China’s EV market, Li Auto is on track to launch its first all-electric model later this year.

Why it matters: Li Auto has set an annual sales goal higher than analysts had anticipated and much more positive than those from the likes of Nio and Xpeng Motors. If achieved, it would make Li Auto the first Chinese automaker to capture a significant share of the country’s premium car segment, according to Sun Shaojun, founder of auto consumer service platform Che Fans.

Rosy 2023 outlook: If met, the market share goal would more than double last year’s share of 9.5% and equates to an annual sales volume of around  300,000 vehicles in the Chinese premium SUV segment, Li said during an earnings call. This is higher than the 270,000 units forecasted by Bernstein analysts.

• The key to success on this front is a strong product portfolio that covers a broader customer base, according to Li. The carmaker estimates sales in the segment of between 1.4 million and 1.5 million units this year, including gas-powered and electrified crossovers, with a price range of RMB 300,000 to RMB 500,000 ($43,205 to $72,009).
• Li said that vehicle delivery would likely reach 30,000 units per month during the second quarter as shipments of the newly-launched L7 begin in April. Li sees little chance of cannibalization between the five-seat L7 and its larger sibling, the L8. The former is intended to attract small nuclear families comprising two or three members, while the latter targets two-children or three-generation households.

All-electric lineup: Li Auto is on track to launch its first pure electric vehicle model, which will be equipped with Qualcomm’s latest five-nanometer cockpit chip 8295, Li told investors. He added that the company’s battery EV series will cost between RMB 200,000 and RMB 500,000.

• The company sees high battery costs and inconvenient charging as some of the biggest issues for EV penetration and aims to promise future buyers the ability to add 400 kilometers (249 miles)-worth of charge in 10 minutes. Rival Xpeng pledged a similar experience with its premium SUV G9 late last year.
• Meanwhile, Li Auto acknowledged that it has been negotiating new price terms with suppliers, responding to an analyst question about reports that CATL has been offering big discounts on EV batteries, but declined to provide further details. President Ma Donghui said the company would commit to a multi-supplier strategy to ensure stable supply.

Solid Q4 results: Li Auto’s revenue increased 66.2% year-on-year to more than RMB 17.7 billion in the fourth quarter of 2022, compared with estimates of RMB 17.6 billion, according to Bloomberg. Net income declined 10.5% annually to RMB 265 million but improved from a net loss of RMB 1.65 billion in the previous quarter.

• The Beijing-based automaker’s gross margin came out as 20.2% in the quarter, from 12.7% in the third quarter and fairly close to Tesla’s 25.6% over the same period. Peers Nio and Xpeng posted gross margins of 13.3% and 13.5% in the third quarter of 2022, respectively.
• Li Auto expects to deliver up to 55,000 vehicles in the first quarter of this year, which would represent an increase of 73.4% from a year ago. Overall sales of passenger electric cars declined 6.3% year-on-year in January, according to figures from the China Passenger Car Association.

Context: Nio and Xpeng have both set a delivery target of around 200,000 vehicles this year as China’s EV market shifts into a lower gear, partly due to the phasing-out of EV purchase subsidies by the central government last December.

• Nio CEO William Li has said he expects deliveries this year to surpass the nearly 190,000 units Lexus sold in China last year. Xpeng is aiming for accumulated overall sales of 450,000 EVs this year, of which around 250,000 were delivered as of last year, according to an internal letter obtained by local media outlets.
• Li Auto’s first plug-in hybrid vehicle, the Li One, ranked fifth in terms of sales in the Chinese premium SUV segment with the shipment of 78,791 units last year, the CPCA figures showed. Tesla’s Model Y topped the chart with deliveries of 315,314 units, while Mercedes-Benz’s GLC, Audi’s Q5, and BMW’s X3 each booked sales of more than 140,000 units.

Chinese electric vehicle maker Li Auto released its cheapest ever car on Wednesday, a five-passenger compact sports utility vehicle that the company says has been developed to appeal to women and small families, and that it hopes will take on bigger rivals from BMW to Mercedes-Benz.

The company also launched a new, RMB 20,000 ($2,948)-cheaper version of the L8, its six-seater crossover, offering customers a de facto price cut in response to increased competition from carmakers such as Tesla.

Why it matters: Some industry observers have voiced bullish views on Li Auto as the company keeps expanding its portfolio with new vehicles aimed at meeting the needs of growing Chinese middle-class families.

• Li Auto and Nio should still be able to grow their sales because of their brand new products despite forecasts of a challenging 2023, said Tu T. Le, managing director of Sino Auto Insights.
• “The market has become so competitive that we will likely see many EV makers do whatever they can to protect any share they have been able to carve out in the market,” Le added.

Details: Li Auto on Thursday introduced the L7 extended-range SUV, the company’s first five-seater explicitly designed for Chinese nuclear families. It measures around 5 meters in length and spans a 3,005-millimeter-long wheelbase, bigger than many similar mid-size models.

• For comparison, the BMW X3, Audi Q5L, and Mercedes-Benz GLC crossovers are all less than 4.8 meters in length and have a maximum wheelbase of 2,973 mm. The L7 is also more spacious than its rivals the BYD Tang, Xpeng Motor G9, and Huawei-backed Aito M7.
• The car boasts a luxurious interior and roomy passenger space, with a so-called “Queen’s seat” mode in the back providing leg room of almost 1.2 meters and well-bolstered seatbacks.
• The EV maker is targeting women in China who are increasingly picking the family car. Speaking at a conference on Wednesday, Han Ling, a product manager of Li Auto, specifically used female terms of address a dozen times during a 10-minute speech, according to a TechNode calculation.
• The L7 SUV will be equipped with a supercomputing platform – powered by two of Nvidia’s Orin X chips or by a Horizon Robotics Journey 5 processor depending on the model, and will use cameras and lidar sensors for driver assistance on Chinese highways.
• The Meituan-backed carmaker plans to send selected customers a beta version software update for assisted driving technology on busy urban streets in the fourth quarter of 2023. Rival Xpeng Motors has been implementing a similar update since September.
• The L7 crossover will have a driving range of 210 kilometers (130 miles) on a single charge and can drive for about 1,315 kilometers with a full fuel tank and a full charge, the same as its larger sibling, the L8. The company said its starting price will be RMB 319,800 and delivery is set to begin on Mar. 1. 
• Meanwhile, chief executive Li Xiang on Wednesday revealed a so-called “Air” version of its L8 crossover with a starting price of RMB 339,800, down RMB 20,000 from the Pro model which used to be the lowest-priced option offered by the automaker.

Context: Beijing-headquartered Li Auto currently has three models of different sizes on sale, namely the full-size crossover L9, L8, and the L7, with a price range of around RMB 300,000 to RMB 400,000, in a segment traditionally dominated by global carmakers such as BMW and Mercedes-Benz.

• The L9 was China’s top-selling large-size electric SUV in December with 10,582 units shifted, four months after delivery began in August, while 10,189 units of the L8 crossover were sold in the month, according to figures compiled by the China Passenger Car Association. Both were lower than the 29,387 units of Tesla’s Model Y, but higher than the roughly 4,000 units Nio delivered of its ES7 and Xpeng delivered of its G9.

Nio will expand its charging network by building at least 400 battery swap stations across China this year, alleviating a major concern among potential buyers that cars have insufficient driving range to travel between charging points, its president said on Monday.

Riding the wave of China’s speedy EV adoption, the electric vehicle maker also launched a special service campaign for owners during this year’s Lunar New Year holiday season, including unlimited free battery swapping and personalized customer service.

Why it matters: Nio’s recent moves to shore up its charging network and customer service capability are expected to further enhance its place in the Chinese luxury car segment, according to president Qin Lihong, who spoke to reporters in Beijing on Monday.

Charging infrastructure: In what Qin described as “a stress test” to check how Nio could “provide users with seamless services that were beyond their expectations” (our translation), Nio swapped nearly 1.25 million EV battery packs between Jan. 13 and Feb. 5 in China. For comparison, the company completed just over 800,000 swaps with a chain of 143 service stations between May 2018, when its first swap facility began operations, and mid-August 2020.

• Nio ran a network of 1,305 battery swap stations around China for a user base of nearly 290,000 drivers as of last year and will build more swap facilities than its previous estimate of 400 this year, Qin said, without giving a new number. The EV maker initially planned to expand its charging network to 1,700 swap stations in 2023, chief executive William Li said on Dec. 24 at Nio’s annual press conference.
• The eight-year-old company also claimed to be carmakers’ biggest EV-charging provider, with a network of 13,629 charging piles in China as of December. During the Lunar New Year holiday season, 76% of the charging sessions using Nio’s charging piles came from non-Nio cars, of which 17.6% were from BYD, 15.8% from Tesla, and 4.1% from Xpeng models. Official figures showed that China had nearly 1.8 million public charging piles as of December.
• Senior vice president Shen Fei said that Nio would scale up its charging operations at a pace that is in line with the increase in its sales volume. This not only refers to the build-up of swap stations but also applies to hybrid locations that include swap facilities and charging piles, which the company believes will better serve clients at peak times.
• Qin added that the seasonal campaign will not significantly impact Nio’s financial results but rather enhance its reputation for premium service and experience, as the company reduced advertising spend accordingly to keep its gross margin flat. Nio began offering owners six free swaps a month in late 2020, but maintains its policy of unlimited free battery swaps for an undisclosed number of early owners.

Unexpected services: In addition to existing, regular on-call valet charging and parking services it offers to car owners whose vehicles are running out of power, Nio provided a wide range of personalized, value-added services during the recent Lunar New Year holiday season.

• This ranged from family photoshoots at the company’s clubhouse-style flagship stores to the feeding of pets at the homes of Nio owners who were traveling, which a Shanghai-based Nio owner surnamed Dai described as “trivial but touching” when contacted by TechNode on Monday.
• Shen clarified by saying that these service options did not put pressure on its business, as most of them were provided unofficially by frontline employees who were simply working hard to fulfill customers’ needs.

Industry outlook: Nio remains optimistic that this year’s sale figures will exceed the roughly 184,000 units Lexus sold in 2022 in China. The auto upstart expects solid growth momentum for the country’s EV market despite a recent slump as China dropped its COVID-19 prevention measures.

• Qin added that intelligent, electrified, and high-end vehicles will continue to gain traction in the world’s biggest auto market, citing the average sale price of passenger vehicles in China, which is RMB 30,000 ($4,422) more in 2022 than in 2019.
• Industry observers expect rising competition and waning profits for Chinese automakers this year amid Beijing’s phase-out of EV purchase subsidies and a slow post-pandemic recovery. The China Passenger Car Association estimated passenger EV sales will reach 8.5 million units in 2023, representing an increase of around 50% from a year ago.

READ MORE: China’s EV battle 2022: why BYD is leaving Tesla and Xpeng in the dust

Major Chinese electric vehicle makers, from Aion to Nio, are joining the likes of Xpeng Motors in an industry-wide price war ignited by Tesla, offering generous sales incentives to boost demand after posting dismal delivery results for January.

Why it matters: Sales growth for new energy vehicles (NEVs) at the start of 2023 has reached a bottleneck after the central government fully scrapped subsidies for purchasing them at the end of December, the China Passenger Car Association (CPCA) wrote in a post on Wednesday, quoting January sales figures. NEVs is a catchall phrase used in China that includes all-electric cars, plug-in hybrids, and hydrogen fuel-cell vehicles.

• A price war kicked off by Tesla has left many consumers on the fence about buying an EV in the immediate future, as some automakers followed suit with price cuts while others raised prices to help offset rising costs, the industry group added.

READ MORE: Local Chinese authorities unveil stimulus measures to spur EV sales

Flagging January sales: Retail sales of Chinese passenger electric vehicles fell by 1% year-on-year and 43% month-on-month to around 304,000 units from Jan. 1 to Jan. 27, according to figures published by the CPCA on Wednesday. The industry group has yet to publish figures for the full month, but reports by many Chinese EV makers are out, and they show a definite sales slump.

• GAC’s Aion on Wednesday reported a 66% month-on-month drop in vehicle deliveries to 10,206 units in January, during which time the company raised its car prices by between RMB 3,000 and RMB 8,000 to make up for rising costs.
• Figures from Xpeng Motors and Huawei-backed EV brand Aito more than halved sequentially to 5,218 and 4,475 units respectively. Both companies followed Tesla’s move with significant price cuts across their vehicle lineups early last month.
• Nio delivered 8,506 vehicles in January, marking a 46.2% decrease from a month earlier, while Li Auto reported a relatively solid performance with deliveries falling 28.7% sequentially to 15,141 vehicles. CATL-backed Hozon sold 6,016 EVs, down 22.8% from a month ago.
• Zeekr’s January sales of 3,116 vehicles were less than a third of the number delivered in December, which the company attributed to a 22-day production suspension for an upgrade at its Ningbo facility. Hong Kong-listed Leapmotor only delivered 1,139 vehicles, an 86.6% drop from a month ago, but didn’t provide any further details.
• BYD handed over 151,341 EVs, including around 10,400 units overseas, which was 35% lower than December’s sales but 62.4% higher than in the same month last year, according to a Wednesday statement.
• Other than diminishing subsidies, most companies blamed the slide on the seven-day public holiday during the Lunar New Year, as well as the spike in coronavirus infections that swept China after the country’s zero-Covid policy ended in early December, among other reasons.

Nio’s big promotion: Nio on Wednesday began offering customers a package of discounts and special offers for its first-generation electric sports utility vehicles, including a more than RMB 10,000 ($1,483) allowance to cover the cost increase caused by the phasing-out of Beijing’s subsidy.

• The EV maker also unexpectedly discounted inventory of the older version of its ES8 and ES6 crossovers by at least RMB 18,000 and offered existing car owners an additional exchange discount of RMB 15,000, local media outlet Powerhouse reported on Thursday, citing two Nio salespeople.
• The company also offered buyers free access to its advanced driver assistance software Nio Pilot which has a sticker price of RMB 39,000, among other promotions. If all these offers are combined, one can purchase a performance version of the 2022 ES6 SUV for RMB 313,700, more than RMB 100,000 cheaper than last month.
• Nio on Thursday responded by saying the company is about to launch its redesigned ES8, ES6, and EC6 models and is therefore offering discounts on the small amount of inventory and showroom cars of the old models it has left.
• Sales of Nio’s ET7, ES7, and ET5 cars, built upon the company’s second-generation technology platform, accounted for 85.6% of its monthly delivery in January, according to a Wednesday statement.

More price campaigns: State-owned automakers SAIC and GAC also announced they would slash prices on their vehicles this week in the hope of grabbing a share of sales during a traditionally slow season.

• Rising Auto, an EV brand launched by Volkswagen’s manufacturing partner SAIC in mid-2020, on Thursday cut the starting price of its base R7 crossover by 7.5% to RMB 279,900. The model is also available at a big discount of RMB 10,000 and can be purchased for RMB 195,900 if customers subscribe to its battery-swap program.
• On Wednesday, GAC’s EV unit Aion also began offering a limited discount of RMB 5,000 on its Aion Y SUVs and Aion S Plus sedans, priced from RMB 137,600 and RMB 149,800 respectively, before the end of this month. 
• A day earlier, Geely’s luxury EV brand Zeekr said that customers who place their orders before the end of March would be able to get certain discounts on car insurance and optional parts.

Skirmishes have surrounded China’s speedy uptake of electric vehicles in the past year, with industry giant BYD reigning supreme but an increasingly large crowd of challengers looking to muscle in on the action. Once-promising startup Xpeng Motors and major automaker Great Wall Motor have been among those to falter in 2022 – and the war is far from over.

Industry observers link BYD’s success to China’s national shift towards electric vehicles, the company’s highly-integrated supply chain across key components, and a rising consumer preference for high-quality, cost-competitive automobiles as recession looms. 

Xpeng’s recent setbacks, however, reflect structural weaknesses at the company, including limited competitiveness and low operational efficiency in a crowded marketplace. Now, the risk of falling behind the competition has become real for the Guangzhou-based company.

Even Tesla faces an eroding market share in a highly competitive field, thanks to an onslaught of new models from various domestic rivals. Meanwhile, foreign auto giants from Volkswagen to Ford have long lagged behind Chinese counterparts in transitioning to green energy.

Here, we look at the annual results of China’s EV leaders and attempt to explain the dynamics behind some of the biggest winners and losers of the past year.

Winners and losers 

Despite being a bright spot in a slowing auto market, China’s two-year run of huge growth in the EV sector hit unexpectedly fierce competition as it shifted into a lower gear in the second half of 2022.

BYD was the biggest winner of the year, with annual sales of 1.86 million electric cars. The company’s output was more than triple 2021’s figure of around 600,000 units, comfortably exceeding its goal of 1.5 million units.

Tesla was left a distant second. The company’s sales started to slow last year as concern grew about an underlying mismatch between supply and demand. In 2022, the US automaker delivered 439,770 China-made vehicles to local customers, a 37% increase from a year ago and significantly lower than its 50% growth target for overall sales volume.

Besides BYD and Tesla, multiple Chinese EV makers including Nio and Xpeng embarked on 2022 with optimism and ambitious sales targets. However, only a handful managed to hit their goals. Aion (the EV arm of state-owned automaker GAC) and Hozon kept their word by selling around 271,000 and 152,000 EVs respectively last year. Geely’s premium EV brand Zeekr also achieved its goal by delivering just over 71,000 vehicles.

China’s US-listed EV makers mostly underperformed. Nio played tough to secure around 80% of its 150,000-vehicle delivery goal, while Xpeng delivered just over 120,000 units of its 250,000 unit target.

Why BYD dominated the market

In December, when most automakers struggled to protect their market shares by offering generous discounts as the Chinese government phased out EV subsidies, BYD went the opposite way by announcing a price rise of up to RMB 6,000 ($870) across its lineup. The move proved BYD’s role as “price maker” in the mass market, analysts at Jefferies wrote in a Dec. 1 report.

Analysts attributed BYD’s dominance partly to its success in ramping up manufacturing capacity and building a secure, integrated supply chain from batteries to chips. In 2022, when the company tripled its annual car capacity to around 3 million units at its eight manufacturing locations, according to public information gathered by investors, it also more than doubled its battery capacity to 285 gigawatt-hours (GWh), according to estimates by Founder Securities. A company spokesperson declined to comment on the capacity figures.

Also, the automaker has adopted a dual strategy of betting on both all-electrics and plug-in hybrid EVs (PHEVs) as range anxiety continues to be a top concern among local buyers. BYD offers nearly 70  models in major configurations and price categories. This helps the company stand out in a crowded market where many competitors pick a type and limit buyers’ options.

Why Xpeng and Great Wall Motor are losing ground

As China’s EV sales reported nearly 100% annual growth in 2022, Xpeng Motors and Great Wall Motor are among the most surprising names for whom sales growth dipped well below the industry average. The two companies sold 120,757 and 131,834 EV units last year, posting a flat increase of 23% and a 4% decline from a year earlier, respectively.

Multiple factors have put pressure on the two companies, including weaker consumer sentiment and interest rate hikes. 

The sales slump at Great Wall Motor indicates a major setback in the company’s slow shift to EVs. In 2022, monthly sales of the company’s Haval H6, once China’s top-selling gas-powered crossover, fell 75% to around 20,000 units from historic highs, as it appeared to be outpaced by popular EV models produced by Tesla (Model Y) and BYD (Song Plus). 

Ora, the company’s dedicated EV sub-brand, saw sales decline by 23% year-on-year to 103,996 units. Nevertheless, Great Wall Motor’s management has big plans for 2023 — promising to launch more than 10 EV models, including five new PHEVs under the Haval brand and two new models under the Ora marque.

Xpeng is facing a more complicated external environment, as well as the threat of increased pressure from rivals, said David Zhang, a school dean at Jiangxi New Energy Technology Institute. Not only are sales of big name rivals such as BYD and GAC’s Aion gaining momentum, but younger makers such as Hozon and Leapmotor are increasingly catching up. That’s the broader context behind Xpeng currently restructuring its business, according to Zhang.

Meanwhile, Xpeng is exposed to a potential demand mismatch risk in the short-term, as consumer confidence in vehicle intelligence technologies lags behind ambitious plans to bring self-driving cars to the market, analysts from Zheshang Securities told local media outlet Jiemian.

The Alibaba-backed EV maker has pledged to put more effort into overall car-making after reporting three consecutive months of dropping sales as of October and losses of RMB 6.78 billion ($1 million) for the first three quarters of 2022. It is also dealing with an aging product portfolio and implementing cost control measures to boost efficiency and drive sales, with chief executive He Xiaopeng promising to refocus on the core company after spending some time and energy on emerging businesses such as flying cars.

“We have high expectations for 2023. It’s a game of both competence and persistence. We have winning cards to play the game, and the evolution is making good progress,” a company spokeswoman said when contacted by TechNode.

Trend 1: Bring everything in-house

In-house manufacturing of key components has become one of the biggest trends in China’s EV industry over the past year, as many automakers look for ways to reduce supply chain vulnerability amid persistent chip shortages and the surging cost of battery materials. Among them, BYD is widely seen as a role model for this vertical integration strategy: the automaker builds its own supply chain and performs most of the activities required to bring its vehicles to market.

Already the world’s second-biggest battery maker and a major domestic supplier of power semiconductors for automobiles, BYD is now looking to expand production capacity significantly and accelerate the development of new products. Founder Securities expects BYD’s capacity to increase to 445 GWh-worth of batteries to close the gap with dominant player CATL by the end of 2023. In November, the company abandoned an initial public offering plan for its semiconductor unit as it decided to focus instead on expanding the capacity of a local plant by 80% to reach 360,000 wafers in 2023.

Other major industry players, from state-owned GAC to US-listed Nio, have also been racing to develop battery and semiconductor technologies in-house to ensure a secure supply of the key components. Here are some recent moves and potential developments for the companies heading into 2023:

• On Nov. 18, Svolt, an EV battery startup backed by Chinese automaker Great Wall Motor, filed initial paperwork for a public share sale on Shanghai’s Nasdaq-style Star market. The company is looking to raise RMB 15 billion to build three manufacturing plants with a combined annual capacity of around 106 GWh.
• On Dec. 29, GAC began building an RMB 2.2 billion drivetrain plant in Panyu, a city in the southern province of Guangdong, with mass production to kick off at the beginning of 2024. Initial capacity will enable it to assemble drivetrain systems for 400,000 battery EVs and 100,000 plug-in hybrid vehicles annually by 2025.
• On Dec. 21, Xpeng confirmed that it has set up an RMB 5 billion subsidiary to produce battery packs on its own but will still source battery cells from partners. On Oct. 25, peer Nio made a similar move by forming an RMB 2 billion subsidiary for battery manufacturing, in addition to a $32.8-million research facility for battery development.
• On Oct. 10, Chinese media outlet LatePost reported that both Nio and Xpeng had formed hundred-strong teams to work on chips for autonomous driving, while Li Auto had been hiring chip designers for more fundamental semiconductor components.

Trend 2: Short-term bumps

Analysts have warned about the prospects of a bumpier year for EV makers in 2023, and sure enough, the industry is already seeing some sharp movements. On Jan. 6, Tesla made a big splash by cutting the prices of its China-made vehicles by between 6% and 13.5%, a move that Sun Shaojun, a popular Chinese car blogger, described as kicking off an industry-wide battle for survival in the year ahead.

Sun added that many rivals would probably have to follow suit in the face of such a big promotion by an industry leader. Meanwhile, analysts at Bernstein expect competition to heat up with as many as 126 new battery EV models and 55 new plug-in hybrid models coming to market in 2023, a 40-50% increase on last year.

In anticipation of a post-Covid recession and in light of EV subsidies being scrapped, sales are expected to slow this year. Credit Suisse’s sales forecast of 9.4 million EV sales in China is one of the more bullish on Wall Street, while Bernstein more cautiously holds that 8 million units will be sold in the country this year.

An ongoing growth story 

And yet, long-term growth prospects remain buoyant, as demand shifts from policy-led to consumer-driven, Bernstein analysts wrote in a Jan. 5 report. UBS shared the sentiment, expecting the new energy vehicle (NEV) penetration rate, mainly for all-electrics and PHEVs, to grow by 10% this year to reach 37% of all new car sales.

2022 proved to be a big year for Chinese EVs. The central government achieved its goal of EV adoption approaching 25% of total car sales three years ahead of schedule, as industry sales nearly doubled to 6.8 million units. Still, pressure on margins is likely to persist in the near term for smaller companies, which have already been exposed to high battery material costs.

Looking ahead, China has cemented its growth momentum in the global EV race, but industry players should expect short-term sacrifices to hit their profits as they glimpse a bigger and brighter future.

Xpeng Motors is aiming for profitability on an operating level by 2025, according to an internal speech from chief executive He Xiaopeng to employees. The electric vehicle maker will also focus on redeveloping business strategies, dealing with corporate restructuring issues, and bolstering corporate value in 2023. 

Why it matters: He’s comments come on the heels of a turbulent year for Xpeng during which the company faced major setbacks, including a 23% sales drop in the second half of 2022 and an 80% plunge in market capitalization from a year ago.

Details: Xpeng expects to break even in 2025 with its earnings margin before interest, taxes, depreciation, and amortization reaching 17%, according to a report from 36Kr that cites comments made by He at an internal meeting on Wednesday.

• The management is more optimistic than some analysts’ predictions. Bernstein estimates that Xpeng will turn its adjusted operating margin from -5.1% in 2024 to 0.3% in 2025. That number was estimated to be -33.1% last year, according to Bernstein.
• He also pointed out that employee morale at the electric car company is low due to falling sales and share prices and that Xpeng’s productivity as a company is not where it should be, vowing greater restructuring efforts to simplify operations this year.
• Meanwhile, He highlighted the company’s push to forge ahead with vehicle development from the perspective of customers, adding that all future Xpeng vehicles will be equipped with safety-based driver assistance technologies.
• Xpeng will also accelerate its overseas expansion in the next few years, with plans to launch two new vehicle models for the global market in 2023, followed by a third in 2024, according to He.

Context: Xpeng reported an annual growth rate of 23% in vehicle sales in 2022, significantly lower than the industry average of around 90% and falling behind US-listed peers Li Auto and Nio, who posted year-on-year growth of 47% and 34%, respectively.

• The Alibaba-backed EV maker has been undergoing a major restructuring since late last year with the establishment of several committees and financial teams to enhance efficiency and control costs. It also announced price cuts of up to 15% for its vehicle lineups earlier this week amid rising competition with Tesla.
• Xpeng is not the only Chinese EV maker taking steps to streamline operations. On Jan. 1, Nio chief executive William Li told employees that low-productivity teams and insignificant projects would be “streamlined and optimized” this year in light of a slight increase in budget, according to an email seen by 36Kr.

Nio Capital plans to incubate a separate brand called Zhixing (our translation) that focuses on making luxury off-road EVs and could launch its first model at a price of around RMB 1 million ($150,000) in 2025, local media outlet LatePost reported.

Why it matters: The move could help Nio to enter a more expensive segment and extend its market reach by managing a growing portfolio of targeted brands. The Chinese electric vehicle maker already has a strong reputation among China’s upper middle class. 

Details: Zhixing, an EV startup formed in early 2022, will raise a seed round of “dozens of millions of dollars” from Nio Capital, a venture capital firm founded by William Li, chief executive of the namesake automaker, LatePost reported on Monday citing unnamed sources.

• Zhixing will target affluent, adventurous Chinese customers with luxury off-road electric vehicles, planning to launch its first model at home and internationally in 2025. The sports utility vehicle will be priced at around RMB 1 million and built on the third generation of Nio’s NT platform, the report said.
• Zhixing will also collaborate with Nio for supply chain and charging infrastructure. The partnership could help the firm save a significant amount on development costs. 
• The vehicles will feature an 800-volt battery system for ultra-fast charging and a swappable battery pack to access Nio’s recharging network.
• Founded by Zhao Lei, a former senior director of user experience operation at Li Auto, Zhixing is establishing teams across China, Europe, and America. It has hired Roger Malkusson, a former vice president of vehicle engineering at Nio, as head of Europe.
• On Sept. 27, Zhao officially set up Zhixing (Beijing) Information Technology Co., Ltd. with registered capital of RMB 100 million, according to the Chinese corporate information platform Tianyancha.
• Representatives of Nio and Nio Capital declined to comment when contacted by TechNode on Tuesday. Malkusson did not respond to TechNode’s request for comment.

Context: Experts say that there remains strong demand from wealthy individuals for luxury EVs in the coming years despite broader economic challenges, with several Chinese automakers venturing into the booming segment. Luxury cars priced above $80,000 will expand at a compound annual growth rate of 8% to 14% through 2031, while the markets for cars priced below $80,000 could remain relatively flat from a global standpoint, McKinsey & Company said in a report on July 8.

• BYD has made a similar move by showcasing its first two luxury car models under its new Yangwang brand on Jan. 5 and will open separate showrooms for the brand in several Chinese cities in the first quarter. GAC also said its first sports car under the Hyper marque will have a starting price of RMB 1.29 million.
• Geely completed its majority acquisition of the British sports car brand Lotus in 2017. Last October, the carmaker launched its first electric SUV, the Eletre, with a starting price of RMB 828,000. Nio Capital also has a minority stake in Lotus.
• Nio is also entering the affordable EV segment with plans to launch two sub-brands to target more price-sensitive buyers with a budget under RMB 300,000, while Nio’s namesake brand sits in the middle with a price category between RMB 300,000 and RMB 500,000.

BYD became the world’s best-selling electric vehicle brand in 2022, managing to sell a record 1.8 million units, more than triple its numbers from a year earlier. Other major automakers also reported improvement in December, according to the latest sales figures. 

Why it matters: The figures show that BYD has had an iron grip on the market in the last year while smaller EV makers faced ups and downs. China’s EV sales in 2022 are set to finish lower than expected as the industry enters a slower period after authorities phased out EV purchase subsidies at the end of 2022.

• China’s wholesale sales of electric passenger vehicles in December will increase by 17% from a month earlier to around 700,000 units, according to estimates by the China Passenger Car Association (CPCA).
• This means China’s new energy vehicle sales for last year could be below the previous estimate of 6.5 million units by CPCA. Passenger EV sales from January to November grew 100% year-on-year to 5.7 million units.

Details: BYD said on Monday that it delivered around 235,200 vehicles in December, an increase of 150.5% from the same period a year earlier. That figure also brings BYD’s total sales for 2022 to more than 1.86 million units, up 208.6% compared to 2021 figures.

• Aion, the electric vehicle unit of Chinese automaker GAC, maintained strong growth momentum with sales of 30,007 units last month. Overall sales surged 126% year-on-year to around 271,000 units in 2022. The company has set a target of selling 600,000 EVs in 2023, according to general manager Gu Huinan.  
• Hozon, a budget carmaker backed by CATL, was another bright spot with deliveries of 152,073 vehicles, an 118% jump compared with 2021. The company exported a significant number of 3,456 EVs and is looking to accelerate overseas expansion in regions such as Southeast Asia and the Middle East in 2023.
• Li Auto also ended the year with a record delivery count, handing over 21,333 crossovers to customers in December and becoming the first Chinese EV startup to reach the 20,000-unit milestone in monthly delivery. The total delivery count in 2022 for the brand was 133,246 vehicles, up 47.2% from a year ago.
• After a difficult third quarter, Xpeng Motors’ deliveries bounced back in December to a normalized level but still fell short of its US-listed peers Nio and Li Auto. The company delivered 11,292 units last month, including 4,020 units of the G9, its first premium crossover, which it launched in September. The final tally was 120,757 EVs, a mild 23% annual increase.
• Huawei-backed EV maker Aito also reported strong deliveries of 10,143 units in December, with total 2022 deliveries topping 75,000 units. 
• Monthly deliveries of Geely-backed EV brand Zeekr also surged 199% year-on-year to 11,337 units, bringing the maker’s total delivery count to 71,941 units.
• Nio delivered 15,815 cars last month, a monthly record high following November’s 14,178 units. Annual deliveries totaled 122,486 vehicles, representing a 34% growth from the previous year.
• Tesla’s deliveries increased 40% to 1.3 million EVs in 2022 from the prior year. The CPCA, which has tracked monthly sales for the company’s China operations since 2020, has not revealed its December sales figure for the Chinese market.

Context: Analysts expect industry sales to hit a plateau in 2023 after several years of strong growth as the Chinese government scraps subsidies for EV purchases.

• Citic Securities forecast sales of new energy vehicles, which mainly include battery-powered EVs and plug-in petrol-electric hybrids, to rise by 31% annually to 9 million units in China in 2023.

Nio said on Dec. 25 that it expects a continued slowdown in Chinese electric vehicle sales during the first half of 2023 as demand weakens after Beijing’s phasing out of EV purchase incentives and amid a post-pandemic downturn.

Why it matters: Nio is the latest automaker to share a grim view of the world’s biggest EV market, which has seen exponential growth in the past two years despite Covid-19 headwinds, rising battery prices, and chip shortages.

• Nio chief executive William Li said at a press event that EV makers could face intense pressure in the coming months and not manage to recover sales until at least next May.
• China’s phase-out of EV purchase subsidies has driven many consumers to place their orders before the end of the year, while it will take time for the supply chain to get back up to speed after the pandemic, Li said.

Details: Li added Nio could face near-term pressure on sales, but that there is certainty about the long-term sales potential for the company’s new car models as it will enter a production ramp-up phase in the first half of 2023.

• New energy vehicles have taken a 30% share of new car sales in China, several years earlier than many expected, Li said. He also applauded rival BYD for selling as well as it has done. 
• Despite sounding bearish in the short term, Li said that Nio is confident its sales could surpass those of traditional gas car makers like Lexus next year, though he cautioned that Nio will still be far away from giants like BMW, Mercedez, or Audi. Year-to-date sales of Lexus, Toyota’s luxury arm, fell 16.5% year-on-year to around 168,600 vehicles as of November, according to figures from the China Passenger Car Association.
• Nio also revealed two new models at the event. In May, the EV maker will start delivering its new electric crossover coupe, the EC7, with a starting price of RMB 488,000 ($69,978). Delivery of its all-new ES8 sports utility vehicles, priced from RMB 528,000, will begin in June.
• Meanwhile, the company introduced its third-generation battery swap station, capable of carrying 21 battery packs and providing up to 408 battery swaps per day, which is about a 30% increase from previous levels.
• Mass deployment is scheduled for March, a move president Qin Lihong described as aiming to meet peak demand from a growing number of Nio owners in the next stage of the company’s development.  

Context: Nio reported deliveries of 106,671 vehicles, with four SUVs and two sedans on sale from January to November, up 31.8% from a year ago but falling short of its annual target of 150,000 vehicles. It plans to further expand its product family by launching three new models next year.

• The Chinese EV maker was forced to idle production for a few days at its facility in the eastern city of Hefei in April, due to a three-month lockdown to curb Covid cases in Shanghai.

On Tuesday, Chinese electric-vehicle maker Nio announced that certain data related to its users and vehicle sales in China before August 2021 had been leaked and was being illegally sold by third parties on the internet.

Why it matters: Nio said in its statement that it deeply regrets the incident. The company also said it has set up a dedicated hotline and an email address to respond to the data leakage. Moreover, a Nio customer service representative told Chinese media CLS (in Chinese) that it will not take the initiative to seek out customers to compensate but will take responsibility for the losses incurred. 

• The alleged cyberattack on Nio comes at a time when Chinese authorities are demanding companies step up efforts to protect personal information and strengthen corporate responsibility. 

Details: The EV maker said in the Chinese version of the Tuesday statement that it received an email on Dec. 11 from hackers demanding $2.25 million worth of bitcoin in exchange for not disclosing Nio’s internal data.

• “Nio deeply regrets that this incident happened, and will continue to work with government authorities to investigate the incident,” the Shanghai-based company said in the statement, adding that it was committed to protecting data security and the privacy of its users.
• In April, the auto manufacturer reported that one of its employees used the company’s internal server to mine Ethereum, which it says had affected the security of Nio’s system and business information.

Context: Automakers are facing increased threats from data breaches and their impacts — affecting customers’ lives and bruising companies’ reputations.

• Japanese automaker Toyota admitted in October that the personal information of nearly 300,000 customers had been leaked after one of its development subcontractors improperly handled the source code of the auto manufacturer’s official connectivity application T-Connect.
• In August, German auto parts manufacturer Continental said it had been targeted by a cyberattack that resulted in 40 GB of files being stolen. Bloomberg cited Germany’s Handelsblatt newspaper as saying that the leaked data may include information related to customers of Volkswagen, Mercedes-Benz, and BMW.

Chinese EV makers Nio, Xpeng Motors, Zeekr, and Aito, as well as Tesla’s operation in China, are racing to get the last slice of the sales pie before the end of 2022, offering special promotions with the country scheduled to phase out subsidies for electric vehicles beginning next year.

Why it matters: Analysts have projected slower EV sales in the coming months after the phase-out but remain positive on the overall growth of the EV sector in China in 2023.  

The end of subsidies: The Chinese government currently grants a small number of subsidies to EV buyers, with all-electrics and plug-in hybrids eligible for subsidies of RMB 12,600 ($1,836) and RMB 4,800 ($689) per unit, respectively. Beijing reduced the incentives gradually by 10%, 20%, and 30% from 2020 to 2022. 

• Multiple Chinese automakers, including Nio, Xpeng Motors, Volkswagen’s Chinese partner SAIC, Geely’s premium EV unit Zeekr, and Huawei-backed EV brand Aito, have recently promised to cover the price increase if customers place their order before the end of 2022 when those subsidies expire and EV prices rise accordingly. 

Tesla’s multiple discounts: Tesla China has offered various discounts on its vehicle lineups amid investors’ fears of a looming slowdown in demand, including an additional discount of RMB 6,000 and a rebate of RMB 4,000 on customers’ end-of-the-year orders.

• The US automaker kicked off the price war on Sept. 16 by offering customers an insurance incentive of RMB 8,000 and then slightly lowered the amount to RMB 7,000 for orders made from October to December.
• This was followed in October by a round of price cuts of its base Model 3 sedans and Model Y sports utility vehicles by at least RMB 14,000 and RMB 20,000, respectively.

Outlook for 2023: Some other automakers have announced the upcoming car price rises in advance, pushing customers to place their orders by the end of the year. 

• BYD said on Nov. 23 that the price of most of its EV models would be up by up to RMB 6,000 starting next year to offset the increase in vehicle costs from expiring government subsidies and rising battery prices.
• GAC’s EV unit Aion and Ford’s manufacturing partner Dongfeng followed suit by previewing a price increase for the next year of up to RMB 8,000 and RMB 9,000, respectively.
• The phase-out will also increase profit pressure for EV makers, who have already been hampered by the rising cost of battery raw materials and other supply chain issues over the past year. Carmakers are facing challenges to increase market share while maintaining their margin guidance, UBS analyst Paul Gong told Chinese media outlet Caixin in a Tuesday report.
• Gong remains positive on the market’s growth prospects for 2023 and forecasts that the penetration rate of new energy vehicles (NEV), mainly all-electrics and plug-in hybrids, will rise to 37% of all new car sales next year from the current level of 27%. China’s state council in 2020 set a goal of NEVs to account for 20% of new car sales by 2025, which was completed well ahead of time.
• Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), expressed a similarly positive sentiment during an online conference on Thursday, saying he expected China’s NEV sales to more than double annually to 6.5 million units this year. The CPCA estimates the number will reach 8.5 million units in 2023, representing a 31% growth year-on-year.

Context: Beijing’s various policy measures and a vast selection of offerings by automakers have allowed the Chinese EV industry to thrive even amid increased competition. EV buyers will still be exempt from a 5% purchase tax next year, the central government said in August.

• In November, retail sales of passenger NEVs increased 58.2% from last year and 7.8% from the previous month to around 598,000 units. BYD and Tesla are the two most prominent players, recording sales of 229,942 and 100,291 units respectively, according to CPCA figures (in Chinese) published Thursday.

Chinese electric vehicle makers reported slower growth in deliveries in November and some even saw decreases as the market continues to be hit by a macroeconomic downturn. Nio and Li Auto posted record deliveries, but Xpeng continued its delivery slump. For other automakers, Aion, Hozon, and Huawei-backed Aito reported a monthly decline in vehicle deliveries in the month while Zeekr and Leapmotor started to show signs of slowing growth.  

Why it matters: The latest figures reflect a slowdown of China’s electric vehicle market as consumer confidence is hit by fears of a potential recession while an ongoing rebound of Covid cases in the country impacts vehicle production.

Sales recovery: 

• Li Auto and Nio saw significant sales recovery in November following a slump linked to growing competition and supply chain disruptions. The pair reported new record deliveries of 15,034 and 14,178 units, an increase of 50% and 41% from a month earlier, respectively.
• Nio expanded its product portfolio from three to six models on sale this year. It began deliveries of its first sedan model, ET7, in March, followed by the medium-size ES7 crossover in August and the long-awaited ET5 sedan a month later.
• Li Auto adopted a similar strategy, as delivery of its second large-size crossover the L9 started on Aug. 30 and that of the L8, a smaller version of the L9, came in October.

Xpeng’s slump:

• Xpeng Motors has continued to report lackluster sales, saying November deliveries totaled 5,811 vehicles, a 14% increase from a month earlier but still far from the historic high of 15,414 units in March.  
• The Alibaba-backed EV maker, once touted as a “Tesla killer” in China, is facing a number of challenges amid economic headwinds and fierce competition. Speaking to analysts on Thursday, chief executive He Xiaopeng said he expected its second crossover the G9 to drive deliveries back up to the threshold of 10,000 units in December.

Monthly declines: 

• Aion on Thursday reported (in Chinese) sales of 28,765 units in November, 4% lower than last month, though it still represented a 91% growth from the same period last year. Vehicle deliveries totaled 241,149 units from January to November for the EV unit of state-owned automaker GAC, which represents a near doubling of last year’s total of 123,660 units.
• Hozon, backed by Chinese battery giant CATL, followed a similar trajectory as deliveries increased 51% year-on-year but fell 16% from October to 15,072 vehicles last month. Year-to-date deliveries reached 144,278 units, with three entry-level crossovers and one mainstream sedan on sale from the brand.
• Aito’s sales in November represented the firm’s first monthly decline since delivery began in March, down 31.3% month-on-month to 8,260 vehicles. The Huawei-backed EV brand provides two plug-in hybrid crossovers, the M7 and M5, which compete against Li Auto’s L9, a successor model based on the latter’s popular Li One SUV.

Slowing growth: 

• Geely’s premium EV brand Zeekr said it delivered 11,011 vehicles in November, a nearly 9% month-on-month rise, compared with a 22.3% increase a month earlier. And yet year-to-date deliveries reached 66,611 units as of last month, inching closer to its annual goal of 70,000 vehicles.
• Meanwhile, Hong Kong-listed Leapmotor reported a 14.4% month-on-month sales rally of 8,047 vehicles. However, vehicle delivery fell for a third straight month as of October after the Zhejiang-based automaker sold a milestone 12,525 cars in August.
• Nevertheless, Zeekr and Leapmotor have emerged as strong competitors in the Chinese EV market. 

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.

Aion and Zeekr, the electric vehicle subsidiaries of Chinese automakers GAC and Geely respectively, each broke their monthly records for vehicle deliveries in October, while US-listed EV trio Nio, Li Auto, and Xpeng Motors lagged behind their peers.

Why it matters: Although Tesla and BYD have long been the undisputed leaders in the Chinese EV market, GAC and Geely are among the traditional automakers leading the chase. The October delivery results also reflect the strong momentum of Huawei-backed EV maker Seres and the mounting troubles faced by Xpeng.

GAC: The state-owned automaker said on Tuesday that it delivered 30,063 Aion-branded vehicles in October, an increase of 149% from the same month last year. That number brings Aion’s total delivery numbers this year to 212,384 vehicles.

• Toyota’s Chinese manufacturing partner is ramping up efforts to meet an annual delivery target of 250,000 Aion-branded EVs this year, with its second auto manufacturing plant for Aion beginning operations in Guangzhou in early October.

Geely: Zeekr made deliveries of 10,119 EVs in October, a record high for Geely’s premium EV brand. Year-to-date sales totaled almost 50,000 as of last month, with the brand close to reaching its goal of delivering 70,000 cars this year.

• Geely is looking to spin off Zeekr for an initial public offering, through which Volvo’s parent company expects to fund its plans to introduce six Zeekr-branded models within five years.

Seres: Huawei‘s manufacturing partner delivered 12,018 Aito-branded EVs last month, a 461% jump from a year earlier. October was also the third straight month that it has delivered over 10,000 units in a single month since the delivery of its first production car began in March.

Xpeng: Deliveries of the eight-year-old EV maker more than halved year-on-year to just 5,101 vehicles last month. Vehicle deliveries totaled 103,654 units from January to October, far from the company’s unofficial 2022 guidance of 250,000 vehicles set early this year.

• A total of 623 G9 crossovers were handed over to consumers last month after delivery began on Oct. 27. The company expects monthly deliveries of its second sports utility vehicle to surpass the threshold of 10,000 units next year after production ramp-up.
• The company’s second sedan model, the P5, which the company expected to be a hit in the mainstream segment with a starting price of RMB 157,900 ($21,707), has underperformed with deliveries of around 33,700 units as of October this year.

Nio and Li Auto: The two other EV upstarts each reported October deliveries of more than 10,000 units, slightly lower than the previous month. Yet both have enjoyed a solid performance despite ongoing supply chain issues amid the post-pandemic rebound.

• Nio’s premium sedan ET7 is the company’s most in-demand model on sale, recording deliveries of 3,050 units. At the same time, the company only handed over 1,030 units of the ET5, its second sedan model, as production is still ramping up.
• The automaker was also forced to cut production at its facilities in the eastern city of Hefei in mid-October due to Covid restrictions, Chinese media outlet 36Kr reported Tuesday, citing people familiar with the matter.

Hozon and Leapmotor: With three entry-level cars on sale, Zhejiang-based Hozon managed to exceed deliveries of 18,016 units in October, representing a 122% year-on-year rise, while Leapmotor deliveries dropped by more than a third to 7,026 units.

China’s electric vehicle market continued to trend upwards in September, with year-to-date sales already surpassing last year’s total of 3 million, according to the latest figures compiled by the China Passenger Car Association (CPCA). However, the growth rate of overall car sales in China hit its lowest point in the last two decades owing to an economic slowdown, the industry group said.

Why it matters: The industry-wide sales figures released Tuesday further indicate a broader recognition among Chinese consumers of locally-made EVs, as well as a rising trend of Chinese automakers growing their international business.

• Retail sales of new energy passenger vehicles, mostly all-electrics and plug-in hybrids, soared by 82.9% in a year to around 611,000 units in September, bringing the total sales number for this year to nearly 3.9 million units as of last month, according to CPCA.
• Meanwhile, the overall industry reported a monthly growth of only 2.8% in new passenger car sales in September, reaching its lowest level since 2002, as the pandemic hit some of the most populous provinces, such as Sichuan, weakening demand.

Details: Last month, domestic auto majors, such as BYD and Geely, enjoyed a 67% share collectively in the passenger car market, up 9.2% from a year earlier, while those numbers for both younger EV startups and Tesla declined to 14.6% and 12.7%, respectively. The share of the market for traditional overseas carmakers further narrowed by 3.3% from a year ago to only 5.7%, CPCA figures showed.

• BYD ranked top with an annual growth of 144.3% to reach more than 191,000 EVs last month, taking nearly 10% of China’s auto market. It was followed by FAW-Volkswagen and SAIC-Volkswagen (two joint ventures of the German carmaker) at 165,000 and 122,000 automobiles, respectively.
• Geely reported its September retail sales of passenger cars increased by 24.4%  from last year to around 109,000 units, followed by Changan at roughly 107,000 units. Zeekr, a premium EV unit of Volvo’s parent company, delivered 8,276 vehicles last month, up from 7,166 units a month earlier. Changan is set to begin delivery of its first car model under the Avatr marque with partner Huawei in December.
• Meanwhile, Tesla China achieved a new record by selling 83,135 vehicles, of which 5,522 were overseas exports, bringing the year-to-date number to 483,074. The US automaker has an annual capacity of over 750,000 vehicles at its Shanghai facility, according to its second-quarter financial report.
• Chinese EV startup Li Auto delivered 11,531 plug-in hybrid crossovers last month as production of its second model, the L9, began to ramp up. Nio recorded a monthly delivery of 10,878 vehicles, with its new crossover ES7 making it to customers since late August.
• However, the numbers for Xpeng Motors declined 18.7% year-on-year and 11.6% month-on-month to 8,468 units, as the EV maker faces stiff competition from bigger names such as BYD in the mainstream EV segment. The company also reduced the prices of its first premium crossover, the G9, just two days after launch.

Context: The CPCA has maintained its sales projection of 6.5 million new energy vehicles (NEV) this year, with EVs expected to make up 28% of the country’s new car sales. The central government previously set a sales target of 25% of all new car sales to be NEVs by 2025.

• Nearly 14.9 million passenger cars, including internal combustion engine vehicles and EVs, were handed over to customers from January to September, a bit higher than the 14.5 million units during the same period of last year.
• Speaking to reporters on Tuesday, Cui Dongshu, secretary general of the CPCA, said he expected China’s general car market to recover with “explosive growth” over the last two months of this year, buoyed by easing Covid restrictions and tax breaks for vehicle purchases.

Chinese electric vehicle maker Nio will invest 12 million Australian dollars ($7.8 million) to buy a 12% stake in Australian miner Greenwing Resources, the latest investment in overseas battery mineral resources by Chinese companies hoping to secure a reliable supply of materials.

Why it matters: The move also reflects growing concerns among Chinese automakers, who are moving upstream in the supply chain to secure critical battery materials amid rising supply constraints.

Details: The investment will give Blue Northstar, Nio’s wholly-owned subsidiary, a 12.2% stake in Greenwing Resources. More than 80% of the proceeds will be used to step up the mining firm’s efforts on its San Jorge Lithium Project in Catamarca province, Argentina, according to a Monday filing.

• The filing also said Nio would nominate a director to sit on Greenwing’s board. Nio also holds an offtake right, which means the company can purchase a certain share of the company’s lithium, without providing further details.
• The San Jorge Lithium Project is still at an early stage of exploration and drilling is scheduled to start later this year. Greenwing said in the filing that it will release a detailed reserve report by the end of 2023.

Context: The deal comes at a time when surging lithium prices have hit automakers hard as they struggle to secure the supply of the key EV battery component. Battery makers and material suppliers have also negotiated prices with automakers to pass the costs on to the latter, cutting vehicle margins.

• Lithium carbonate prices reached a new high of RMB 500,500 ($71,315) per ton on Sept. 16 in China, Bloomberg reported, citing figures from Asian Metal Inc, and analysts expected prices to maintain at this level at least until the end of 2022.
• Nio has been looking to bring battery development and production in-house, with plans to set up a $32.8 million research facility near its Shanghai headquarters.
• The eight-year-old EV maker reported a vehicle margin of 16.7% from April to June, down from 18.1% during the first quarter of this year and 20.3% a year earlier.
• That number for Nio’s peer Xpeng Motors declined to 10.9% from 12.2% in the previous quarter and was 1% below last year’s figure for the same period. Both companies blamed the drops mainly on rising battery costs.
• State-owned GAC Motor is another automaker connecting with mining companies to ensure a stable supply of EV batteries; in August, announcing a strategic partnership with Ganfeng Lithium, Chinese media reported. According to the plan, China’s biggest lithium compounds producer will invest in GAC’s premium EV subsidiary Aion. GAC, a state-owned carmaker and partner of Toyota and Honda, plans to begin making batteries by itself after 2025.
• Chinese EV giant BYD remains the world’s third biggest EV battery supplier as of July, following Chinese rival CATL and South Korea’s LG Energy, according to SNE Research. 

Chinese electric vehicle upstarts Li Auto and Xpeng saw declines in August, while Huawei’s auto partner Seres and Geely’s Zeekr saw strong growth. Among them, Li Auto reported a record decline in August deliveries, more than 50%, as the electric vehicle maker’s new crossovers cannibalized sales of its existing model. Seres deliveries up28% in August while Geely’s EV brand Zeekr grew more than 42%. 

Why it matters: Li Auto’s shortfall took place when Seres and Zeekr saw growth, highlighting a more competitive EV landscape and a preference among Chinese consumers to gravitate towards the latest products, according to Tu Le, managing director of consultancy Sino Auto Insights.

Li Auto’s decline in August: Li Auto’s deliveries fell more than half in August to 4,571 crossover vehicles from a month earlier, extending a month-on-month decline of 21.3% in July.

• “Li Auto and Xpeng have recently had some high-profile vehicle launches that have likely led them to lose focus a bit,” said Le. “For Li Auto specifically, the new L9 has really cannibalized sales of the Li One, so it’s like they only have one product in the market again.” 
• This echoed a comment Shen Yanan, Li Auto’s president, made during an earnings call last month, in which he acknowledged that many customers “with enough budget” preferred the L9, the company’s second sports utility vehicle, over the cheaper Li One. The company began delivering the L9 on Aug. 30.
• Analysts also worry that the upcoming L8 crossover, confirmed by chief executive Li Xiang as a redesigned model of the Li One and scheduled for delivery in November, will have an even more significant cannibalization effect. 
• The eight-year-old EV maker on Monday confirmed to state media outlet Jiemian that it will phase out production of the Li One three years after its release in 2019, introducing a price reduction of RMB 20,000 ($2,882) for its first car model in some markets.
• The price cuts have angered some owners who accused the company of cheating them over the new car release and price changes. At least 1,000 Li One owners have filed complaints against the company on “Black Cat,” a complaint platform owned by Chinese tech firm Sina.

Rise of Seres and Geely: Meanwhile, Seres and Geely have both seen healthy growth in August. Xpeng Motors’ deliveries also declined by 16.9% to 9,578 vehicles in August from a month earlier, while Nio saw deliveries grow 6.2% month-on-month to 10,677 vehicles. There is a major concern about demand for Xpeng’s current models, as buyers might wait for the introduction of its G9 crossover, scheduled for delivery by year-end, as well as a retrofitted P7 sedan set to be released next year.

• Huawei’s manufacturing partner Seres saw a monthly record by delivering 10,045 vehicles in August, up from 7,807 vehicles in July, while Geely’s premium EV brand Zeekr also reported a record delivery number of 7,166 vehicles, representing a 42.7% month-on-month growth.
• Le expects that sales of both Seres and Zeekr will continue to grow. With Seres being able to sell via Huawei retail stores and Geely backing Zeekr, these “pseudo-startups” have support structures that most other “true” EV startups do not, which gives them quite an advantage, Le added.

Context: BYD maintained its leadership in the market by delivering 174,915 vehicles last month. Tesla is expected to have delivered more than 77,000 cars from its Shanghai facilities, according to estimates by the China Passenger Car Association on Sept. 1.  

• BYD and Tesla have much more production capacity than their counterparts, Le said, adding that the two companies’ leadership will continue amid “particularly tough” competition in the mainstream, small- to medium-sized SUV segments.

Tesla and Chinese automaker SAIC are turning to the Shanghai government to help with new supply chain disruptions after Sichuan province cut down power supply for six days to cope with severe heatwaves, Chinese media outlets reported on Friday. The southwest province of Sichuan is home to many auto parts makers. 

The power restrictions in Sichuan and Chongqing have also forced Tesla, Nio, and Xpeng to temporarily close multiple charging and swapping stations in the region, Chinese media outlet Jiemian reported, citing feedback from car owners.

Why it matters: Automakers in China were already reeling from an industry-wide chip shortage and surging battery material prices exacerbated by the country’s Covid restrictions and the Russia-Ukraine conflict. The worsening situation in auto parts’ supply chain could force them to scale back further production in the country, a major growth market for electric vehicles.

Details: In a widely circulated letter to Sichuan provincial government, Shanghai authorities asked Sichuan to ensure basic electricity demand to 16 local parts makers. On Monday, the provincial government of Sichuan began rationing electricity supply and asked factories to shut down for six days as unprecedented hot summer weather surged the region’s electricity demand.

• A government representative confirmed the Shanghai authority’s letter to the Chinese financial media outlet Caixin on Thursday. According to the letter, Tesla and SAIC said they are facing challenges in getting enough supply of car components, as some of their suppliers in Sichuan have reduced production due to the power cut. 
• Only one auto supplier, Chengdu Yinli Car Parts, was named in the letter. The supplier makes aluminum wheel and vehicle body components for automakers such as SAIC-GM, a joint venture between the state-owned manufacturer and General Motors.
• State-owned automaker Changan and Seres, a small automaker and partner of Chinese tech giant Huawei, are also being hit by the sudden cut. The two companies have halted production at their facilities in the southwestern municipality of Chongqing, which borders Sichuan.
• On Tuesday, Changchun Engley Automobile, a Shanghai-listed car body panel manufacturer, told investors that its Chengdu factory had received notice of the power cut by Sichuan regulators. According to its website, the company’s clients include Volkswagen, BMW, Nio, and Xpeng Motors.
•  Toyota and Chinese EV battery giant CATL have suspended operations in the province.

In 2021, Chinese automakers sold more than 1.85 million units in the overseas market, hitting a significant milestone just two decades after China joined the World Trade Organization in 2001.

Beijing’s efforts to make China an auto superpower and the long-term strategy of betting on electric vehicles are starting to pay off. China made up almost 60% of the electric vehicles exported globally in 2021, with the annual shipment of passenger EVs nearly tripling to more than 310,000 units. Analysts expect this momentum to continue, with China on course to surpass Germany as the world’s second-biggest exporter of automobiles by volume this year, just behind Japan.

However, with European and American automakers catching up to China’s success in an increasingly crowded EV field, convincing global consumers to buy China-made vehicles continues to be an uphill battle. Chinese manufacturers, known for churning out cheap, humble cars for developing regions, are struggling to move upscale and compete head-to-head against long-established European car giants for a share of the premium segment in the latter’s home market.

A look at a few carmakers that have been ushering in a wave of EV adoption in China gives a sense of how the global auto landscape might be transformed in the next couple of years. As the world, particularly Europe, reaches a critical period in its energy transition, the localization of an entire EV industrial value chain will be vital for Chinese carmakers to become a global force that upends existing significant players, according to analysts.

State-owned manufacturers

State-owned brands SAIC and Chery are China’s most significant car exporters, with the pair jointly accounting for nearly half of the country’s vehicle sales to overseas markets in 2021.

Morris Garages (MG), the iconic British car brand acquired by SAIC in 2008, is currently the most significant contributor to SAIC’s success. Birmingham-based MG booked sales of over 470,000 vehicles globally last year, at least 10% of which were delivered in Europe.

Another SAIC’s sub-brand, Wuling, is also increasingly gaining popularity globally. Wuling produced the top-selling EV model in China last year, the Hongguang Mini EV. Wuling’s overseas shipments reached an all-time high of 146,000 vehicles to over 40 nations in 2021.

Anhui-based Chery is one of several Chinese carmakers that made early moves to explore global markets, exporting 10 sedans to Syria back in 2001, when China was just about to join the World Trade Organization. Having established a presence in more than 80 countries with 10 manufacturing plants and 1,500 dealership stores, the country’s top passenger car exporter mainly operates in Brazil and Russia, with sales of over 37,000 and 40,000 vehicles, respectively in the two countries last year.

Chery is also the Chinese manufacturing partner of Jaguar and Land Rover. It has plans to expand its reach in Europe and the US by selling its own-branded vehicles in the two regions, chairman Yin Tongyue said in May 2020. Although few details related to this move have been revealed thus far, the company expects its car exports to nearly double to 500,000 vehicles by 2025.

Private auto giants

Great Wall Motor and Geely are the only two homegrown private automakers in China who ranked in the top 10 by export volume in 2021, with shipments of over 143,000 and 115,000 vehicles overseas, respectively. The two automakers are pioneers of Chinese assemblers’ overseas expansion in the era of gasoline-powered cars. They have been expanding their sales networks and manufacturing presence abroad significantly in the last two years, focusing on Europe and countries connected to China’s Belt and Road Initiative.

One of China’s top-selling SUV manufacturers, Baoding-based Great Wall Motor, posted significant growth overseas last year, with shipment volume rising 104% from 2020 and accounting for about 11% of the firm’s total sales, a result of its accelerating push into overseas markets. The Chinese automaker sped past several milestones in 2021 amid a rush of positive news, such as the acquisition of a former Daimler plant in Brazil last August, followed by the launch of its regional headquarters in Munich, Germany three months later.

Great Wall also saw its second overseas plant begin operations in Rayong, Thailand, in June 2021 with a capacity to build 80,000 vehicles annually, two years after the automaker started production of its popular Haval-branded crossovers locally in Russia. The company is on track to launch an electric compact car under its Ora marque, which targets young female buyers, and a plug-in hybrid SUV under its premium EV brand WEY in Europe this year, Reuters reported last September.

The export volume of Geely’s domestic plants increased by 58% year-on-year and accounted for 8.6% of its annual sales in 2021, compared with a growth rate of 25% and a 5.5% share of total sales in 2020. The company’s footprint now covers 28 countries, with entries into Laos, Egypt, and three other states last year.

Like SAIC, the Zhejiang-based automaker expanded in Europe through partnerships with locally-based players, launching a car brand called Lynk & Co in late 2016 and forming a joint venture with subsidiary Volvo to sell the vehicles globally a year later. Reporting deliveries of 25,167 Lynk-branded vehicles overseas in 18 months as of June, the automaker operates eight retail stores in Germany, Italy, Belgium, Sweden, and the Netherlands, with plans to enter France and Spain this year.

Rising EV upstarts

Chinese EV upstarts Nio and Xpeng are still a long way from catching up in overseas sales with traditional Chinese auto giants, but they have pioneered new approaches to going global. For example, the Chinese EV startups are opening direct stores and service centers in European countries to build a strong brand image with quality service, something that has never been done before by a Chinese car brand on the continent.

Located at Oslo’s center of commerce and culture and opening to the public last October, Nio’s first showroom in Norway is as much planting of the company’s flag as an entry into the European market. Called Nio Houses, the two-story, 2,100-square-meter location is not only built for potential customers, but also serves a range of functions with a café, a library, and a living room for car owners on site, hoping to win over wealthy local customers.

So far, the eight-year-old EV maker is seemingly on the right track with deliveries of 327 ES8 crossovers, priced above NOK 609,000 (around $69,300), in Norway in the first four months of this year, which means the brand has already surpassed last year’s total of roughly 200 cars. The company also has plans to enter Germany, the Netherlands, Sweden, and Denmark with the same strategy later this year and to expand its footprint to 25 countries by 2025.

Xpeng has also aggressively pushed ahead in Europe’s booming EV market and currently operates three flagship showrooms – located in Denmark, Sweden, and the Netherlands – in addition to selling vehicles through local car dealerships in Norway since December 2020. The company delivered 486 units of its P7 sedan and G3 sports utility vehicle in Europe last year, while that number reached 426 units for the first four months of this year.

However, multiple supply chain disruptions, including semiconductor shortages and soaring battery material costs, are hitting the company’s growth trajectory. The Alibaba-backed EV maker stopped taking orders for its mainstream P5 sedan in Europe in late June, citing supply chain issues.

Conclusion

The world’s transition to clean energy and carbon neutrality – and China’s head start in EV production –  has opened up new opportunities for Chinese carmakers to become globally competitive players in electric mobility. European Union countries reached a deal in June to completely phase out internal-combustion vehicles by 2035, a target that Japan and Canada have also set; the timetable for the UK is 2030.

Experts have urged Chinese automakers to invest more to build their own supply chain networks overseas along with parts suppliers and, therefore, better leverage their technology and expertise globally, rather than just offering direct exports.

There is no easy route to performing successfully on the global stage, but it would be wise to seize the chance when it comes – and China’s EV makers seem well poised to do so. 

Chinese electric vehicle makers Aion, Hozon, and Leapmotor, reported record deliveries in July, overshadowing the numbers reported by leading players Nio, Xpeng Motors, and Li Auto as the landscape in the world’s biggest EV market continues to evolve.

Why it matters: Nio, Xpeng Motors, and Li Auto are facing increased competition. Traditional brands and new challengers have recently introduced an avalanche of lower-priced models to the market thanks to improving battery technologies, vastly expanding consumer options.

Details: Aion, the EV arm of Chinese state-owned automaker GAC Group, saw monthly deliveries surge about 138% year-on-year to 25,033 vehicles in July, meaning the firm has put roughly 125,000 cars into customers’ hands through the first seven months of the year. GAC, Toyota’s manufacturing partner in China, has a broad EV portfolio under the Aion marque with a price range between RMB 163,800 and RMB 469,600 ($24,218 to $69,430).  

• EV startups Hozon and Leapmotor followed suit, reporting triple-digit yearly growth with July deliveries of 14,037 and 12,044 vehicles, respectively. Zhejiang-based Hozon attributed its growth to increased production capacity.
• Meanwhile, Xpeng, Li Auto, and Nio lost their lead in the Chinese EV market, delivering 11,524, 10,422, and 10,052 vehicles to customers in July, respectively, with all three brands seeing a decrease of more than 20% month-on-month. Nio’s chief executive William Li said on July 31 that the company reduced production of “several thousand units” last month due to parts shortages.
• Seres, Huawei’s manufacturing partner and formerly known as Sokon, posted sales figures of 7,807, while Geely’s premium EV brand Zeekr claimed it sold 5,022 vehicles last month.
• Chinese auto majors such as BYD and Great Wall Motor have yet to release their July sales numbers.

READ MORE: BYD records over 162,000 deliveries in July

Context: Nio, Xpeng, and Li Auto are also expanding their product range in a fight to keep their lead positions.

• Nio plans to diversify its offerings by mulling a separate sub-brand targeting cheaper price points. The company is also on track to roll out a separate mainstream brand codenamed the Alps in 2024.
• Li Auto has already launched a full-size crossover, the L9, with delivery scheduled for this August, and plans to release its first medium-sized, lower-priced vehicle model in 2023. 
• Xpeng said it will soon begin taking pre-orders for its first premium sports utility vehicle, the G9, this month and launch three new models by 2025.

China’s electric vehicle industry has experienced a strong recovery in June, recording over 140% growth in passenger EV sales amid the ongoing impact of the Covid-19 pandemic and supply chain challenges, data from the China Passenger Car Association (CPCA) showed on Friday.

Why it matters: The growth was driven mainly by a strong comeback from BYD, Tesla, and other Chinese auto brands like Nio and Li Auto, after Shanghai and other cities lifted pandemic-related lockdowns, showing the impressive resilience of the Chinese EV space.

Details: The CPCA said on Friday that the wholesale volume of passenger EVs in China hit a record monthly high in June with a total sales of 571,000 vehicles, a whopping yearly 141.4% increase. In June, passenger car sales, including combustion engine cars and EVs, increased by 22.6% from last year to 1.94 million units.

• The boost in sales comes as China rolls out hefty stimulus measures, which include additional subsidies and tax cuts, Cui Dongshu, CPCA secretary-general, told reporters during an online conference on Friday. 
• Tesla’s Shanghai Gigafactory came back “with a vengeance” after a 22-day stoppage in April due to Shanghai’s lockdown, chief executive Elon Musk previously told investors, with shipments surging 145% month-on-month and 135% from a year ago to 78,906 vehicles.
• BYD has maintained its top place with almost 25% of the market share, with sales in June hitting 134,036 units, tripling 2021 levels. Meanwhile, EV sales from domestic auto majors Geely and GAC’s EV unit Aion rose by 393% and 182% to 29,671 and 24,109 units, respectively.
• Young EV makers Nio, Xpeng Motors, and Li Auto are also getting back to previous levels by ramping up production and working closely with suppliers, while Sokon, a manufacturing partner of Chinese tech giant Huawei, delivered 7,658 Seres-branded EVs last month, a 41% monthly growth.

Context: Forecasts for the Chinese EV market have remained bullish. Morgan Stanley raised its outlook for this year’s EV sales by 24% to 5.7 million vehicles in a research note on Li Auto on Friday, Chinese media outlet Sina Finance reported.

• CPCA expects China’s EV sales to edge up 84% to 5.5 million units this year, while consulting firm AlixPartners forecasts that number to be 5.1 million, with Chinese-brand vehicles retaining an enormous share of the market.

Aito, a Chinese electric vehicle brand backed by Huawei, received more than 10,000 pre-orders for the M7 in just two hours, after it was unveiled on Monday. The new model is the brand’s second production vehicle featuring Huawei’s HarmonyOS operating system for cars.  

Why it matters: While reservations do not always translate into actual sales, the M7 has captured people’s attention, signaling that Huawei is turning into a serious rival to existing carmakers since entering the burgeoning EV space about one year ago.

• Experts believe that the new car will become a direct competitor to Li One, a popular large plug-in hybrid vehicle launched by Chinese EV maker Li Auto that has similar configurations and a similar price point. Aito has the potential to achieve a sales volume of up to 100,000 units for this year, state media outlet Shanghai Securities News reported Monday, citing analysts from China Securities.

Details: More than 10,000 people pre-ordered the Aito M7 sports utility vehicle in the first two hours after the car brand began accepting RMB 1,000 ($149) deposits on Monday afternoon, a company spokesman told TechNode on Tuesday.

• With a four-cylinder, 1.5-liter engine developed by Huawei and a 40.6 kWh battery pack supplied by CATL, the M7 will be able to go as far as 1,220 km (758 miles) on a full tank and 100% battery charge. It consumes 6.85 liters of fuel per 100 km, well below the 7.8 liters of Li Auto’s L9 SUV and the 10.8 liters of the BMW X7.
• The car uses Huawei’s HarmonyOS operating system, enabling drivers to access “all the mobile services“ from Huawei’s app store, Richard Yu, chief executive of Huawei’s consumer business group said during a press conference.
• The six-seater luxury SUV will have a starting price of RMB 319,800 ($47,737) and will be delivered to customers in August. More than 600 Huawei stores around China will provide test drives starting July 23, and that number will be increased to over 1,000 stores by year-end, according to Yu.

Context: Huawei and its manufacturing partner Sokon have seen a steady increase in sales of the M5, their first vehicle under the Aito brand, shipping 7,021 crossovers in June, a 40% increase from a month earlier.

• According to the latest figures, Aito has reached total delivery of 18,317 units in just four months since delivery began in March. Prior to this, the two companies had experienced an initial setback, delivering only around 8,000 Seres-branded electric crossovers in 2021 after unveiling in April, last year.
• Huawei’s core business growth is still under pressure from US sanctions with revenue dropping by 14% year-on-year to RMB 131 billion in the first three months of 2022, CNBC reported. The smartphone maker has also partnered with state-owned automakers like BAIC and Changan to make EVs.
• Domestic EV makers Nio and Li Auto released their new crossovers, the ES7 and the L9, last month, respectively, and scheduled delivery to begin in August. Another rival Xpeng Motors is set to launch its second SUV model G9 in the same month and will begin delivery in September, with pricing expected to start at more than RMB 300,000.

Chinese automakers have moved quickly in the first five months of 2022, securing a lion’s share of the country’s electric vehicle market. The country’s EV makers are likely to keep that momentum going for the rest of the year, according to management consultant firm AlixPartners.

Domestic auto brands have extended their lead over their foreign rivals in the EV segment this year, making up 85% of all new EV sales in the first five months of 2022, up from 80% in 2021 and 74% in 2020, official figures show. This number may remain unchanged by the end of the year as Chinese brands continue to launch more new EV models than their foreign counterparts, Stephen Dyer, co-leader of AlixPartners’ Greater China business, told TechNode on Thursday.

However, as more traditional global automakers prepare to launch new EVs in the next few years, this share will likely go down due to the increased availability of foreign EVs, Dyer said, predicting an increasingly competitive environment for less experienced automakers.

China’s growing EV industry is holding up better than that for combustion engine vehicles and will likely maintain an upward trend in the coming months, despite Covid-19-related lockdown measures and supply chain constraints. AlixPartners projects that there will have been 5.1 million EV sales in China by the of the year, representing a 45% increase year-on-year and accounting for 22% of total new car sales.

With that said, overall auto sales may fall by 11% year-on-year to 23.4 million units in 2022, as stringent Covid control measures disrupt offline sales, the firm said during an online briefing on Thursday. Meanwhile, supply chain issues will continue to be a headwind for Chinese automakers until 2024, when chip supply issues will largely be resolved, allowing China’s auto sales to return to normal growth rates, according to Dyer.

Chinese EV makers have been moving upmarket and squeezing most international competitors out of their home market. Major Chinese automaker BYD’s EV sales more than tripled to 507,314 units as of May this year, driving its market cap to nearly $130 billion and making it the third-largest automaker in the world in early June.

SAIC-GM-Wuling, a joint venture between General Motors, SAIC, and Wuling Motors, is by far the country’s second-biggest EV maker, with sales of 164,552 vehicles over the same period, mostly thanks to its affordable Hongguang Mini EVs. US-listed EV makers Li Auto and Nio last month launched their new electric crossovers with price tags starting from RMB 459,800 ($68,418) and RMB 468,000 respectively, aiming to take on luxury carmakers such as BMW and Mercedes-Benz.

Tesla and Volkswagen are the only two global automakers with a major presence in the Chinese EV race, selling around 172,000 and 54,000 vehicles respectively to local customers from January until May. In November, Volkswagen moved to replace its China head Stephan Wöellenstein, in part due to lower-than-expected EV sales, according to a Reuters report. The German automaker announced on June 17 that it has set up a regional China board with a new leadership team that includes Marcus Hafkemeyer, a former adviser at Huawei, as technology chief.

Two people were killed after a Nio testing car plummeted off the third floor of a parking garage at the company’s Shanghai headquarters on Wednesday. The electric vehicle maker claimed that its vehicle was not at fault in the accident.

Why it matters: If the vehicle was not at fault, the incident should not greatly impact Nio’s vehicle sales. However, it potentially delivers another blow to the company’s reputation following a high-profile accident involving a Nio car last year.

Details: Based on preliminary investigations by the local police, there is no indication that the deaths of the two testing workers were related to an issue with the vehicle, Nio said on Thursday in an announcement published on the Chinese Twitter-like platform Weibo. It was not immediately clear what caused the crash.

• The two workers – one a Nio employee, the other a staff of a partner company – were testing Nio’s digital cockpit features and were killed Wednesday afternoon after the car drove off from the third floor of the garage and landed on the company’s campus in the city’s Jiading district. The tragic case was an “accident unrelated to the vehicle,” the company added in their statement.
• Nio shares closed slightly up 2.2% on Thursday amid a broad market rally that saw rivals Xpeng Motors and Li Auto jump 7.8% and 6.6%, respectively.

Context: Last year, Nio’s credibility took a hit when a 31-year-old Chinese entrepreneur died in a car crash while driving his Nio ES8 with the car’s driver-assistance functions activated. Nio notes in its user manual that the company’s technology currently requires active driver supervision and does not make the vehicle autonomous.

• Nio’s vehicle margin fell to 18.1% in the first quarter of this year, down from the 21.2% during the same period last year and the 20.9% recorded for the fourth quarter of 2021, due to the industry’s ongoing supply chain constraints, worsened by China’s Covid lockdowns.
• The Tencent-backed EV maker delivered 37,866 vehicles for the first five months of this year, an 11.8% increase from a year earlier. Deliveries of rivals Xpeng Motors and Li Auto more than doubled year-on-year to 53,688 and 47,379 vehicles over the same period.
• Earlier this month, the Shanghai-headquartered automaker launched the ES7, a new electric sports utility vehicle that boasts improved comfort and advanced self-driving technologies, with a starting price of RMB 468,000 ($69,825). 

US-listed Chinese electric vehicle makers Xpeng Motors, Li Auto, and Nio are undergoing significant restructuring as rising costs of raw materials and supply chain disruptions cut into profit margins. Meanwhile, EV battery makers are upping their investment to increase production capacities as China continues an accelerated shift to EVs.

Chinese EV makers are restructuring their businesses as challenges grow

Having enjoyed exponential growth over the past two years, Chinese electric vehicle startups are showing signs of contraction as supply chain constraints and rising raw material costs (partly worsened by the Covid-19 pandemic) continue to weigh on the industry. 

Facing a serious slowdown in economic growth and a resurgence of Covid-19 outbreaks, the US-listed Chinese EV trio of Nio, Li Auto, and Xpeng Motors are undertaking thorough reorganizations, laying off workers, and shifting away from non-core projects to meet their growth targets. The companies have been handling these challenges relatively well, but the outlook going forward is a bit unclear.

Xpeng Motors: Xpeng is facing a significant setback in its global ambition. Several senior executives, including vice president of overseas sales He Liyang, recently left the Guangzhou-based automaker amid a comprehensive restructuring across the company meant to streamline operations and save expenses, Chinese media LatePost reported on May 26, citing people familiar with the matter. The departures come after the EV upstart experienced lackluster sales of merely 438 vehicles in Norway in 2021, while leader Tesla took a nearly 20% market share in the country as it delivered more than 20,000 EVs over the same period, according to official figures.

In an effort to pare back losses, the Alibaba-backed EV maker is trimming its sizable staff in several major divisions, including a software team developing intelligent cockpit solutions and its data management department. As part of the change, Zhao Hengyi, a tech lead on Xpeng’s in-car voice assistant, left his position in March. The company also cut some of its plans of cultivating some fresh graduates, with dozens of them recently having their job offers rescinded.

Xpeng has been known to spend cash more quickly compared with peers. It posted a record loss of RMB 1.7 billion ($268.3 million) in the first quarter of 2022, widening from RMB 1.29 billion in the previous quarter. Analysts had warned of more losses to come from April to June due to high material costs and recent Covid lockdowns in China. The company earned a gross margin of only 12.2% during the first three months of this year, far lower than the 22.6% and 14.6% posted by rivals Li Auto and Nio, respectively.

Li Auto: A relative latecomer in a competitive industry, Li Auto is also facing a critical juncture and has scaled down some of its recruitment plans as it anticipates tough times ahead, the LatePost report said. Eight-year-old Li Auto recently lowered its delivery target for this year by 15% to 170,000 vehicles and planned to recruit 2,000 fewer people than it had initially planned, as the company worried about sales performance in the face of an economic downturn.

In anticipation of it becoming harder to get capital as investor sentiment worsens, Li Auto is also downsizing. Since March, the company has cut 20% of its full-time employees in its enterprise system development team after a large hiring spree, while dismissing some workers in its camera research and development team, formerly set up by then technology chief Wang Kai, LatePost reported.

The Meituan-backed EV maker was hit harder than rivals by the recent wave of Covid-19 lockdowns in the country, seeing its April deliveries down  62% and its second production model delayed amid the current supply chain disruption. The cuts could help the automaker reduce costs and survive a looming recession, yet investors were disappointed when the automaker forecast an even lower revenue target and warned of a worse margin for the second quarter of 2022.

Nio: Once the front-runner in the field of Chinese EV startups, Nio is making a pivot to battery-making, with plans to develop and potentially manufacture its own battery packs. The move marks a revamp of company strategy that comes as soaring material costs and supply chain bottlenecks slowing its factory output. Speaking to analysts during an earnings call on June 9, chief executive William Li said that the company now operates a team of over 400 employees on battery technologies and plans to launch an 800-volt battery pack for fast charging in 2024.

A new $32.8 million research facility is also slated for construction near its Shanghai headquarters this summer, aimed at developing lithium-ion battery cells and packs. This is in line with the EV maker’s battery strategy of both in-house development and outsourcing, a move that Li believes will benefit Nio’s overall competitiveness and profit-making capability in the long term. The company has warned that battery price hikes will continue to weigh on its margins in the second quarter.

Meanwhile, the company is reorganizing its autonomous driving team, which is at the core of its long-term ambition to become China’s top luxury car brand, following the departure of a long-time vice president of engineering in April. A team of more than 400 engineers, who work on diverse technology domains including sensors, algorithms, and system integration, has been reassigned to other departments to flatten the management structure for communication and combine functions where appropriate, Chinese media 36Kr reported.

Battery makers racing to expand capacity

Despite automakers’ short-term adjustments, the long-term prospects for China’s EV market remain robust with strong consumer demand. In response, major battery makers have kicked off a fierce expansion race in the hope of scaling up supply to meet the demand and take a larger market share. Government-backed industry group the China Passenger Car Association (CPCA) has maintained its forecast of 5.5 million passenger electric vehicle sales for this year in China despite the ongoing Covid-19 outbreaks across the country. 

Here are some of the major players’ expansion plans:

CATL is moving to become more directly involved in lithium mining in order to make its own supply of the EV battery material, thanks to soaring prices. The Chinese battery giant recently won approval to build a new lithium plant with a mining claim on nearly 1,600 acres in the central province of Jiangxi, state media CLS reported on June 1, citing government documents. The new RMB 2 billion ($297 million) facility would be capable of producing 30,000 tons of battery-grade lithium carbonate annually and is scheduled to be in production in  2023.

BYD is making a similar move and is said to be on the verge of closing deals to acquire six lithium mines in Africa, which experts estimate could allow the company to produce about 1 million tons of lithium carbonate, which translates into at least 27.78 million EVs. A BYD executive confirmed that it will supply lithium-ion batteries to Tesla “very soon” earlier this month. There has also been speculation that Nio and Xiaomi are looking at sourcing batteries from the company as well.

Gotion High-Tech is the latest Chinese battery maker to expand its local production by partnering with prominent players like Volkswagen and Great Wall Motor. The battery supplier announced (in Chinese) on May 31 that two new facilities have been put into production with a combined capacity of 30 gigawatt-hours (GWh) each year. The company is on track to double its total capacity to 100 GWh by this year and expand that number to 300 GWh in 2025.

On Tuesday, Li Auto announced the L9, a full-size, three-row sports utility vehicle, as part of its stated ambitious plan to achieve 1.6 million vehicle sales by 2025. The car’s starting price is less than half that of similar offerings from the likes of BMW and Mercedes-Benz.

Why it matters: With delivery planned to begin in August, the six-passenger L9 SUV will be the second production model from Li Auto and the Chinese EV maker appears to be confident that it might become a hit.

• Speaking to reporters on Wednesday, chief executive Li Xiang declined to reveal specifics about order volume, but said that the L9 will outsell its existing Li One, which was the top-selling large new energy SUV in China last year, according to official figures.

Details: The L9, a plug-in hybrid, is described by the company as the pinnacle of large luxury SUVs, with what it says is a spacious interior specifically for Chinese three-generation family households. The automaker said the model offers passengers more room than other luxury automaker offerings.

• The plug-in hybrid has a driving range of 215 kilometers (134 miles) on a full charge but can drive for about 1,315 miles with a full fuel tank and a full charge, a 20% increase compared with the company’s first model. It accelerates to 100 km in 5.3 seconds, according to Li Auto. 
• The model comes with many high-end tech features. It has five screens, including two 15.7-inch touch-sensitive ones in the middle of the dashboard that control the in-car entertainment system, two smaller ones around the steering wheel,  and an OLED television screen for rear-seat passengers.
• The vehicle uses a combination of 24 sensors to detect and predict road conditions, including eight 8-megapixel cameras, a long-range lidar unit, and two Nvidia Orin AI chips to enable autonomous driving.
• The L9 will only enable assisted driving on highways, once delivered; the company has not revealed when its car system will support autonomous driving in city traffic. Its rival Xpeng Motors plans to send an over-the-air update that would allow its vehicles to drive autonomously on urban roads later this year.
• The vehicle will sell for RMB 459,800 ($68,418), a price that the seven-year-old automaker claims is lower than any other similar SUV on the market. For comparison, the BMW X7 and the Mercedes-Benz GLS crossovers start at RMB 1 million and RMB 1.07 million in China, respectively.

Context: Meituan-backed Li Auto has been at the forefront of the Chinese EV field with just one model on sale, recording deliveries of 90,491 Li One vehicles in 2021, a 177.4% increase from a year earlier. The sales number is close to the sales of all three of rival Nio’s models over the same period combined.

• CEO Li Xiang has set an ambitious target of delivering 1.6 million vehicles annually by 2025, according to an internal memo obtained by Chinese media outlet Caixin in February 2021.
• Li said earlier this month that monthly delivery of the latest model could reach more than 10,000 units starting from September, although investors now reportedly expect that number to be around 5,000-6,000 units due to supply chain constraints and Covid-19 control measures.
• Earlier this month, Nio also launched a new SUV model, the ES7, with a starting price of RMB 468,000. Alibaba-backed Xpeng said in April that it will launch its second SUV model, the G9, this month.

READ MORE: Drive I/O | Nio, Xpeng, and Li Auto face more challenges after a mixed 2021

Nio is building a new battery research and development center near its headquarters in Shanghai, intending to develop and use new types of battery cells in its electric vehicles (EVs), a Shanghai government filing showed on Monday.

Why it matters: Nio’s move is part of a growing trend among automakers attempting to develop their own batteries to secure an advantage in China’s fast-growing EV segment, which has been hit by supply chain bottlenecks in recent months.

Details: The facility will be approximately 22,090 square meters (roughly 237,775 square feet), and located in the city’s northwestern Jiading district. It will involve an investment of around RMB 219 million ($32.8 million), according to a filing (in Chinese) by the environmental assessment firm conducting a feasibility study for the project.

• The new facility will encompass 31 laboratories, one trial production line for lithium-ion battery cells, and one assembly line for battery packs made from lithium-ion cells, which could pave the way for Nio to make new batteries with improved performance capability and better safety measures at scale, the filing said.
• Slated for construction as early as August this year, the center will operate 250 days per year and employ about 400 staff, the EV maker said in the filing, but it did not reveal when the facility will start operations.
• Nio did not respond to TechNode’s requests for comment.

Context: Nio has been sourcing cells manufactured by Chinese battery supplier CATL and assembling them into battery packs at one of its factories in the eastern city of Nanjing since mid-2019, in addition to undertaking in-house production of electric motors.

• Leapmotor, another local EV startup, revealed (in Chinese) its so-called “cell-to-chassis” technology last month, which skips the need for battery packs and integrates modules directly into the vehicle body. Typically, battery cells must first be fixed into a battery module when being added to an EV.
• Tesla has been producing battery packs with cells from its partner Panasonic at a factory in Nevada since 2016. Chinese EV giant BYD is currently the world’s third-biggest battery maker with a market share of 11.1% as of March 31, Bloomberg reported on May 2, citing figures from South Korean research firm SNE Research.

READ MORE: Nio, Xpeng, Li Auto see dismal April deliveries as coronavirus lockdowns disrupt production

Nio and Li Auto’s vehicle deliveries halved in April compared to the previous month, while Xpeng saw a nearly 41% drop. These Chinese EV upstarts have cut production as China fights a new wave of widespread coronavirus outbreaks with frequent lockdown measures since late March.

Why it matters: The massive drop comes as a wave of omicron cases and strict lockdown measures have led to severe supply chain and logistical disruptions to automakers and parts suppliers in Shanghai and surrounding areas, a major auto manufacturing hub for the country.

Details: Li Auto took the biggest hit among the main Chinese electric vehicle (EV) makers, reporting a 62% monthly drop to 4,167 vehicle deliveries for April. Nio saw vehicle deliveries plunge nearly 50% to 5,074 units in April from a month earlier, while Xpeng’s volume dropped 41.6% to 9,002 over the same period.

• Li Auto’s vehicle assemblies in Changzhou, a neighboring city to Shanghai in the eastern Jiangsu province, sat idle after stockpiles of components became depleted during the past month. Over 80% of the company’s parts suppliers are located within the region and many were hit by factory disclosures and logistics difficulties over the period, president Shen Yanan said in an announcement.
• With a factory in the eastern city of Hefei and its global headquarters in Shanghai, Nio was also forced to halt operations for a few days early last month before parts of its business resumed operations beginning April 14. Xpeng was less affected due to its operations being primarily based in the southern city of Guangzhou, saying that it is navigating the pandemic-driven disruption.
• Some traditional auto majors with southern bases weathered the storm better, with Shenzhen-based BYD selling (in Chinese) 106,042 vehicles to customers in April, up 313% from a year ago and 1% up a month earlier. State-owned GAC, also with manufacturing bases in the southern Guangdong province, said that deliveries of its Aion-branded EVs increased 23% year-on-year to around 10,200 last month.
• The ongoing lockdowns have also had minor effects on smaller players such as Leapmotor and Hozon, which reported decreases of 9.7% and 26.7%, respectively, in April deliveries month-on-month. Leapmotor delivered 9,087 vehicles last month, followed by Hozon’s 8,813, local media reported.

Context: The China Passenger Car Association projected total passenger vehicle sales in China in April will plunge to 1.1 million units, a 31.9% drop compared to the same period last year, as the auto industry needs time to recover from the effects of the pandemic.

• Some automakers like Tesla and Volkswagen are gradually resuming production at their factories in Shanghai and the surrounding areas, which have been shut down for weeks due to the lockdowns but still face various hurdles such as parts shortages and a limited workforce.

Although Nio, Xpeng Motors, and Li Auto recorded explosive growth in 2021, the US-listed share prices of the Chinese EV trio still trade much lower than their all-time highs. As the poster children of China’s electric vehicle revolution, the three automakers reported in March mixed results for 2021, with record revenue and significant losses. 

All three EV makers have seen doubled revenues and deliveries surge in their home market. And yet, having lost a total of nearly $10 billion in just 2021 alone, the US-listed EV trio is still struggling to make money. The share prices of Nio and Xpeng have slumped to under $30, falling over 60% from their respective highs two years ago, as they show no signs of turning a profit any time soon while facing risks of delisting from US exchanges.

Xpeng is expanding at a faster pace and higher cost than its competitors. In 2021, the company posted its biggest net loss in its eight years of operations, while revenue more than tripled to nearly RMB 21 billion ($3.3 billion). Li Auto has managed to make its business more efficient than its rivals, reporting a net loss of RMB 321.4 million last year, which is less than one-tenth of Nio’s and Xpeng’s losses. Nio’s sales growth slowed markedly last year, and yet the company earned the most among the three, thanks to its higher-margin luxury cars.

Key figures

Strong growth: Xpeng stole a march on Nio in the Chinese EV space in 2021, with its deliveries jumping 263% year-on-year to 98,155 vehicles. Nio, meanwhile, delivered 91,429 vehicles with a 109.1% yearly growth rate, Li Auto delivered 90,491 vehicles. Although Xpeng delivered the most vehicles among the three EV companies, it earned the least due to a lower selling price of RMB 196,000 for its offerings, almost a half of Nio’s and Li Auto’s prices. 

Heavy losses: With an aggressive expansion of its sales footprint and production capacity, Xpeng reported a record loss of RMB 4.86 billion last year, exceeding Nio’s RMB 4 billion for the first time over the past four financial years. Nio’s annual loss was 24.3% lower than a year ago, helped by growing sales, but the company expects to double its spending on research and development this year to ramp up the development of its self-driving technology. Li Auto once again proved to be better managed in terms of profitability. It increased net profit by 175% to RMB 295.5 million in the fourth quarter and kept annual losses far lower than competitors.

Other takeaways

New models: All three companies promised to speed up the launch of new models to keep their businesses strong, despite an intensifying global supply chain crunch. Nio began deliveries of its first sedan ET7 to customers in the eastern city of Hefei on March 28, with deliveries of its second sedan ET5 expected to start in September. In addition, the company is rushing to launch ES7, a new medium-sized SUV featuring its latest assisted driving technology, in the third quarter. During the same period, Xpeng is expected to deliver its second SUV model G9, in the hopes of grabbing a share of the high-end market from its peers. Meanwhile, Li Auto, which currently only has one model, will launch its second SUV L9 by June of this year, chief executive Shen Yanan confirmed during its earnings call on Feb. 25.

New plants: All the three EV makers are expanding their manufacturing capacities aggressively as orders continue to grow faster than supply. Nio’s second factory, scheduled for completion in Hefei in the third quarter, has the potential to produce 300,000 vehicles a year, the same capacity as its first plant, according to CEO William Li during the company’s earnings call on March 25. Both Xpeng and Li Auto plan to have three plants in the country by the end of 2023 with a total capacity of at least 500,000 and 750,000 vehicles, respectively, executives told investors during their earnings call. However, production could be disrupted by various supply chain shortages in the short term, while Xpeng CEO He Xiaopeng expects this situation to improve starting the second half of this year.

Conclusion

Looking ahead, the Chinese EV trio is still under pressure to capture demand and drive profitable growth in the short term. They face severe production problems due to chip shortages, rising material prices, and the recent lockdowns in Shanghai and nearby regions. Still, the companies are plotting a path to profitability in the long term, with some analysts expressing optimism about the EV upstarts achieving these goals. The gross margins for Nio, Xpeng, and Li Auto had improved to 18.4%, 12.5%, and 21.3% last year, respectively, and executives say that the companies could break even no later than 2024. 

As the industry faces challenges with supply chain constraints, including rising battery prices and a chip crunch, the sequential improvement in Li Auto’s gross margin could be “more limited” in 2022, Bernstein analysts led by Eunice Lee wrote in a March 1 note. And yet, that number could reach 25% in the longer term, as production volumes ramp up and fixed costs decline, Lee added.

Shanghai and Changchun, two of China’s major auto hubs, have been swamped by the highly contagious omicron variant of the coronavirus. The outbreaks, coupled with China’s strict epidemic control measures, have resulted in a huge blow to April auto sales. Now auto executives and analysts say that the impact could cripple the whole industry if the lockdowns remain unchanged.

“All Chinese car manufacturers will have to stop production in May, if there is no way for those in Shanghai and suppliers nearby to restart operations and production,” He Xiaopeng, chief executive of Xpeng Motors, said Thursday on his Weibo microblog (our translation).  

The Xpeng leader is not the only boss to express deep concerns about the consequences of China’s current wave of lockdowns. Richard Yu, chief executive of Huawei’s consumer business group and smart car solution unit, said on Friday that technology and manufacturing businesses linked to suppliers in Shanghai could “stop altogether” in May if a solution is not found soon. “This is especially the case for the auto industry, and the economic loss could be huge,” Yu wrote on his WeChat Moments feed, according to a report by Chinese media Sina Tech (our translation). 

Auto giants are already feeling the pain of lockdowns that began in Changchun early in March and were extended later that month to Shanghai. Auto sales in Shanghai and Changchun, the capital city of northeastern Jilin province, have ground to a halt. The Shanghai outbreak could lead to a sharp 20% drop in vehicle sales, the China Passenger Car Association said earlier this week.

Meanwhile, Volkswagen’s auto sales in China tumbled 23.9% year-on-year to 754,000 units for the first quarter, which the company’s China CEO Stephan Wöllenstein on Thursday attributed to lockdown measures and chip shortages.

Tesla has been forced to halt assembly lines in its Shanghai factory since late March. General Motors is eking out some limited output with partner SAIC in Shanghai by asking workers to sleep on factory floors, while multiple major auto suppliers such as Bosch and Aptiv have suspended production, Reuters reported. 

China’s auto industry is now enveloped in a “perfect storm” with lockdowns added to the existing problems like semiconductor chip shortages and raw material disruptions due to the Russia-Ukraine war, said Stephen Dyer, a managing director at consulting firm AlixPartners. 

“The bottom line is that unless China can stamp out COVID completely, this uncertainty will hover over the entire sector like a dark cloud,” said Tu Le, managing director of consultancy Sino Auto Insights.

Both Dyer and Le expressed confidence that the industry can be on a path toward recovery if lockdown measures loosen soon, but the industry will see major losses if lockdowns continue in the long run.   

He Xiaopeng’s Thursday Weibo post noted that some of the related government officials are now “working hard to coordinate” reopening activities. Nio on Thursday also said that it is restarting operations in its plant in the eastern city of Hefei as the supply of key components improves slightly, without revealing details.

“The silver lining is that it is still only April so any lost production from late March can be made up via overtime in the rest of the year,” said Le from Sino Auto Insights. A similar sentiment is being expressed by AlixPartners’ Dyer, “If production halts are relatively short, it is possible for vehicle production and sales to quickly make up for production stoppages so that annual sales are less affected, as was the case in 2020.”

In addition, auto companies are now doing everything in their power to minimize damage and prepare for a rebound. SAIC-Volkswagen is reportedly (in Chinese) working 24 hours a day to track their shipments of components and is in contact with more than 500 suppliers to ensure supply. Volvo’s parent Geely has been assigning its employees to guard the highway junctions to transport goods from Shanghai with its own fleet, according to an April 11 report by Chinese media Caixin.

The immediate focus is on business recovery rather than profit. “Profit margins will be squeezed but their priorities right now should be to get production back online the second they get that thumbs up,” Le said.

Top automakers Nio, Tesla, and Volkswagen, are temporarily closing their plants in China as a new omicron-led coronavirus outbreak spreads through the country. Following China’s covid zero policy, cities rush to implement lockdowns, creating broken links in the local supply chain.

Why it matters: The spread of the highly transmissible omicron variant is the latest hit to automakers in China after struggling for months to cope with raw material and parts shortages resulting from continued high demand and now worsened by the Russia-Ukraine war.

Details: Nio, Tesla, and Volkswagen have closed their assembly plants in China – without providing a targeted return-to-work date.

• Nio said on April 10 that it had temporarily stopped production lines at its plant in the eastern city of Hefei, after parts suppliers suspended operations earlier in “multiple” regions including Shanghai, the eastern Jiangsu province, and the northeastern Jilin province. Vehicle delivery is also delayed, according to an announcement (in Chinese).
• Tesla on March 28 closed its Shanghai Gigafactory for four days as the local government enacted citywide lockdown measures. The shutdown has since been extended indefinitely due to a severe lack of staff and components, news website Electrek reported on April 6, estimating a potential production loss of at least 24,000 vehicles. The US EV giant delivered 65,814 vehicles last month, an 85% increase from a year earlier, according to CPCA.
• Volkswagen announced on April 1 that its Shanghai plant, operated as a joint venture with China’s SAIC Motor, was due to be closed for five days, a few days after a 48-hour suspension during mid-March. The production suspension is still ongoing, however, according to a Monday report by Chinese media Caixin. Previously, the German automaker’s joint venture plants with FAW Group in Changchun (the capital city of Jilin province) also shut down on March 13. FAW on Monday announced that it had begun reopening facilities, local media reported.

Context: China’s overall car production volume could slump by 20% with the current omicron outbreak, Cui Dongshu, Secretary General of the China Passenger Car Association (CPCA), said on Monday during an online conference, without giving a timeframe.

• In March, China’s passenger vehicle output fell slightly by 0.3% to 1.82 million units from a year earlier, with the luxury segment the hardest hit as production volume declined 31% on an annual basis, according to the latest figures published by the CPCA.
• Last month, the passenger electric vehicle (EV) sector saw strong growth with retail sales up 137.6% from a year ago to 445,000 vehicles last month. The CPCA did not provide an estimate on auto sales for 2022 since the situation remains fluid, but maintained its estimate of passenger EV sales at 5.5 million units for 2022, Cui said.

Nickel prices climbed to an all-time high and could further increase the cost of electric vehicles (EV) and force automakers to cut earnings forecasts. Ride-hailing giant Didi became the latest Chinese tech company to enter consumer EV space; it plans to deliver an entry-level sedan next year. Shares of Nio closed flat in the company’s Hong Kong trading debut. Its listing follows the steps of Xpeng Motors and Li Auto. All hope to attract more investors in China amid growing financial market tensions between China and the US.

Soaring nickel prices cast shadow over Chinese EV players

As the price of nickel jumped to an all-time high since early March, auto industry insiders expressed concerns that an escalating Russia–Ukraine conflict could disrupt supplies of the metal, a key component of EV batteries. While watchers have differing views about the impact on EV adoption, most expect battery prices to remain high and to weigh on the margins of Chinese EV makers for the rest of the year.

Nickel craze: Nickel markets had a wild ride early this month. On March 8, the price of three-month nickel on the London Metal Exchange (LME) more than doubled in a short period, reaching an all-time high of $101,365. The unusual surge prompted LME to halt trading for seven days, set new price limits, and adjust prices. When it reopened, the price dropped back down to around $80,000, yet still about 300% higher than the $20,000 price in late February. 

• China’s nickel producer Tsingshan Holding Group was caught on the wrong side of the market, having built the biggest short position in the metal and betting the price would fall since last year. Tsingshan on March 14 said it reached a deal with its banks to backstop its short position after struggling to pay margin calls on its position during the nickel price surge a week earlier. The company faced an $8 billion paper loss based on nickel’s price of $48,002 on March 14, the Wall Street Journal reported.
• The unprecedented price surge was partly due to concerns from Russia. Western nations imposed sanctions on Russia after it started a war with Ukraine in late February. Russia is the world’s biggest exporter of nickel, prompting buyers to worry that Russian nickel suppliers could be hit by sanctions and transport disruptions.
• The already tight supply of high-purity nickel, fueled by the rising sales of EVs, contributed to the highs in the metal’s price. Nickel is increasingly used in EV batteries as it ensures high-energy density that allows the vehicle to travel further.

Higher cost for EVs: Nickel’s price surge is magnifying the current supply chain woes that have dramatically pushed up automakers’ production costs. The global semiconductor shortage and a boom in the prices of other metals have been the principal factors. 

• The input cost of an EV equipped with a 60 kilowatt hour (kWh) battery pack will increase RMB 9,000 ($1,418) due to nickel’s price growing from about $20,000 early this year to the recent price point of around $50,000, according to estimates from China International Capital Corporation (CICC). Nickel’s price will probably stay high over the short term, partly thanks to low inventories in the country, but the high price may be hard to maintain long-term, CICC wrote in a March 9 report.
• Many experts anticipate an accelerated shift towards lithium phosphate (LFP) batteries from the current mainstream types that use nickel and cobalt as core materials. Nickel-free LFP batteries generally provide a lower driving range and cost less to produce than its counterparts, and yet are now also under price pressure thanks to rising lithium prices, the Wall Street Journal reported.
• Average prices of lithium-ion battery packs are expected to slightly grow to $135 per kWh this year from $132 a year ago, ending nearly a decade of price declines, Bloomberg New Energy Finance estimated in a report published on Nov. 30, 2021.

Impact on EVs: Predictions vary among experts of how nickel’s price hikes could affect the EV supply chain and affordability for customers.

• Morgan Stanley automotive analyst Adam Jonas, one of the leading voices warning investors of massive earnings drops for automakers, expects at least a $1,000 increase this year in the input cost of an average EV in the US. If sanctions against Russia are extended to nickel, it’s “probably time for investors to take auto company earnings forecasts down,” Jonas wrote in a March 7 note.
• Other experts say the overall impact will be limited. The high price of nickel is likely to prove a temporary phenomenon since the metal has long seen high output, Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), told reporters during an online conference on March 8. There are currently few signs of risks to output from other major nickel producers such as Indonesia, Cui added.

Didi’s first consumer EV could hit the roads in 2023

News: China’s red-hot EV market just added another competitor as struggling ride-hailing platform Didi reportedly plans to develop its first consumer car in-house. The compact EV could begin mass delivery as early as next June, according to a local media report on March 15. With an estimated price tag of RMB 150,000 ($23,580), the new model will be an entry-level compact sedan competing with existing offerings such as BYD’s popular Qin EV, the report said. The company is said to have more than 1,700 staff dedicated to the project at its Beijing headquarters. In addition, it is considering a deal to buy Zhijun Auto, a little-known EV manufacturer with a plant in central Jiangxi province.

Insights: The launch of a consumer car might create a new revenue stream for Didi as its core business falters. The project can also cover the high cost of developing autonomous driving technology, an initiative the company has undertaken since 2016. The move would also see the Chinese mobility giant lining itself up to compete with big auto names such as BYD, which is also its manufacturing partner.

Didi had a rocky start in its first attempt to produce an EV with BYD. The D1 was a purpose-built electric crossover for ride-hailing services developed by the two companies. It entered into production in late 2020, six months later than expected, the report said. 

Didi’s ride-hailing volume reportedly declined to 20 million trips per day in January, a 20% plunge from daily figures in the first quarter of 2021. Over the same period, the company’s ride-hailing market share in China has shrunk from nearly 90% to 70% due to Beijing’s ongoing cybersecurity review of the company that began last July. 

Nio shares debut in Hong Kong secondary listing

News: Chinese EV maker Nio made a weak debut in Hong Kong on March 10, closing down 0.69%. The listing took place after a long and winding journey. Already listed on the New York Stock Exchange, Nio has followed in the steps of rivals Xpeng Motors and Li Auto by tapping into Hong Kong’s capital markets. However, Nio did not sell new shares or raise money, and it chose to list by introduction. Xpeng and Li Auto, on the other hand, raised HK$14 billion and HK$11.8 billion, respectively, by selling shares in Hong Kong in the summer of 2021.  

Insights: Nio explained the move by saying it hopes to attract more investors by enabling more listing locations and flexible trading hours. A Singapore listing may be another possibility. The Hong Kong locale does bring the Shanghai-based EV maker closer to mainland investors and provides the automaker insurance against the risk of delisting in the US. But Nio said it had “a sufficient pool of working capital,” according to financial media Caixin (our translation), and did not have an urgent need to raise additional funds. 

Plagued by a shortage of semiconductor chips and batteries, among other supply-chain headaches, Nio has posted lackluster monthly sales volumes for several months. Sales of Nio’s existing three models have been slow. Its first sedan, the ET7, is scheduled for delivery later this month. The company hopes to catch up: It plans to begin delivering its second sedan, the ET5, in September and to launch a sports utility vehicle (SUV), its fourth, by year-end.

Chinese electric vehicle (EV) sales achieved a strong momentum over the past two years, reporting robust figures in January. They are expected to reach 5.5 million units this year. Tesla ended 2021 with a solid profit performance driven by both strong consumer demand in China and Europe, and cost improvement from expanded production in its Shanghai factory. Battery maker CATL retained its competitive lead, dominating the global EV market last year, followed by a group of smaller domestic competitors. BYD’s chip unit is racing the clock to complete an initial public offering in the mainland stock market, thanks to explosive growth in EV sales amid a worldwide chip shortage.

January EV sales signal a strong 2022

News: China’s electric vehicle market remains buoyant despite the seasonal holiday slowdown and the looming impact of the recent subsidy reductions. January retail sales of new energy vehicles (NEVs), including all-electrics, plug-in hybrids, and hydrogen cars, totaled 347,000 units and a 132% yearly increase, according to figures published by the China Passenger Car Association (CPCA). However, this figure is a 27% decline from last December, as China auto sales in January and February tend to be affected by the Lunar New Year holiday (roughly the first two weeks of February this year) when consumers often delay purchases and automakers halt production, the industry group said.  

Insights: The market was relatively flat during the first half of January due to a last-minute push by automakers to get their cars delivered in December. Yet sales recovered fairly quickly during the last two weeks of the month, said Cui Dongshu, secretary general of the CPCA. Cui remained positive about the impact of Beijing’s 30% subsidy cut on EVs, with CPCA affirming its previous forecast of 5.5 million vehicle passenger EV sales in China this year. Although multiple automakers have raised prices for their EVs just enough to offset the subsidy cut, Cui expects overall EV prices to maintain relatively stable, as automakers have been taking various measures such as diversifying sourcing of parts to reduce costs.

News link: TechNode 

Tesla posts second profitable year as Shanghai factory reaches full capacity

News: Riding a wave of growing customer interest for green energy vehicles, Tesla on Jan. 26 posted a profit for the second year in a row. It ended 2021 with a net profit of $5.5 billion, a more than sixfold yearly increase. Annual deliveries also surged 87% in the year, marking the fastest pace of growth since 2019, thanks to strong sales in China and Europe. The US EV giant expects to achieve 50% annual growth in vehicle deliveries “over a multiyear horizon,” while warning that the ongoing global chip shortage could dent its production output “across all factories” this year.

Insights: Rising demand in China has been a key driver for Tesla’s growth. The total sales of Chinese-made vehicles reached 484,130 units last year, accounting for over half of its global deliveries, China Passenger Car Association (CPCA) data shows. The company’s Shanghai factory also plays a prominent role for its global expansion, becoming a “main export hub” with a shipment of around 163,000 vehicles last year to EU, Japan, among other regions, said Tesla’s financial chief Zachary Kirkhorn during its fourth-quarter earnings call.

Now, as EVs continue their current growth trajectory, Tesla has planned to invest RMB 1.2 billion ($188 million) to increase the production staff of the Gigafactory Shanghai by a quarter to about 19,000, Bloomberg reported in November citing sources. The Shanghai plant, which began deliveries in late 2019, was designed to produce up to 500,000 vehicles annually and has been regularly running at a capacity of 450,000 units per year.

News link: TechCrunch 

Battery giant CATL’s dominance unabated in China’s EV boom

News: CATL’s dominance of the EV battery market has continued unabated. It retained its top spot as the world’s biggest battery vendor last year, thanks to an accelerated shift of consumers embracing EVs in China. The Chinese battery giant supplied 96.7 gigawatt-hours (GWh) equivalents of EV batteries in 2021, representing a 167% yearly increase. It commands a 32.6% global market share, according to data compiled by market tracker SNE Research. South Korea’s LG Energy Solution came in second with 60.2 GWh, while Chinese auto major BYD ran a distant fourth with 26.3 GWh. Smaller Chinese players Gotion High-Tech, CALB, AESC, and SVOLT all rank lower in the world’s top 10 battery makers and form a combined market share of around 8%.

Insights: This has been the fifth year CATL retained its position as the world’s biggest battery maker, buoyed by a rebound in EV demand in its home market in 2021. A total of 150 GWh of battery capacity were deployed into newly sold NEVs in China last year. That number is expected to grow by over 50% year on year to 230 GWh in 2022, according to a Jan.12 report published by Chinese brokerage Huaan Securities.

The battery maker is also quickly expanding its manufacturing capacity to meet a surging demand. In December, it kicked off production at its largest plant to date in Fuding, a city in the eastern Fujian province, with a designed capacity of 120 GWh per year. 

News link: TechNode

BYD’s chip unit to list on Shenzhen stock market

News: The chip unit of Chinese automaker BYD is racing to go public with an offering that could raise as much as RMB 2 billion ($314.4 million), after getting a green light from the Shenzhen Stock Exchange. The listing is expected in the next few months and it would become the first auto chipmaker to list in China. BYD Semiconductor became an independent subsidiary of the Chinese EV giant in April 2020 and mainly develops less advanced chips such as microcontrollers (MCUs) used for controlling simple functions in cars. The company has become China’s biggest MCU manufacturer with nearly two decades of chip-making experience, Chinese media Caixin reported last month, citing analysis from market research firm Omdia.

Insights: The imminent listing comes at a time when the Chinese EV industry has seen a strong rebound in demand, despite significant disruption due to the global chip shortage over the past year. BYD Semiconductor estimated its net profit will jump by up to 574% yearly to RMB 395 million in 2021. Revenues are projected to reach an upper limit of RMB 3.2 billion, an 122% increase from 2020. However, the company is still a tiny player in the global automotive MCU sector, which is dominated by Japan’s Renasas and six other chip powerhouses with a combined market share of 98%, according to figures from information services company IHS Markit.

And yet, investors have high expectations for the subsidiary. It has already raised RMB 2.8 billion from a list of big names including Xiaomi’s industry investment fund, Sequoia Capital China, and CICC Capital prior to the IPO filing. BYD’s stake will fall from 72% to 65% after the listing is completed.

News link: TechNode 

China’s electric vehicle (EV) sales soared in 2021, bucking the national trend of slowing auto sales. Local automakers have shown strong competitiveness against overseas counterparts. However, industry players may face new challenges: a looming price war among competitors will likely reduce profits, a UBS Securities analyst said on Tuesday.

Why it matters: There might be greater supply than demand in the Chinese EV market this year, since consumption could be reduced by slowing economic growth amid the recharged pandemic, Paul Gong, head of China auto research at UBS, told reporters on Tuesday.

• An easing chip shortage may also help EV makers return to normal auto production this year, Gong said. He warned that an intense “price war” would push the prospect of profitability further away for automakers in the short term.

Details: Still, the rise of domestic EV makers will be “the way of the future” in China, as local players have generally “achieved greater progress” in the development of products and technology than foreign auto majors, according to Gong (our translation).

• UBS projects cautious optimism in its outlook for the industry over the long term. It expects that, compared to its 2021 projection of 3 million vehicles, China’s EV sales will increase by 35% to more than 4 million vehicles this year. Sales could grow to 7.05 million units in 2025, according to UBS. 
• Sales of new energy vehicles, which include all-electrics and plug-in hybrids, increased by nearly 160% year-over-year to 3.52 million units in 2021, according to a statement published by China’s Ministry of Industry and Information Technology on Wednesday.

Read more: Drive I/O | Auto China 2021: A banner year for Nio, Xpeng, and Li Auto

Context: The number of passenger electric vehicles sold in China surged 169% year on year to nearly 2.99 million units in 2021, according to figures published Tuesday by the China Passenger Car Association (CPCA). That figure beat the estimated 2.4 million units the industry group made in June.

• Tesla China sold a record 70,847 locally-made vehicles in December and saw its total 2021 sales reach 320,743, taking the third spot in the list of China’s top-selling EV makers. BYD dominated the market with sales of 584,020 vehicles, followed by SAIC-GM-Wuling with 431,130 cars, CPCA figures showed (in Chinese).
• US-listed Chinese EV trio Nio, Xpeng, and Li Auto are among the top 10 sellers, each achieving deliveries of nearly 100,000 vehicles. German auto giant Volkswagen sold around 130,000 passenger EVs, more than doubling its 2020 total, according to CPCA.
• CPCA raised its forecasts for China’s NEV sales, including passenger and commercial vehicles, by over 10% to 6 million units in 2022 from the previous year. The association added that China will maintain leadership in the global EV race.

Huawei burrowed further into the auto industry with the launch of the first vehicle with its homegrown operating system. The Chinese government cut purchase subsidies on new energy vehicles (NEVs) by 30% this year, while scrapping ownership limits on foreign automakers’ investments in the auto industry. Chinese electric vehicle (EV) makers Nio, Xpeng, and Li Auto celebrated record annual deliveries of nearly 100,000 cars in 2021. Alibaba’s head of autonomous driving lab quit the company after more than four years. Didi, soon to delist, shows a few signs of approaching break-even with its first post-IPO earnings report.

Huawei intensifies auto plans with launch of first vehicle with ‘seamless’ Harmony

News: Huawei on Dec. 23 unveiled the first EV model equipped with its HarmonyOS operating system with manufacturing partner Seres. Huawei boasts that this in-car software system offers users a seamless experience of smartphone and car features across devices. Priced from RMB 250,000 ($39,063), the Aito M5 sports utility vehicle runs on electricity or fuel and has a 1,242-km driving range, which compares with the 1,080 km offered by Li Auto’s popular plug-in hybrid crossover Li One. Huawei said that it will showcase the vehicle in 180 Huawei shops across 42 cities and deliveries should start around Feb. 20.

Insights: As US chip sanctions crippled its smartphone core business, Huawei is trying to diversify its operations by breaking into the Chinese automobile sector. The Chinese telecommunications giant last April started selling Seres vehicles through its sales network, but they did not sell well. From April through November, Seres achieved sales of only 7,080 SF5 EVs, which were equipped with Huawei powertrain system and in-car software, according to figures published by China Passenger Car Association. Huawei has also partnered with state-owned automakers BAIC and Changan to equip vehicles with its autonomous driving hardware and software. Yet some industry insiders are doubtful that the tech giant will eventually make its own cars.

News link: TechNode 

Beijing sticks to plan to end EV subsidies in 2023

News: Chinese authorities on Dec. 31 unveiled long-awaited details about its national subsidy program for new energy vehicles (NEVs), such as all-electrics and plug-in hybrids. For 2022, beginning Jan. 1, subsidies to EV buyers will be cut 30% compared to 2021. According to a document released by the Ministry of Finance, the grants for EVs delivering driving ranges of at least 400 km (248 miles) will be cut by RMB 5,400 on an annual basis to RMB 18,000 ($2,824). Meanwhile, the subsidies this year for all-electrics with a driving range of 300 km to 400 km will be lowered to RMB 13,000, while those for plug-in hybrids will be cut to RMB 6,800. Beijing also reaffirmed its plan to eliminate subsidies entirely at the end of this year. Subsidies for purchases of new energy vehicles (NEVs) were already trimmed by 10% and 20% during 2020 and 2021, respectively. 

Context: In reaction, several overseas automakers have raised prices for their EVs in China to offset the subsidy cuts. The prices of Tesla’s popular China-made Model 3 and Volkswagen’s ID series EVs have risen by RMB 10,000 and RMB 5,400, respectively. Newer local EV makers are taking a more active approach to reduce the impact of the subsidy cut. Nio on Jan. 1 announced moves to make up the difference between sticker prices and reduced subsidies of its vehicles for customers who had paid a deposit before the end of 2021 and who will get their vehicles delivered by Mar. 31. Cui Dongshu, secretary general of China Passenger Car Association (CPCA), forecasts that the trimmed government incentive program could still give a great boost to the EV adoption in the country, noting that the manufacturing cost of EVs and batteries are falling significantly. Cui estimated China’s NEV sales could more than double to around 6 million vehicles in 2022 from the previous year and therefore maintain leadership in the world EV race.

News link: Reuters 

China lifts restrictions on foreign auto ownership

News: China now allows overseas automakers to operate wholly-owned ventures in the country’s passenger vehicle sector. As of Jan. 1, 2022, foreign firms are no longer limited to 50% ownership in their joint venture auto operations. The law had been in effect since 1994. In addition, foreign automakers can now set up more than two joint ventures that make the same type of vehicles.  The new ownership rules were detailed in a Dec. 27 release from the Ministry of Commerce and the National Development and Reform Commission, China’s top economic planner.

Insights: The move has been perceived as a positive signal that would create a level playing field for domestic and foreign carmakers, Cui Dongshu, secretary-general of the China Passenger Car Association, told state broadcaster CGTN. Nonetheless, Cui said there would be no significant impact on the market from removing the limits since they were expected. German auto major BMW is expected to become the first internal-combustion vehicle maker to take advantage of the new JV rules. It plans to up its stake to 75% from 25% in its JV with Chinese partner Brilliance Automotive by the end of 2022. The Chinese government since 2018 has gradually ramped up efforts to fully liberalize the domestic auto industry, starting by scrapping limits on foreign ownership of EV makers as it aims to be a global leader in the sector. Tesla became the first foreign auto brand to enjoy the relaxed EV regulations when it set up its wholly-owned venture in Shanghai in May  2018.  

News link: Global Times 

China’s EV trio post record deliveries numbers in 2021

News: The US-listed Chinese EV trio of Li Auto, Nio, and Xpeng launched the new year by publishing record delivery numbers for 2021. Each noted that they had delivered nearly 100,000 vehicles in 2021, despite global chip shortages. All had doubled their deliveries from 2020. Xpeng Motors had stood out among its peers, delivering a record 98,155 vehicles last year, up 263% from its 2020 delivery count. It surpassed Nio, whose annual deliveries totaled 91,429 electric crossovers. Nio was hit by supply chain issues and changes to its manufacturing lines during the second half of last year. Meanwhile, Li Auto saw 2021 deliveries surge 178% year on year to 90,491 vehicles.

Context: Chinese automakers have been riding the wave of growing popularity of EVs in the country, boosted by a years-long national subsidy program and special license plates to EV buyers, among other policy measures. Nio, Xpeng, and Li Auto, all once struggling to stay afloat and beset by lackluster sales, are the poster children of the revolution. The trio has laid out ambitious plans to expand their sales and service networks as they vie to grab market share from internal-combustion vehicle segments. Analysts surveyed by Seeking Alpha expected Nio’s annual revenue to increase by 74% this year, Forbes reported, while Citigroup forecast that Xpeng’s deliveries could almost double to 175,000 units in 2022.

News link: South China Morning Post 

Alibaba’s head of autonomous driving quits

News: Alibaba has parted ways with Wang Gang, a renowned computer scientist who has served as head of the tech giant’s autonomous driving lab under its Damo Academy research division for three years, Chinese media reported on Jan. 5, citing people familiar with the matter. A former tenured professor at Nanyang Technological University, Wang joined Alibaba in early 2017 as the chief scientist for the company’s artificial intelligence lab and was tasked with improving speech recognition capabilities for its first smart speaker device, the AliGenie X1, launched later that year. Wang has begun working on a startup developing robot vacuum cleaners and has raised an unknown amount of funds, the sources added.

Insights: The move is noteworthy in many ways. For one, Chinese industry giants had hoovered up research talents and poured resources into exploring the potential of artificial intelligence (AI) over recent years. The rush is over given a slower-than-expected process of implementing AI in industries, as many top scientists give up the high salaries in the industry for academia, while others start up their own businesses. Wang’s departure comes after Li Lei, the director of ByteDance’s AI Lab, left the company to join the University of California Santa Barbara as a professor last August, following the resignation of ByteDance Vice President Ma Wei-Ying a year earlier, SCMP reported. Chinese tech powerhouses also struggle with executive turnover and layoffs, as Beijing’s regulatory clampdowns continue to weigh on the sector.

News link: TechNode 

Didi’s first earnings report after IPO: $4.7 billion loss

News: On Dec. 30, Didi reported its first earnings as a public company. It wasn’t pretty: The company lost RMB 30.4 billion ($4.7 billion) on RMB 42.7 billion ($6.6 billion) in revenue during the September quarter of 2021. To compare, the company reported a profit of RMB 665 million on revenue of RMB 43.4 billion in the same quarter of 2020. Didi’s largest source of revenue is still its domestic ride-hailing business, which yielded RMB 39 billion, down 12.9% from the previous quarter. The company posted an 8% quarter-over-quarter decline to 2.36 billion in ride volume over the period.

Context: Still the largest ride-hailing service in China by ride volume and revenue, Didi has been at the forefront in Beijing’s wide crackdown on local tech companies. Did’s business has taken a hit from a suspension order that has kept its services off Chinese app stores since July. Having been listed in the US for less than six months, the Chinese mobility giant on Dec. 3 announced plans to take its shares off the New York stock market and instead pursue a listing in Hong Kong. Beijing has yet to announce the results of its cybersecurity investigation into Didi, and the company’s shares have fallen more than 60% from its IPO price.

News link: TechNode 

Just a year ago, Nio, Xpeng, and Li Auto faced a cloudy future. All three had burned through hundreds of millions of investors’ dollars and were beset by lackluster sales. Most observers thought they had yet to hit bottom. Not anymore.

Despite the lingering impact of the pandemic on China’s automotive industry, 2021 has been a fantastic year for Tesla’s major Chinese challengers. The three companies all reached their 100,000-vehicle production milestones, racked up big war chests from new investors, and recently set records for their vehicle deliveries. Their cars are going mainstream in major domestic cities, according to Xpeng President Brian Gu, as internal-combustion vehicles and legacy automakers are increasingly being regarded as outdated.

The Chinese trio, all listed in the US, not yet profitable, but all poised for stronger growth in the coming year, have become the poster children for the country’s EV revolution. Despite a 20% cut in subsidies this year, the world’s biggest EV market in September witnessed an unexpected growth rebound, as the NEV (new energy vehicle) penetration rate surpassed 20% of all new car sales for the first time. 

We round up the most significant milestones in the three companies’ turbulent histories this year and forecast what’s next for them in the coming year.

Nio — Mounting a comeback

With deliveries beating those of BMW and Audi EV at a price tag comparable to those of German auto giants, Nio is literally the first Chinese automaker to have gained a foothold in the country’s premium vehicle segment. Formerly referred to by Deutsche Bank analysts as number one among the promising local EV makers, Nio was overtaken by its peers, as measured by deliveries, due to its relatively slower pace of growth this year.

Once maintaining a leadership position in the non-Tesla piece of the Chinese premium EV segment, Nio found itself in a bittersweet position over the past few months as rivals’ sales grew at a stunning speed. Li Auto and Xpeng in July recorded deliveries of 8,589 and 8,040 vehicles, respectively. Those numbers surpassed Nio’s monthly output for the first time ever. Nio produced only 7,931 for the month.

Then Nio’s monthly deliveries decreased to an even lower level of 3,667 vehicles in October. That number was less than half of both Li Auto’s and Xpeng’s for the month. The company blamed the drop on the restructuring of manufacturing lines in preparation for introducing new models. The most recent sales figure of 10,878 vehicles in November marked a strong rebound for Nio, despite an ongoing industry-wide chip shortage. Moreover, that figure lagged behind those of the other two US-listed EV makers by several thousand units.

More notably, Nio faced one of its worst public relations crises in China in August, when a 31-year-old driver was killed using Nio’s driver-assistance feature with his ES8 electric crossover. The incident not only put further dents into an already tough outlook for the regulatory environment and public confidence in China’s autonomous vehicle space: It also stoked criticism of Nio for overstating the capability of its technology and fragmented its once incredibly loyal fanbase. Details about the accident still have not been released.

Nonetheless, the Tencent-backed EV maker is ramping up efforts to regain its leading position in the market. It’s currently on track to deliver its first premium sedan model ET7, equipped with a Lidar sensor and Nvidia’s supercomputer, in March 2022. It also just launched a lower-priced new sedan model, ET5, as it aims to lift its sales in the country. At the same time, it is rushing to launch a mass-market EV sub-brand next year, targeting the most competitive and yet the biggest segment in China’s auto market.

Xpeng — Taking first place

Once chugging away in Nio’s tracks , Xpeng has raced ahead as China shifts from gasoline power to electric transportation. It is emerging as the new leader in the competitive mid- to high-end Chinese auto segments. The Alibaba-backed EV maker delivered a record-breaking 15,613 electric vehicles in November, bringing its annual deliveries to more than 82,155 vehicles. That figure surpassed Nio’s 80,940 deliveries in the year to date.

Xpeng’s strong performance comes at a time when the country has seen a major rebound in EV demand, signaling a tipping point for mass adoption. Sales of NEVs, comprising all-electrics and plug-in hybrids, are expected to more than double to 3.4 million units annually this year and could further increase by 47% to 5 million units in 2022, according to estimates made by the China Association of Automobile Manufacturers (CAAM) earlier this month.

To ride the wave of the EV recovery momentum, Xpeng has aggressively expanded its product lineup with the release of a premium sports utility vehicle (SUV) model and an affordable family sedan. The company boasts that both will offer the most advanced automated driving capabilities in China.

G9, Xpeng’s first luxury electric crossover, will be equipped with an 800V supercharging platform, which could boost driving range to 200 kilometers (124 miles) with only a five-minute charge. It also has advanced driver assistance software that will allow vehicles to cruise autonomously in gnarly urban traffic conditions. Aiming for a price range between RMB 300,000 and 400,000 ($47,100 and $62,800) according to Jefferies analysts, Xpeng’s G9 model is scheduled for delivery in the third quarter of 2022. It will then compete head-to-head against Tesla’s Model Y and Nio’s ES6, among other top-line EVs.

Meanwhile, Xpeng’s second sedan model, P5, is expected to be a hit. It is equipped with two Lidar sensors, offering urban automated driving capabilities, and is priced competitively, beginning at just RMB 157,900. With P5 deliveries started in October, President Brian Gu expects the company to continue to experience rapid growth in the coming months. Gu projected a monthly delivery target of 15,000 vehicles for the last two months of 2021 during an earnings call last month.

Analysts are bullish on Xpeng’s growth prospects, expecting its monthly sales momentum of 15,000 vehicles will continue in 2022, Chinese media reported in late November, citing Daiwa Securities Meanwhile, Citigroup analysts forecast that Xpeng’s deliveries could nearly double to 175,000 units in 2022.

Li Auto — Radically readjusting

Considered by many as taking a conservative yet non-mainstream approach in betting on the transitional extended-range technology, Li Auto also had a vintage year in 2021. In the year to date, the company has delivered nearly 80,000 Li One electric crossovers, its first and the only model currently on sale. That number is almost as much as the combined deliveries of Nio’s three SUV models.

Backed by Chinese food delivery giant Meituan, Li Auto pursues greater operational efficiencies than its peers. The strategy paid off, with the automaker reporting an impressive gross margin of 23.3% in the third quarter of this year, compared with Nio’s 20.3% and Xpeng’s 14.4%.

Also, each of Li Auto’s stores makes more money on average than those of Nio and Xpeng. The company in November sold nearly 80 vehicles per showroom, more than double Nio’s figure for the same period. Li Auto planned to expand its sales network to 200 stores by this year’s end. In contrast, both Nio and Xpeng said they will each operate more than 350 outlets by that time.

However, Li Auto’s competitiveness in self-driving technologies has lagged far behind rivals’. For example, earlier this month, it shipped an over-the-air update that includes an automated parking feature—the same feature Xpeng offered its customers three years ago. The company’s vehicles are also unable to cruise Chinese highways on their own while being supervised by active drivers. That assisted driving function, similar to Tesla’s Navigate on Autopilot, is already available to Nio and Xpeng customers.

To catch up with rivals and prolong its upward trajectory, Li Auto will shift its strategies radically in the coming years. Executives said the company would more than triple the annual research and development budget to RMB 3 billion ($500 million) this year. That number will be further increased to RMB 6 billion per year by 2024, financial chief Li Tie pledged to investors during an earnings call in February.

And yet, the EV maker claims that it will maintain a healthy gross profit rate while working on a significant expansion of its product lineup and production footprint over the long term. CEO Shen Yanan last month reaffirmed the plan to launch a full-size extended-range electric SUV next year, followed by the release of its first fully electric vehicle model in 2023. Its second manufacturing plant launched construction in Beijing in October. When production begins there in 2023, Li Auto hopes to double its total annual capacity to 200,000 vehicles.

Nio on Saturday revealed its second fully electric premium sedan model ET5, featuring an automated driving system, a fresh design, and a lower price point, to reach a larger customer base.

Why it matters: Speaking to reporters on Dec. 19, chief executive William Li said he expects the Nio ET5, which is priced 25% cheaper than the brand’s first sedan model ET7, will help the company attract more younger and female buyers.

Details: The new ET5 sports sedan comes with the same hardware package as the ET7, including a dozen ultrasonic sensors, 11 cameras, a Lidar unit, and Nvidia’s Orin autonomous driving processors, which allow the vehicle to detect its surroundings using supercomputing power.

• The new sedan comes in a rainbow of nine different hues, including a soft pink, the first time Nio has used such a shade for its models.
• It also features an in-car information and entertainment system equipped with custom augmented reality (AR) glasses that can project information onto the windshield for drivers.
• Priced from RMB 328,000 ($51,430), the ET5 sedan is scheduled for delivery in the third quarter of 2022. The price could be as low as RMB 258,000 if a customer pays a monthly rental fee of RMB 980 for the use of batteries.
• Nio also announced Saturday that it will begin delivering the ET7 on Mar. 28, 2022. ET7 and ET5 can achieve more than 1,000 kilometers (621 miles) on a single full charge with a new 150kWh battery pack.

Context: With three existing models, the seven-year-old Nio had so far delivered 80,940 vehicles to customers this year, a 120% yearly growth rate. Nio’s peers Xpeng Motors and Li Auto delivered 82,155 and 76,404 vehicles respectively during the same period.

• With a similar price range, Nio’s ET5 will compete against Tesla’s popular Model 3, Xpeng’s P7, and Geely’s premium EV model Zeekr 001.

Nio is enveloped in a public relations nightmare after Chinese traffic authorities last month disclosed the first known fatality involving one of the company’s vehicles using its partially automated driving system. 

Called Nio Pilot, the advanced driver assistance system (ADAS) has been a major selling point for the maker of luxury electric vehicles (EVs). Now it stands accused of overselling the capabilities of the technology. There could be more consequences to come as Nio is in advanced plans to enter the competitive mass auto market.

The Aug.12 crash of the Nio ES8, resulting in the death of the 31-year-old driver, has also had repercussions throughout the autonomous vehicle industry, with many fearing the prospect of tougher regulation and the loss of public confidence. Xpeng Motors and Li Auto last month quickly dropped the terms “autonomous” and “advanced” in describing their ADAS systems, respectively. 

The fatal crash: The accident occurred on a highway in Putian city in eastern Fujian province. The driver, Lin Wenqin, had placed his 2020 ES8 into Nio’s Navigate on Pilot mode, which basically takes control of the car during highway driving. The sports utility vehicle struck a highway maintenance vehicle stopped in the same lane, according to a statement (in Chinese) posted by local police on Chinese microblogging platform Weibo on Aug.18. The cause of the crash remains under investigation by Putian city police.

Shortcomings of ADAS: Pending results of the police investigation, whether the incident was triggered by a software glitch or human error remains an open question. It appears, though, that either Lin or the in-car system failed to recognize the stationary highway car in front of the ES8 and to move to another lane in response. 

• Similar to Tesla’s Autopilot system, Nio’s ADAS technology can keep a car advancing in its lane, maintain a safe distance behind traffic ahead, and can even change lanes automatically in some cases. However, currently these systems have difficulty detecting parked vehicles and braking for them.
• Nio’s ADAS system uses cameras, powered by computer vision algorithms, and radar sensors to detect and avoid obstacles, but there is room for errors when a vehicle encounters new situations which its AI algorithms had not detected during training.
• The radars of partially autonomous systems are not very good at distinguishing types of stationary obstacles, Raj Rajkumar, a professor at Carnegie Mellon University, told Wired in an interview about Tesla’s similar ADAS technology; the radars, therefore, are designed to ignore such obstacles in order to avoid false braking events.
• Similar incidents have occurred with Tesla drivers. The first Tesla fatality in the US happened in 2016 when a Model S with Autopilot active crashed into a white semi-trailer crossing the highway. A dozen more Tesla vehicles have since been reported for ramming into static obstacles including fire trucks and police cars; US regulators last month finally launched a broad investigation into the company’s technology, reported the New York Times.
• So far, autopiloting technology has been a regulatory blind spot in China and no higher authorities are known to have launched a broader probe into the Nio case in addition to local police.

Nio’s image in tatters: The deadly incident comes at a crucial time for Nio. Having struggled to gain a foothold in the luxury EV segment, the seven-year-old automaker is pushing to roll out its first mass-market car, eyeing a segment of the market where competition is fierce and margins are thin. Now its hard-won reputation as a high-quality premium brand is under threat.

• Nio has built up and benefited from an enthusiastic customer base similar to that of Tesla’s. However, the once incredibly loyal user community is becoming fragmented, as indicated by the response to a group letter (in Chinese) from 500 Nio owners, published online on Aug.18, in defense of the company. 
• More than 10,000 users joined in an online debate with the hashtag “objection to the joint statement” (our translation) in the chat room of Nio’s mobile app, disputing the group letter’s contention that there was “no misleading information” in Nio’s advertising of its ADAS technology. In the chat room, some Nio owners criticized the company’s service staff for overstating the capability of Nio Pilot before their purchases, while some blamed the company for providing little information about the ADAS functions and its limitations, according to a South China Morning Post report.
• In the latest development to hit Tesla’s challenger, Lin’s family contacted the Putian city police, alleging that Nio employees tampered with data from the crashed vehicle; Nio denies the charge.

Far-reaching consequences: Nio’s user manual warns that the ADAS system cannot detect stationary objects, including “roadblocks,” nor can it brake for them. Drivers are required to take control of their cars immediately when these situations arise. This means the liability for such accidents will probably lie with drivers themselves.

• Meanwhile, the auto industry is expecting strengthened regulation in automotive software to ensure safe operation and to tackle security issues for intelligent and connected cars. The central government earlier this month proposed new data security rules for autos, a move that Nio’s local competitor, Li Auto, last week said could result in more efforts to develop an assisted driving function in compliance.
• The publicity nightmare has also cast a shadow upon Nio’s business, highlighting the challenge for the company to maintain strong connections with a rapidly expanding user community, Chinese media reported, citing Zhou Zhanggui, a brand management consultant.
• Having gone through a liquidity crisis and aiming for an all-round expansion, Nio is at a critical juncture and must take steps to restore its image. The luxury carmaker is accelerating the pace to launch its first mass-market model under a new brand, reportedly scheduled for early next year, with plans to almost double its store count to 366 in the domestic market by the end of this year. “We want to provide better products and service at prices lower than Tesla’s,” said Nio’s CEO William Li last month.

Also in the news:

Xpeng plans foray into the premium market: As Nio moves to the mainstream market, Xpeng Motors is doing the opposite. The Alibaba-backed EV maker, which has maintained a price range between RMB 150,000 ($23,225) and RMB 300,000, is looking to expand in the domestic market by entering the premium-market segment with a high-end model scheduled for release in 2023.

• The new model will be sold for at least RMB 400,000, equipped with the company’s technology that could set it apart from its competitors, CEO He Xiapeng said during an earnings call on Aug. 26.
• He added the company is on track to roll out the Xpilot 3.5, the company’s ADAS technology, early next year and a 4.0 version in 2023, enabling the vehicle to automatically steer on city streets, not just on highways.

Internet giants doubling down on self-driving tech: Although the arrival of a truly self-driving car remains delayed indefinitely, Chinese tech giants are still betting heavily on self-driving startups with the intention to own a large share of the driverless driving future. Their investments come at a time when the Chinese government is establishing a looser framework with an expanded scope for testing self-driving vehicles, the South China Morning Post reported.

• Qcraft, a robobus startup formed by a group of former Waymo engineers, recently raised $100 million in a funding round from investors including YF Capital, a private equity firm founded by Jack Ma, and Longzhu Capital, the investment arm of life-service app Meituan.
• Xiaomi is acquiring Deepmotion, a Beijing-based startup working on high-definition maps for autonomous cars, as the Chinese smartphone maker ramps up its efforts to develop driverless car technology and mass produce its first EV in the next three years.

Li Auto closed down 0.85% on its first trading day in Hong Kong Thursday. The Chinese electric vehicle startup opened at an issuing price of HK$118 ($15) per share. 

Why it matters: Li Auto is the latest Chinese tech firm listing in the US to seek a dual-primary listing in Hong Kong. Tech companies increasingly see Hong Kong as an attractive market as they seek to hedge risks when both Chinese and US regulators accelerate regulatory scrutiny.

Details: Li Auto’s Hong Kong debut met with a lukewarm market response. The company’s shares closed at HK$117 ($15.03), 0.85% lower than its issuing price, falling by as much as 2% soon after starting trading. 

• Speaking to reporters on Thursday in Hong Kong, Li Auto’s president Shen Ya’nan said the company has been considering a listing in the mainland, without revealing details.
• The company said it will use the proceeds from the Hong Kong listing to develop new car models and autonomous driving technology, and to expand charging infrastructure and sales networks.

Context: Backed by Chinese life services giant Meituan, Li Auto first went public on Nasdaq last July. The company is the second Chinese EV maker to seek a Hong Kong listing. Its rival Xpeng Motors raised $1.8 billion in Hong Kong in June.

• Li Auto so far has only one model for sale. The company delivered 8,589 cars in July, surpassing both its competitors Xpeng and Nio in vehicle deliveries for the first time in July.
• Both China and the US have issued new regulations that make it more difficult for Chinese companies to raise money in the US markets. In July, Chinese regulators proposed new rules requiring some Chinese companies to seek official approval before listing in overseas markets. The US has threatened Chinese companies with delisting over a dispute about accounting procedures.

Read more: Drive I/O | The untold story of Li Auto

As Chinese automakers pour money into autonomous vehicles (AVs), they’re relying on another emerging technology to be the eyes of self-driving cars: lidar. Chinese carmakers are promising that models with lidar will hit the road in the next six months, likely marking the first time the tech sees widespread commercial deployment.

What is lidar? Well, it’s a lot like radar, but it uses lasers. It can pick out details and see small things better—a small dog crossing the road, a pothole. It can see things other systems, such as cameras and radar, might miss. 

But established lidar systems are bulky contraptions that are proving hard to integrate into consumer cars. They’re expensive, too, driving up the price of cars that use them for self-driving functions. For now, it’s mostly seen on prototype robo-cars.

Despite the challenges, most Chinese AV contenders are counting on lidar.

Five Chinese lidar startups say that they’re close to making it work. It’s a tough act: the device has to be small enough to fit in a sedan, reliable enough to trust on the road, and cheap enough to fit into the price of a consumer car. While they won’t be the first to deliver road-ready systems, Chinese companies could be the first to do it at a practical price. 

In this week’s issue, we’ll meet China’s leading lidar players and see how they’re trying to make the emerging technology work.

Robo ski-racks

Most lidar systems on the road today are mechanical spinning lidar on AV prototype vehicles. You’ve probably seen one—they’re the ones that look like half a jetski, or three portly Alexas strapped to a ski rack. If you saw it in China, it was probably made by Hesai, the Baidu-backed startup that’s the dean of the field.

Hesai has dominated the experimental generation in China, making the systems used on most Chinese and some international prototypes. At least 10 out of the top 15 robotaxi startups worldwide are reportedly (in Chinese) among its clients, including Baidu, Didi, and Pony.ai. 

But to address size and durability, lidar makers are now turning to “solid state” sensors that eliminate most moving parts. These can fit the system into a small box, around the size of a lunch box, which fits easily into the grill or tucks under the roof of a car. But miniaturization creates new problems with range, price, and reliability.

In early 2019, Hesai unveiled its latest solid-state device, called Pandar GT and boasting a detection distance of 300 meters, but it is still validating the product and negotiating with auto clients, according to a prospectus filed by the company in January. 

So far, Hesai hasn’t found a customer to put its solid state technology into a production vehicle. Baidu, a leader in China AV tech, has skipped lidar for its self-driving package, known as Autonomous Navigation Pilot, despite years of collaboration with Hesai in mechanical lidars for its test fleets. Speaking to Chinese media during this year’s Auto Shanghai expo, Baidu’s vice president Wang Yunpeng said the company is developing a “reliable and affordable” lidar sensor for production cars with partners, without giving further details.

The key challenges

Five Chinese companies have made real progress on consumer-ready lidar, using a variety of approaches that strike different balances between range, price, and reliability, and reaching deals with major automakers to put their sensors into cars. But they each have difficult technical problems to solve. 

Huawei and Robosense, a Chinese lidar upstart backed by Alibaba, are betting on a technology called micro-electro-mechanical systems (MEMS), which uses a tiny mirror (1 mm to 7 mm in diameter) to steer light. With only this piece of glass moving, the whole unit can be smaller than one that has to rotate as a whole. Robosense is currently making lidar s¯ensors for US electric vehicle startup Lucid Motors.

Both MEMS players are struggling with range: the latest offerings from the two companies only work at distances up to 150 meters.

Experts believe self-driving systems will need to spot objects at least 200 meters away to have enough time to react. 

The MEMS solution has proven to be superior in terms of size, speed, and cost over other types of lidar sensors, according to an article published by three University of Florida engineers last year. However, a short detection distance due to the small mirror is a key flaw and, to deal with it, systems will likely need a larger detector, complicating assembly, the paper said.

With its latest offering boasting an impressive distance of 250 meters, Sunnyvale and Suzhou-based Innovusion seem to have solved the range issue. Their solution uses lasers at a wavelength of 1,550 nanometers, rather than more common 905-nm lasers. Considered a “sweet spot” by lidar developers, 1,550-nm light allows longer-range measurement and poses less danger to human eyesight. When using 905-nm lasers, power is usually restricted to avoid blinding people.

But Innovusion has faced challenges with production, for a physical reason: traditional silicon chips can’t detect 1,550-nm light, and therefore developers have to make custom sensors with an exotic material called indium gallium arsenide (InGaAs), which is more costly and more complex to manufacture. Setting up a production line for this less common technology is no easy feat, and the product may not be cheap.

Speaking at an online conference in March, Innovusion technology chief Li Yimin said getting lidars to work well on production cars had turned out to be more difficult than he expected. Nonetheless, he said his staff have been working “day and night” to meet the early 2022 timeline target set by partner Nio. The Chinese EV maker has promised to deliver its first sedan model enabled with its lidar sensors, the ET7, early next year.

“We have to pull ahead the production schedule of many advanced technologies including lidar … This has posed a lot of pressure on our teams and the partners. We are fully focused on achieving this goal and pushing ahead despite all those challenges,” Nio’s chief executive William Li said during an April earnings call.

Xpeng Motors, with partner Livox, claims it will be the first Chinese automaker to deploy lidar on production cars this October. But it is facing other problems. Livox’s sensors boast a unique method of scanning objects in a spiral or flower pattern, rather than in traditional horizontal linear scanning patterns. This helps its sensors create a higher-definition map of the world and could enable more reliable autonomous driving capabilities, the DJI-backed lidar maker has claimed.

However, the unusual scanning style requires the sensor’s motor driver to operate at a high rotation speed of over 6,000 revolutions per minute, more than five times that of sensors made by major French lidar marker Valeo. These speeds pose a big technical challenge for the five-year-old startup to meet reliability requirements for autos, since high rotational speeds usually come along with high abrasion and reduced lifetime for motors.

Livox recently said that it has resolved the issue with manufacturing improvements, based in part on DJI’s expertise in mechanical engineering from making drones, according to a Chinese media report published last week. However, Xpeng CEO He Xiaopeng last month during an earnings call acknowledged that the company is still testing lidars from multiple suppliers and is “very open” to other choices for new models scheduled for launch over the next two years.

“With an all-round sensing performance on our cars and our production capabilities, we’re very confident that we can be complementary to some of the disadvantages of lidar technology,” He added.

Some Chinese automakers and lidar startups are also seeking overseas partners. In addition to the Robosense-Lucid hookup, Chinese legacy automaker Great Wall Motors, a manufacturing partner of BMW, has teamed up with Germany’s Ibeo as its source for lidar sensors on production cars.

The price is right

After technical barriers, lidar-enable cars will have to leap another hurdle: cost. The sensors don’t come cheap.

China’s low-cost manufacturing advantage appears to apply to lidar, with the offerings of local suppliers usually costing 80% less than international competitors, or below $1,000, French market intelligence firm Yole Développement wrote in a report published last August.

However, lidar cars don’t look cheap. The latest premium electric sedan announced by Huawei and BAIC in April, equipped with three lidar sensors, has a starting price of RMB 388,900 ($60,785), more than 50% higher than that of Tesla’s locally-built Model 3. 

R&D and onboard computing could be driving the cost. The Chinese telecom giant in April announced that it will double its annual auto R&D budget for self-driving cars to $1 billion this year, without giving a breakdown of its investments. Apart from three lidar sensors, the hardware stack of the BAIC-Huawei sedan also includes five more cameras, and five more radars than a Tesla Model 3’s. Although cameras usually take significant computing power in the vehicle, the task of combining data from multiple sensors also requires much computing power and a more complex vehicle architecture. 

Mixed opinions

Not everyone agrees that AVs will need lidar. Tesla has been heavily relying on a cheaper, camera-based approach. Nissan and Baidu, are also skipping lidar, relying on cameras, radar, and ultrasonic sensors for AVs. 

Most other major players, including Google’s Waymo and General Motor’s Cruise, consider lidar an essential part of developing safe autonomous cars. “Lidar sensors contribute to the redundancy and overlapping capabilities needed to build a car that operates without a driver, even in the most challenging environments,” wrote Cruise CTO Kyle Vogt in a post in 2017.

Chinese EV makers are betting on the lidar-based approach in competing against Tesla, and have gained chances to validate the technology. “At the current stage our top priority is not to secure as many contracts as possible, but to fine-tune our products and hit volume production,” (our translation) a Livox spokesperson told TechNode last month.

But lidar prices are falling. As the sensors get cheaper, the case for them looks more and more tempting. “Lidar guarantees high reliability for self-driving cars when vehicle autonomy is still in its early stage. Such redundancy is worth taking in the name of safety,” (our translation) Paul Gong, a China auto analyst at UBS, told TechNode last month.

Xpeng Motors CEO He Xiaopeng promised Wall Street analysts May 13 that the company would roll out a new generation of autonomous driving (AV) software early next year. The company said recently that its Xpilot 3.5 system will be able to drive autonomously 90% of the time.

Why it matters: Improved AV capabilities could give the electric vehicle (EV) startup a leg up as it faces challenges. Last week, Chinese tech giants set out ambitious targets for their self-driving tech businesses in partnership with legacy automakers.

Earnings: Xpeng on Thursday reported a record RMB 2.95 billion ($450.4 million) in revenue in its first-quarter results, rising more than sixfold from a year earlier, exceeding a consensus estimate from analysts polled by FactSet, according to MarketWatch. However, Xpeng shares fell 4.8% to $23.56 on Thursday following the call.

• Gross margin expanded to 11.2% from 7.4% in the fourth quarter last year and losses attributable to shareholders was flat quarter on quarter at RMB 786.6 million.
• The young EV maker also revealed its software figures for the first time, generating around RMB 80 million ($12.4 million) in software revenue in the first quarter, and accounting for 2.5% of gross profits.
• Approximately 25% of P7 owners, Xpeng’s first sedan upgradable to advanced self-driving capability, have bought their cars with Xpilot 3.0 for an additional one-time fee ofof RMB 20,000 as of March, according to He. The company had delivered around 23,000 P7 sedans as of March.

Race to AV: He was asked about competition from Baidu and Huawei, which last month made public debuts of self-driving systems for city streets. He said the AV solutions provided by some companies are currently for limited driving scenarios or “at a very high cost.”

• In late January, Xpeng launched its Xpilot 3.0 advanced driver assistance system (ADAS), which allows vehicles to drive themselves on national highways.
• During an online conference on Apr 20, Wu Xinzhou, vice president of autonomous driving, said Xpilot 3.5 could allow autonomous driving on 90% road travel from the current 10%, as the function extends its reach from highways to city streets.
• “We are coming up with a solution that can balance all the aspects with a reasonable cost to deliver the most superior experience to our customers. This is an art,” He said.

READ MORE: Drive I/O: Key takeaways from Auto Shanghai 2021

Context: Chinese young EV makers are feeling the heat as local tech giants strive for self-driving leadership with the launch of their advanced AV solutions during this year’s Auto Shanghai last month.

• Huawei on Apr 17 announced to spend a whopping $1 billion in AV this year as the company, along with its auto partner BAIC, is pushing to deliver urban self-driving functionality first to customers from Beijing, Shanghai, Guangzhou and Shenzhen by year-end.
• Chinese search engine Baidu during the show said its ADAS solution for urban self-driving called Autonomous Navigation Pilot (ANP) will be available on vehicles launched by partners first in 20 cities by year-end and then over 100 cities by 2023.

Traditionally a time for automakers to flex their muscles, the Auto Shanghai expo this year held a surprise: It was China’s big tech firms that took the spotlight, outshining some of the country’s leading EV makers. 

Huawei made a big splash, unveiling its complete self-driving car technologies as it gears up to compete as a central player in China’s autonomous vehicle (AV) industry. Baidu, China’s biggest internet search firm, was not to be outdone, proclaiming itself the undisputed AV industry leader. The company said it expected to equip 1 million new cars in five years with its software.

Some of the biggest startup unicorns such as chipmaker Horizon Robotics were also busy, forging alliances with a list of automakers during the event as they work to establish themselves in the booming industry.

Highlight 1: Chinese tech giants bet on smart EVs

Overshadowing traditional carmakers displaying flashy concept models and production-ready cars, Chinese tech giants generated big buzz at Auto Shanghai this year. 

Tech giants unveiled advanced connected and autonomous driving solutions along with ambitious growth strategies, generating headlines and lending cachet to lesser-known auto partners. In particular, deep-pocketed Huawei and Baidu showed how they are ramping up aggressive pushes into the industry.

Huawei was one of the biggest draws at the show. Crowds swarmed the Arcfox-branded Alpha S electric sedans on display at its booth, equipped with the telecom giant’s hardware and software and made by automaker BAIC. 

After three years of co-development, the two companies said that they are on track to deliver the Alpha S by year-end. According to Huawei and BAIC, the vehicle features “best-in-class” self-driving capabilities for highways and busy streets to customers in China’s four biggest cities. Its other customers that hail from outside of the four cities will get the function via over-the-air software updates within the next two years as Huawei continues to work on its AV mapping.

To reach this target, Huawei has been plowing resources into its new auto business. Its Automotive Solutions unit will beef up headcount 25% to 5,000 employees this year, Wang Jun, president of Huawei’s intelligent Automotive Solution business unit, told Chinese media during the show.

Hands-free driving on busy city streets is widely considered a key milestone for mass AV adoption, one that Tesla has offered in its full self-driving (FSD) package since March. Eager to offset its flagging smartphone sales Huawei has been chasing this capability as it ranks auto among its top-priority businesses, though it is years behind industry leaders. At the company’s global analyst conference a week before Auto Shanghai, deputy chairman Eric Xu announced that Huawei will nearly double its annual auto R&D budget to $1 billion this year.

Lingering questions among industry analysts TechNode spoke with include understanding what progress Huawei has made on the self-driving front so far—a question it has not yet addressed—and how much safer its self-driving cars will be compared with traditional autos. The tech heavyweight faces a significant uphill climb. Many automakers remain skeptical that the “wounded tiger” will manage to make cars itself, these analysts said.

Huawei’s moves into the auto industry present a significant threat to Baidu. Wang Yunpeng, a vice president at the search firm, recently went on the counter-attack in a talk with Chinese media during the auto show, insinuating that even by throwing money at the challenge, competitors stood little chance of quickly catching up. 

Baidu, Wang said, is in the same camp as Google’s AV unit Waymo—it’s on the verge of commercializing its technologies. To compare, “companies like Huawei and Didi are probably still at the stage of testing their vehicles on fixed routes,” Wang said (our translation).

Baidu’s robocars have logged 10 million kilometers (6.21 million miles) on public roads, around a third of Waymo’s. During the event, Baidu launched what it boasted was China’s most advanced driver-assist system. Called Autonomous Navigation Pilot (ANP), the technology enables autonomous driving capabilities for vehicles made by Baidu’s automaker partners. The system will be first available to owners of these vehicles in 20 cities by year-end and then over 100 cities by 2023, the company said. Baidu said its self-driving tech will power at least one new model per month beginning in July and equip more than 1 million cars with its software over the next five years.

With blurred lines between vehicles and technology, how much tech is in a Baidu- or Huawei-enabled smart car? Using as an example WM Motor’s W6, the latest crossover from the Baidu-backed EV maker, the tech giant is responsible for most of the digital technology in the car, from the voice assistant to the map navigation in the operating system. WM Motor also sources Baidu’s self-driving software and hardware suite including 12 cameras, 12 ultrasonic sensors, a radar system, and a computing platform, while it independently develops the car’s mechanics, such as the powertrain system.

Chinese carmaker Chery is also clamoring to join Baidu’s friend circle, while BAIC is one of Huawei’s oldest allies in the automotive industry. However, some of the bigger names in auto want full control in developing the next-generation of vehicle architecture. For that reason, China’s biggest automakers, SAIC and Dongfeng Motor, displayed their latest offerings with software developed in-house or by Chinese AV unicorns they have backed.

During the expo, SAIC began to take orders for its first sedan, the L7, under its new premium EV brand IM. Short for “Intelligence in Motion,” SAIC co-launched the brand with Alibaba in November to compete against Tesla. The Volkswagen partner recently raised its holdings in Chinese AV upstart Momenta, aiming to offer urban self-driving capabilities early next year. Meanwhile, Dongfeng announced (in Chinese) that it aims to sell a total of 1 million EVs and master fully driverless technologies within the next five years.

Experts TechNode spoke with were optimistic about Chinese automakers’ moves into smart, electrified cars, thanks in part to local tech giants. Domestic players could account for 70% of auto sales from the current 40% within the next 10 years, Liu Guanghao, an investment director at Shanghai-based venture capital firm BeFor Capital told TechNode. “These driver assistance features are industry-leading, and the car interiors, such as the digital dashboards, appeared forward-thinking. This could help traditional automakers reposition their brands to be more premium,” (our translation) Liu said.

Highlight 2: EV Big Three momentum slows

Amid the hubbub from big tech and traditional auto companies, Chinese EV contenders were comparatively quiet, with no mention of new models at Auto Shanghai.

Well-funded Nio, Xpeng, and Li Auto are considered emerging EV leaders and the most promising of China’s Tesla challengers. Now, as competition heats up, they are collaborating with smaller tech unicorns—such as Li Auto’s partnership with Chinese chipmaker Horizon and Xpeng’s partnership with DJI’s Lidar unit, Livox—in an effort to maintain their leadership positions in the sector. 

But their outlook may be clouding over after internet giants overshadowed them during the expo.

On the first day of the show Nio kicked off a massive expansion of its charging infrastructure, announcing that it would open 100 battery swap stations and 500 supercharging stations in an area spanning eight northern provinces during the next three years. Meanwhile, Nio president Qin Lihong acknowledged to Chinese media on April 19 that big tech’s push into EVs was a challenge for the company considering Huawei’s established retail network, and reaffirmed its goal to expand its sales network by 60% to 366 stores nationwide by year-end.

There has been growing concern over EV upstarts lagging larger players in new product and technology development going forward. Nio CEO William Li last month expressed confidence that it would release the ET7, its next-generation electric sedan, on time, slated for delivery early next year. It would happen, he confirmed, despite steep challenges in advanced technology adoption. The company said it is doubling its R&D budget to RMB 5 billion ($774 million) this year. “Auto intelligence is where this game may be decided,” Li told Chinese media during the auto show.

Li Auto is seen as falling behind its peers in the AV race, having not yet delivered highway self-driving functionalities to its customers. Feeling the heat at the auto show, CEO Li Xiang said April 20 on Chinese social media platform Weibo that its self-developed AV system will be able to compete head-to-head against those by Huawei and Tesla next year. The EV startup in September announced plans to adopt Nvidia’s advanced supercomputer Orin for its second model, scheduled to launch in 2022.

The six-year-old automaker also turned to Chinese AI unicorn Horizon Robotics for help, and the two companies during the show deepened their partnership to an “in-depth cooperation in building upgradable smart and electric vehicles” (our translation). Despite its best efforts, Li Auto may be too late to catch up and gain a competitive advantage, as tech heavyweights venture into EVs, an analyst told TechNode at the show. 

Li Auto in February assured investors that it will triple its R&D spending to RMB 3 billion ($464 million) this year. Since December it has raised around $2 billion from a new share offering and bond sales to ramp up in-house R&D capabilities.

Xpeng Motors is ahead of its peers in driverless technologies, but also failed to wow the crowd during the show, despite unveiling its second sedan, the P5, which it displayed at a press event in Guangzhou a week earlier. Touted as China’s first production model equipped with two Lidar sensors, an expensive and essential component for 3D perception, the P5 is expected in the first half of 2022 to self-navigate driving scenarios such as being cut off on busy streets.

However, Xpeng did not release the P5’s pricing information as planned, spurring concern from industry insiders that the company’s best days are behind it. Several insiders and analysts that TechNode spoke with said that the P5 launch fell short of expectations while the cost of the vehicle’s hardware suite has remained high, pressuring Xpeng in pricing the new product, people close to the company told TechNode during the show.

Xpeng fired back on April 22, saying on its Weibo account that it had secured more than 10,000 orders of the P5 in 53 hours after opening orders (with refundable RMB 99 deposits). “The market feedback was beyond our expectation,” (our translation) a company spokeswoman said to TechNode on Wednesday. 

Big tech disruption

Chinese tech giants at the Auto Shanghai 2021 disrupted the already-breathtaking pace of China’s new energy and autonomous driving world by doing what they were there to do: build consumer brand awareness and deliver advanced car technology solutions. The disruption is boosting the perception of Chinese-built vehicles—no longer synonymous with cheap, low quality cars—up the industry value chain.

This disruption is pressuring Chinese EV upstarts’ lead in the industry. These EV firms will have to convince investors that, after notching early wins, they can maintain their momentum in an increasingly crowded playing field. 

“Big tech’s entry into the market would inevitably erode the influence young EV makers have in the industry. This has created an alternative regarding the competitive landscape in the next five to 10 years,” (our translation) Paul Gong, China auto analyst at UBS, told TechNode on April 21.

Chinese electric vehicle maker Nio on Thursday announced that it will start delivering vehicles to buyers in Norway in September and will open a flagship store there in the third quarter, in its first overseas foray.

Why it matters: Norway is the first stage of Nio’s ambitious expansion plan for Europe, which holds significant growth opportunities for the EV upstart but may prove to be a challenge.

• Nio has only sold cars to customers in China and will need to adapt to European regulations, culture, and consumer appetites in a short timeframe.
• The Europe initiative will run at a loss over the short term as the company is at an early stage of investment, CEO William Li said during a press event in Shanghai on Thursday. “Nio didn’t set near-term sales targets for the Norway team, and instead we will pursue robust growth over the long term,” (our translation) Li added.
• Company president Qin Lihong told Caixin (in Chinese) during this year’s Auto Shanghai expo that Nio’s average selling price will probably exceed similar models from Audi and other international auto brands. 

Details: Nio plans in August to start customer test drives of its large electric crossover, the ES8, in Norway, and start taking orders and delivering cars to customers in September, Marius Hayler, general manager of Nio Norway, announced via livestream during the event on Thursday. Detailed information on pricing was not disclosed.

• Nio has plans to enter five other European countries next year, Li said, without further elaborating. The EV maker has been in talks with government officials from Germany, France, and other countries.
• Li said that he expects annual sales of at least 50,000 units in Europe over an undisclosed timeframe.
• Qin confirmed that the company will adopt the same strategy as in its home market to win over Norway’s consumers—creating a user community and premium experience with a direct retail and service network.
• The first Nio House, its clubhouse-style retail showroom, will be open for business during the third quarter on Karl Johans Gate in downtown Oslo, with four smaller Nio Spaces stores expected to open for business in Bergen, Stavanger, Trondheim, and Kristiansand next year.
• Nio will also build local power infrastructure facilities in Norway from scratch, with plans to first operate four battery swap stations in Oslo and surrounding areas by year-end. It is partnering with European charging network Plugsurfing to widen customer access to more than 20,000 chargers.
• The company expects to deliver more products looking ahead, including the ET7, a premium electric sedan scheduled for 2022, when its sales, service, and charging network expands in at least five Norwegian cities. Hayler said the local team will expand to 50 employees from 15 by year-end.

READ MORE: Chinese EV makers face uphill battle with Europe expansion

Context: Competition in Europe is stiff for Chinese EV makers. Norway is a mature EV market with a number of European brands competing for share.

• Norway became the world’s first country where EVs outsold traditional combustion cars last year, with the market share of EVs growing to 54% from 42% in 2019, Reuters reported in January citing figures from the Norwegian Road Federation.
• Boosted by heavy government tax incentives, Chinese EV makers are marching into the country. Nio peer Xpeng Motors delivered in December the first 100 of its G3 electric crossovers to customers in Norway, followed by another 200 or so vehicles shipped to the country two months later, according to a company announcement.

Chinese electric vehicle maker Nio downplayed competition while delivering its first-quarter results on Friday, with chief executive William Li relaying minimal concern about its growing list of challengers in China.

“In the premium market, we haven’t seen any brand having the same level of competitiveness [as Nio] in terms of product, service, technology, user experience and community,” Li said during a call with analysts on Friday. Li added that many traditional automakers are “moving fast as followers” in building direct service channels and user community, but would face pressure in pricing their new products. Such automakers are “lagging behind“ in terms of in-car digital service and autonomous driving capabilities, he said.

“We believe we can solidify our position in the market… our competitiveness will continue to grow and stay strong in the long run,” Li said.

Nio on Friday beat Wall Street expectations for first-quarter revenue, boosted by better-than-expected deliveries despite an ongoing chip shortage that has hammered the auto industry globally. The company reported Q1 revenue of RMB 7.98 billion ($1.22 billion), exceeding the $1.06 billion consensus expectation in a FactSet poll of analysts, according to MarketWatch.

Nio’s Q1 delivery of 20,060 vehicles was a 16% quarter-over-quarter increase, and a fourfold increase on an annual basis. The company in late March lowered its Q1 delivery forecast to 19,500 vehicles from 20,000, citing the chip shortage. Automotive gross margins in the first three months of this year were 21.2%, up from 17.2% in the previous quarter and -7.4% in the first quarter of 2020, which the company attributed to increased adoption of higher-priced options and lowered costs for materials.

Losses attributable to shareholders expanded 183% year on year to RMB 4.87 billion, which the company attributed to the RMB 4.4 billion expense during the first quarter to redeem equity interest from investors of its China entity.

The company will not reduce the price of its cars in order to win market share, Li emphasized, but would increase investment to improve products and services with “a reasonable gross margin” as a long-term strategy. Nio announced last week during the Auto Shanghai expo that it would build 100 battery swap stations and 500 supercharging stations in China’s eight northern provinces over the next three years.

Nio also promised to invest heavily in the research and development of new products and technologies, aiming to gain a long-term competitive advantage as more big auto players move into the booming segment. Li said on Friday that he expected research and development expenses to increase significantly in Q2 as it moves aggressively to mass produce of its first sedan, the ET7, slated to begin deliveries in Q1 2022, as well as new models and self-driving technology development. The company in March announced it would double its R&D budget to RMB 5 billion this year.

Traditional automakers’ recent and aggressive push into electric cars is pressuring Tesla and young Chinese EV makers. In the latest example, state-owned BAIC partnered with Huawei to equip its latest premium sedan, the Alpha S, with customized software and hardware technologies from the tech giant. BAIC said it had secured over 1,000 orders after the debut on April 17. Two days earlier, China’s biggest private automaker, Geely, unveiled plans to deliver the first model from its new premium EV brand Zeekr in October, adopting a direct sales and community strategy similar to Nio’s.

“Competition will definitely heat up in the Chinese electric vehicle market, as not only legacy automakers from China and the globe but also local tech giants are actively joining in the race. The vehicle autonomy and electrification revolution will accelerate as more money pours into the market, but the competition would be very diverse, dynamic, and intense,” (our translation) Paul Gong, UBS’s China auto analyst said last week during an online conference call.

Geely announced Thursday that it will sell electric vehicles from its new premium brand Zeekr directly to customers, a business endeavor for which it plans to open retail shops and build an online community.

Why it matters: The move is part of a broader plan by China’s largest private automaker to become a frontrunner in the electric and software-based vehicle race.

• Zeekr can sell directly because it operates as a standalone company within the Volvo parent company’s empire. “The goal for Zeekr is to become a technology company,” (our translation), said Geely president An Conghui during a press event at its Ningbo facility on Thursday.
• Direct sales, compared to the traditional model of selling cars through franchised dealerships, is seen as key to Tesla’s success in the global auto industry and has been adopted by a number of Chinese EV upstarts such as Nio.

Details: Zeekr on Thursday laid out plans to join the country’s most competitive mass-premium EV segment by opening two clubhouse-style flagship stores called “Zeekr Centers” and 60 smaller “Zeekr Spaces” in local shopping malls this year.

• The company expects to rapidly expand its sales footprint to a total of 225 branded shops in three years. It is on track to deliver its first model, the Zeekr 001, in October, according to An, who is also the CEO of the new EV unit.
• Equipped with Mobileye’s SuperVision, a hands-free advanced driver-assistance system, the company began taking orders for the four-door coupe on Wednesday at a starting price of RMB 281,000 (around $43,077) after subsidies.
• The Zeekr 001 is priced around 20% lower than Tesla’s locally made Model Y and Nio’s popular crossover, the ES6. It is roughly 20% more expensive than BYD’s premium model, the Han, and Xpeng’s P7 sedan. These models are considered the primary contenders expected to grab share from gasoline cars.  
• Meanwhile, the company will launch a smartphone app in June capable of transacting online sales, and to help with forming a virtual community, An said.
• The management of multiple teams and the expenditure involved in operating a direct sales model is a big challenge for traditional automakers to take on, and is not currently feasible for all of its business units, An explained during the event.

“It’s an emotional play at the high end where consumers buy EVs because they’re high-tech gadgets with premium experience. That’s been a successful play in China and will continue to thrive without government subsidies.”

—Stephen Dyer, managing director of global consultancy AlixPartners, told TechNode during the panel, “EV: What’s next as the industry recovers” at TechNode’s Emerge event in November.

Context: Volkswagen is one of the traditional auto majors which adopted a direct-sales model, opening its first branded shop in December in the eastern Chinese city of Hangzhou. It plans to build 40 stores across China over the next year or so, according to a Reuters report.

• Geely in March announced a RMB 2 billion investment initiative to set up Zeekr Technology and establish a presence in the fast-growing luxury EV segment.

Correction: An earlier version of this story incorrectly identified the EV company as Zeeker, not Zeekr.

Update: added the names of the November TechNode event and panel discussion that Stephen Dyer took part in.

After completing a test drive across China’s eastern coastal region, Xpeng Motors said on Wednesday that its driver assistance technology is the top performer in China, using a technology rejected by Elon Musk: high-definition maps.

At a press event in Beijing, Xpeng executives said its Navigation Guide Pilot (NGP) function, which enables primarily unassisted highway driving, surpassed Tesla’s Navigate on Autopilot (NoA) in several key metrics. Specifically, Xpeng said that it had achieved a lower rate of human driver intervention and a higher success rate for automatic lane changing, among others. The 3,600-kilometer (1,864 miles), eight-day road trip, which included members of the media, ended on Sunday.

The road trip included a fleet of 15 P7 sedans traveling a combined total of around 50,000 kilometers on highways and urban streets through major domestic cities including Beijing, Shanghai, and Guangzhou. Xpeng said it logged 0.71 disengagements per 100 kilometers. This means a human driver was forced to take control of the vehicle after traveling in autonomous mode for 140 kilometers on average. In the meantime, Xpeng claimed several Tesla vehicles in tests conducted by local media experienced 1.03 disengagements per 100 kilometers.

The Chinese EV maker also announced its latest version of NGP, scheduled to launch through an over-the-air update in the second quarter, resulted in a 94.4% success rate for lane changes versus Tesla’s 81.3%. Xpeng vehicles successfully self-navigated through tunnels 95.0% of the time compared with Tesla’s 41.8%. Huang Xin, a director at Xpeng Motors, called it “an overwhelming lead” (our translation).

”NGP completely exceeded Tesla’s NoA regarding all the metrics in our tests… and has become the most advanced driver-assist function for production models,“ (our translation) Huang said while calling out challenges from all of its competitors. Huang added that Xpeng will release all the data collected during the trip.

TechNode took one of the Xpeng sedans on a test drive from a hotel in Shanghai to a highway service zone in neighboring Suzhou city, sitting alongside the driver. During the 45-kilometer, 40-minute test ride, the vehicle drove primarily at around 120 kilometers per hour, navigated safely and responsively including changing lanes a number of times. However, at one point, the driver was required to take over the wheel when the vehicle passed an off-ramp on its right while being cut off by a car from the left.

In another test drive made by Chinese trade publication 42How, the P7 disengaged 19 times over 2,000 kilometers of autonomous highway driving compared with 22 driver interventions for a China-made Model 3 on the same route. The article said that Xpeng’s tech provided a better, more localized experience for Chinese customers, including a smoother drive when guiding its car from a highway on-ramp to off-ramp, and normal operation in tunnels or with heavy rain, which caused Tesla’s NoA to stop working.

Alibaba helps

So far, around 20% of owners of Xpeng’s P7, the company’s first premium model with the hardware necessary for offering advanced self-driving capabilities, have ordered its latest Xpilot 3.0 advanced driver-assist system (ADAS) featuring the NGP function, which launched in January. The Nio Pilot, which has been offering for almost three years, had a 50% take rate. More than 68% of Tesla buyers had reportedly opted in for its Autopilot software back in 2019.

READ MORE: Nio, Xpeng, Li Auto: your cheat sheet to China’s listed Tesla rivals

And yet, Xpeng is considered by many to be a big threat to Tesla in China where vehicle autonomy is concerned. Xpeng has boldly marketed itself as one of few companies capable of developing in-house the entire software architecture for AVs. The P7 currently remains the first and only production vehicle in the market equipped with Nvidia’s Xavier computer dedicated to highly autonomous driving, according to Xpeng’s vice president of autonomous driving Wu Xinzhou.

And now, the Alibaba-backed EV maker is stepping up its challenge against Tesla by working hand-in-hand with Alibaba’s map platform Amap, or AutoNavi. The company is confident that an elaborate, detailed map for real-time self-driving purposes would give it a leg up in luring increasingly savvy Chinese consumers, according to comments during the online press event. Xpeng attributed Amap’s latest high-definition map with providing navigational capabilities in adverse weather conditions or places with poor signal such as tunnels.

“Our vehicles can enter and exit highway ramps automatically and switch highways pretty much all by themselves, because most of the interconnections between highways are mapped by our partner AutoNavi. So we can have a seamless experience when you’re switching highways using NGP,” Wu said during an online conference in late January.

NGP could work properly in benign weather conditions, Wu added, and even under “medium to heavy rains” although it is designed to shut down and require human intervention when the windshield wipers are on the highest setting. Wu acknowledged there are also challenges in snow, which make it difficult for the vehicle’s sensors to detect road lane lines.

Tech dogma

The practice of using HD maps for AV navigation has long been criticized by Tesla’s Musk, partly because maintaining an constantly updated HD map was believed to be an arduous and costly effort. Musk in 2018 publicly stated that dependency on HD maps would cause an AV to fail when real world changes are not reflected on the map. Tesla’s vehicles, he said, have sufficient sensors and processors to drive themselves.

Tesla did not respond to TechNode’s request for comment.

However, most other automakers and AV companies including Waymo and GM Cruise, rely on a suite of hardware stacks comprised of cameras, radar, Lidar, and HD maps—usually viewed as “another sensor.” Xpeng is currently the only car company incorporating Amap’s latest map technologies for on-board navigation, a partnership which Wei Dong, a general manager of Amap, commented requires an automaker have a strong proprietary capability in software development, since map data will be aggregated with sensor data to give AVs a sense of their surroundings.

“We do a very careful checking between what the cameras see and what the map is telling you pretty much all the time. And whenever there is a difference, the system will send a warning to the driver and sometimes just downgrade the AV functionality to make sure it’s safe,” Wu told TechNode.

Chinese tech giant Xiaomi is throwing its hat into the red-hot electric vehicle market with a RMB 10 billion ($1.52 billion) investment to set up a fully owned subsidiary for its auto business, to be led by chief executive Lei Jun.

Founder and CEO Lei at a press event in Beijing on Tuesday said Xiaomi had decided to strike out on its own on EVs in an effort to operate an ecosystem that will provide seamless user experience, and will not consider outside funding. Lei said he was aware of the complexities of making cars with extreme capital intensity, saying that the company is now ready to pour money into the project and face losses over a long-term period.

“We look forward to the day when Xiaomi cars will run on roads across the globe… This would be the last startup project in my career and I shall stake all I have to work this out,” the 52-year-old serial entrepreneur said (our translation). In an announcement published Tuesday, Xiaomi said the company plans to invest a total of $10 billion in the project over the next 10 years.

Following in Apple’s footsteps, Xiaomi has pledged to develop high-quality EVs with a “best-in-class” connected device ecosystem for global customers, according to Lei. The world’s fourth-biggest smartphone maker recorded shipments of nearly 150 million units in 2020 with an annual growth rate of 19%. Sales for competitors Samsung and Huawei shrank a respective 14% and 22%, according to figures from Canalys.

Xiaomi also boasted of having one of the world’s biggest Internet-of-Things (IoT) platforms, connecting 325 million smart home appliances as of last year, excluding handsets and laptops. It has also remained the top-selling television set maker in China since 2019, accounting for around 20% of market share, according to data compiled by Beijing-based consultancy All View Cloud (AVC).

However, the Chinese consumer electronics giant is seeking new sources of growth amid a slowing market. Its IoT and consumer products segment slowed sharply to 8.6% annually last year from 41.7% in 2019. The company also missed analyst revenue estimates for the fourth quarter, according to Bloomberg.

In the meantime, the global automotive industry is undergoing a landmark transition, and the shift to battery-electric, self-driving cars from traditional, internal-combustion vehicles has reached a major inflection point. China is expected to maintain its global leadership in EV production and adoption. IHS Markit forecasted that China will regain growth momentum at double-digit rates in 2021 and beyond, as the government continues to push the EV industry forward and consumer demand recovers.

Xiaomi has long been rumored to be plotting a move into the booming, crowded EV market. Last week it denied a Reuters report that it was in discussions with Chinese automaker Great Wall Motors for contract manufacturing. Shunwei Capital, a venture capital firm formed by Lei, invested in Nio in its Series A back in 2015 and became an early investor in Xpeng Motors two years later.

Baidu is also accelerating the push into the market. In January it set up a joint venture with automaker Geely. The Chinese search company has set a goal to launch its first own-brand EV within three years, chief executive Robin Li said during an earnings call last month.

Nio CEO William Li said Tuesday an industry-wide shortage of electric vehicle batteries and semiconductor chips will continue to hamper production for the next few months. The EV maker is planning a significant acceleration in manufacturing in the second half of 2021 as it gears up for an aggressive sales and service expansion to complete coverage of its home market.

Nio had achieved a production rate of 10,000 vehicles in its Hefei plant during the Chinese New Year in February, Li said during the company’s fourth quarter earnings call on Tuesday. However, the company expects monthly output to remain at around 7,500 units through the second quarter due to “lower-than-estimated” battery supply and a global chipset shortage.

With supply chain restrictions expected to ease in July, Li said the company does expect to have sufficient parts to meet its needs. This, along with a significant expansion of its retail footprint and recharging network, is forecasted to help reach “a much higher sales performance in the second half of the year,” according to Li, who did not further elaborate. Nio guided up to 20,500 deliveries for Q1, compared with Li Auto’s forecasted ceiling of 11,500 units.

READ MORE: Li Auto may have controlled its costs in 2020 too well

“China is a very big market… We are quite confident this should be able to help us to achieve our sales target,” Li said.

Nevertheless, it fell short of generating profits in Q4, reporting a wider-than-expected net loss of RMB 1.39 billion ($212.8 million), double analyst estimates, according to Bloomberg. Aggressive geographic expansion plans this year could limit its positive cash flow from operations in Q4 to a one-off, Jefferies analysts said in a Tuesday report.

Nio is pursuing an ambitious timetable to unlock growth in China’s booming EV market, the world’s biggest. It aims to open another 20 clubhouse-style showrooms called Nio Houses and 120 of its smaller Nio Spaces by year-end. The company is focusing efforts to expand in lower-tier cities where EV penetration is low. “In all the cities where Mercedes-Benz, BMW, and Audi have sales presence, we will also be there this year,” Li said (our translation). Nio has operated 226 sales locations across 121 major cities as of February.

The company is planning to more than double the number of its battery swap stations to upwards of 500, along with quadrupling the number of its supercharging stations to over 600 in the same time period. The seven-year-old EV upstart has become Tesla’s most prominent challenger in China, delivering 43,728 vehicles last year using a war chest of around $4.8 billion made by selling additional shares, and scoring a $1 billion cash injection.

Chinese smartphone maker Xiaomi is planning to make electric vehicles, according to a Chinese media report. This move could make it the latest entrant into the country’s exploding electric vehicle market, with founder and CEO Lei Jun reportedly leading the project.

Why it matters: The reported entry of Xiaomi, often dubbed “the Apple of China,” could shake up the entire auto industry. Its success in the consumer electronics market has given it high brand awareness among domestic consumers.

Details: After years of indecision, Xiaomi is about to give its electric car project the go-ahead, Chinese media LatePost reported Friday, citing “people familiar with the matter.” Sources cautioned that the company’s plans are still at an early stage and subject to change.

• LatePost’s sources said that Xiaomi began a project code-named “Micar” in 2018 to explore own-brand cars. The project was launched after founder Lei Jun’s visited Elon Musk in the US back in 2013.
• A Xiaomi spokesperson did not respond to TechNode’s request for comment.

Context: Xiaomi has made investments in home-grown EV brands before, leading the $400 million Series C of Xpeng Motors as a strategic investor in late 2019. Prior to that, Shunwei Capital, a venture capital firm founded by Lei, backed Nio’s Series A in 2015.

• The smartphone maker also boasts an advanced voice recognition technology, reaching partnerships first with state-owned FAW Group in 2018, later with Geely and Mercedes Benz in 2019 for the adoption of its voice-activated virtual assistant. It is still a small player, with iFlytek currently leading with 40% of the in-car voice assistant segment.
• Xiaomi has been looking for approaches to expand its presence in car connectivity, including partnerships with automakers in contract manufacturing, Jin Di, consulting director at market research firm Ipsos, told TechNode on Friday.
• Chinese new energy vehicle market reported strong sales of 1.37 million units in 2020, representing a 11% year-on-year growth despite business disruptions associated with the global pandemic, according to figures from the China Association of Automobile Manufacturers.
• Last month, search engine company Baidu revealed plans to make EVs in partnership with Volvo’s parent Geely.

China’s electric vehicle market posted unexpected growth in 2020 despite a global health crisis and subsequent economic recession, and the industry is anticipating the momentum to accelerate this year, powered by true demand rather than government incentives.

Sales of new energy vehicles (NEVs), which include all-electrics, plug-in hybrids, and fuel cell vehicles, increased 10.9% annually to nearly 1.37 million in 2020, the China Association of Automobile Manufacturers (CAAM) said on Wednesday, after sales fell 4% the year before. The industry group forecasted sales would accelerate to 40% year on year to 1.8 million in 2021; critically, Beijing’s subsidy program will no longer play a key role in driving demand.

Analysts have also weighed in positively on the growth prospects of China’s EV sector. The world’s largest EV market will likely maintain its upward momentum this year, with consumer confidence in EVs on the rise and with it, a willingness to pay for the technology, Paul Gong of UBS said Thursday during an online conference. The Swiss investment bank predicted China’s EV sales would rebound to more than 1.56 million units this year.

Tesla leads the way with price cuts

Electric cars are making their way into the mainstream. Tesla recently kicked off production of its popular Model Y electric crossovers in its Shanghai facilities, after churning out Model 3 sedans for a year. The company has managed back-to-back price cuts since it launched its entry-level model, which experts believed not only makes EVs from the US giant an economically viable choice but also boosts overall consumer awareness and excitement about EVs.

That said, analysts warned that the surprise launch of the China-made Model Y, priced 30% lower than its imported version, could be a short-term hit for NIO and Xpeng Motors, Tesla’s most prominent Chinese challengers. The American carmaker immediately sold out of its Model Y in China and has guided delivery windows in the second quarter for new orders. This followed Chinese media reports that a Tesla showroom in Shanghai sells nearly 200 vehicles per day after releasing its new pricing.  

Some industry watchers believe Chinese EV upstarts should follow suit and slash their prices in order to maintain momentum. In response, NIO and Xpeng bosses voiced confidence about their sales and no indication that they would discount pricing. NIO has gained traction especially among China’s growing middle-to-upper-class families, and delivered 43,728 SUVs last year. Xpeng, in a head-to-head competition against Tesla with its sedan, recorded deliveries of 27,041 vehicles in 2020.

The big race

Chinese carmakers are competing for the same mainstream, luxury customers as Tesla. They are not undercutting prices but rather focusing on value-added offerings—unusual for the Chinese auto industry. From the old guard to young startups, all the major players are racing to use the latest self-driving tech in their EV lineups as vehicle technology undergoes the most significant changes in a generation.

NIO, now emerging as a top contender, last week unveiled a top-of-the-line hardware suite capable of providing high-level autonomous driving functionalities for the ET7, its first mass-production sedan. Prior to that, Xpeng had announced a partnership with Livox, a Lidar maker backed by Chinese dronemaker DJI, in order to equip its 2021 production model with the technology—expensive for mass market use.  

Traditional carmakers are gearing up to rapidly follow Tesla’s lead. SAIC, Volkswagen’s manufacturing partner, and BMW’s Chinese ally, Great Wall Motors, announced plans this month to offer self-driving capabilities in 2021, with a hardware stack integrating multiple sensors and high-resolution map data to navigate road safety.

And yet, few have revealed detailed timelines for when their vehicles will be able to navigate driving complexities such as urban Chinese traffic. Tesla meanwhile announced that its fully self-driving system—a beta version of which is being tested by selected users—can handle both highway and urban driving duties. Tesla has so far maintained a significant lead when it comes to software and self-driving, using its vision-based approach which relies on lower-cost cameras and artificial intelligence for navigation and planning.

“NIO’s long-term strategy for self-driving is to be open to and able to utilize the latest technologies and push the industry forward with our strategic partners. The competition will result in several industry alliances and we will make sure to stay on the winner’s side,” (our translation) William Li, NIO CEO told reporters during an interview last week.

As a tipping point for mainstream EV adoption approaches, NIO and its peers are prying open a window of opportunity to beat Tesla. But time is limited, and every company is sprinting to catch up.

Electric vehicle maker NIO on Saturday released what the company called “its first autonomous driving model” which could prove a game changer in its competition against Tesla and German automakers in China’s premium auto market.

The company’s first production sedan, the ET7, features a top-of-the-line hardware stack for self driving, including 11 8-megapixel cameras, a dozen ultrasonic sensors, and a Lidar which scans the environment at a range of 500 meters.

All of those sensors will be powered by four of Nvidia’s latest AD processors, the Orin, each offering 254 trillion operations per second (or TOPS), versus Tesla’s 144 TOPs for its hardware version 3.0 self-driving computer. Together, the computing power of NIO’s so-called Adam Super Computer exceeds 1,000 TOPS, the highest for current production models worldwide.

The seven-year-old EV maker is now publicly confident about its chances of beating big auto names with this latest offering. Its sales forecast for the ET7 surpasses those of Tesla’s Model S and BMW’s 5 Series sedans, Chinese media reported Saturday citing CEO William Li. In a separate interview with reporters on Sunday, Li said the ET7 could be a big hit in the Chinese luxury market, and that sales will gradually meet its target after production ramp-up with suppliers.

With a price range from RMB 448,000 to RMB 506,000 (around $61,824 to $78,130) before subsidies, the new offering is expected to further differentiate NIO not just from its Chinese peers, but Tesla as well. The US EV giant this month began selling China-built Model Y crossovers with a starting price of RMB 339,900, a price 30% lower than its imported version, following a 25% reduction on the price of its basic version Model 3 last year.

NIO said that it will not take a similar approach, reaffirming its goal to become a mainstream, premium EV brand in China targeting BMW, Mercedes-Benz, and Audi. Tesla is China’s most dominant EV player by sales volume, with deliveries of 113,649 China-made Model 3 vehicles from January to November last year, according to figures from China Passenger Car Association.

Xpeng Motors, another Chinese Tesla challenger, is similarly looking to quickly grow its share of the market. On Thursday the automaker revealed plans to launch in 2021 a new sedan model equipped with a Lidar sensor. The Alibaba-backed EV company has delivered 15,062 of its first sedan, the P7, in six months from late June to December.

Updated: added six-month time frame for Xpeng’s unit deliveries in 2020 in last paragraph.

Volkswagen’s battery partner Gotion High-Tech revealed a new battery cell which it said may significantly reduce the cost of electric vehicles and ease concerns over battery safety.

Details: Gotion on Friday announced that it was the first company to reach cell-level energy density of 210 watt-hours per kilogram (Wh/kg) in lithium-iron phosphate (LFP) batteries, a type of power source known for stability but capable of storing less power than other types of lithium-ion batteries.

• China’s third-biggest battery maker did not disclose an expected driving range for vehicles with its new LFP battery installed. But an EV with cells containing energy density of 190 Wh/kg can last more than 400 kilometers (249 miles) on a single charge, close to Tesla’s China-made Model 3 with LFP battery cells from competitor CATL.
• The company also introduced a new structural battery pack technology called Jellyroll to Module (JTM), which it offers in different forms and shapes. It expects such flexibility could help increase adoption of LFP batteries.
• A number of automakers are currently in talks with the company for collaboration on the new battery technology, Xu Xingwu, deputy dean of Gotion Engineering R&D, told TechNode. Xu did not disclose the names of potential partners or a timeline.
• The company expects to provide batteries starting in 2023 for the China production of Volkswagen’s MEB electric platform, a modular design for varied EV battery packs. The two companies formed a partnership in May as part of the German automaker’s goal to sell 1.5 million EVs in China by 2025.

Context: LFP batteries began regaining popularity starting last year, thanks to consistent improvement in performance, higher thermal stability, and lower costs.

• Tesla began selling its Model 3 vehicles with LFP batteries from CATL in China late last year, recently reducing the starting price of its locally made sedan to RMB 249,900 ($36,850) from its starting price of RMB 328,000 ($47,529), driven by lowered battery costs, according to Reuters.
• China’s biggest EV maker and major battery supplier, BYD, in May launched a newly designed LFP battery, equipped on its premium Han sedan. The company said last week that it had sold a total of 40,556 Han EVs since its July launch.
• NIO has reportedly followed suit, with rumors spreading last week about the company launching an economy vehicle model with LFP batteries from CATL. CEO William Li confirmed that the company has been in talks with relevant parties about the possibility of adopting LFP batteries, but denied any plans for a launch in the short term, according to a Chinese media report on Thursday.
• LFP materials do not contain cobalt, an expensive EV battery component, and are less likely to overheat than the mainstream nickel-cobalt-alumninum (NCA) or nickel-manganese-cobalt (NMC) batteries on passenger EVs. Still, NCA/ NMC materials can store more energy than LFP cells, giving cars a potentially longer range.

Walk into NIO’s joint-venture factory grounds in Hefei, capital of China’s eastern Anhui province, and you might mistake it for a sprawling tech campus rather than an auto manufacturing plant. The factory sits next to a cluster of elegant, low-slung glass buildings, surrounded by a large, well-kept lawn.

The campus has become somewhat of a local icon, attracting interest beyond its employees, partly due to NIO House, the company’s expansive, clubhouse-style retail space and gallery located next to the plant. As customers peruse vehicles in the space or wait for a latte in the showroom’s café, a crossover rolls off the production line every two minutes, with the assistance of more than 300 robots, from assembly lines to painting.

Two weeks ago, TechNode paid a visit to NIO’s Hefei plant to view the production process and understand how it works. The plant itself is a scene of bustling activity—giant robotic arms work on production lines to assemble vehicles, while human employees conduct inspections on the final assembly line. Each vehicle varies in model, color, and configuration.

“Sometimes, in a month, no two vehicles leaving the factory are exactly alike,” (our translation) a company spokesperson told TechNode reporters.

When the EV maker received earlier this year a $1 billion funding lifeline led by the Hefei government, the city—a lesser-known automaking hub known for churning out lower-end sedans and trucks—got a major boost in return. Hefei is readying itself to spearhead China’s goal of becoming the world’s leading EV producer and consumer market and NIO, its best-known EV firm, is poised to ride the wave.

Futuristic factory

Located minutes from the city’s downtown, the 16-acre joint plant is the size of nine football fields and employs more than 2,000 workers—mostly technicians from its partner, state-owned automaker JAC Motors, as well as several hundred NIO engineers. Much of the landscaping still looks new after three years of operation. The two companies reached an outsourcing agreement in mid-2016.

The factory is well-organized and spotlessly clean. TechNode saw high levels of automation throughout the factory, with robots of all shapes and sizes waving their arms in various workshops. NIO boasts that all major vehicle components are assembled in a completely automated process.

A seamless human-robot collaboration powers the highly flexible, mixed-model production process and a made-to-order car business that allows customers to configure their cars “in a free style.” NIO said there is more than 200,000 different configurations, around 3,000 of which most popular with its customers. “This [customization process] was highly demanding in terms of error proofing… but we finally did it,” (our translation) Victor Gu, general manager of NIO’s Hefei Advanced Manufacturing Center, told TechNode.

Manufacturing ramps up

After delivering a cumulative 70,000 EVs to customers, the company is preparing an expansion that will increase output by 50% in January, amid rising domestic demand for luxury EVs. “We’ve seen substantial order growth in the second half of this year, sometimes by 30% to 50% in just one month, which is far faster than conventional production acceleration. Normally you need at least two to three months to improve existing production equipment,” (our translation) Gu said.

The company is on track to reach in January a monthly production goal of 7,500 vehicles, Gu added, and has stepped up output by 50% to 30 SUVs per hour starting this month. The Hefei factory has production capacity to build 120,000 vehicles per year with two labor shifts, and is capable of a 25% expansion “without significant investment,” according to CEO William Li during an earnings call in August.

Meanwhile, Tesla has reportedly (in Chinese) planned to more than double the annual capacity of its Gigafactory Shanghai to 550,000 units in 2021. Another Chinese EV maker, Xpeng Motors built its second plant in the southern Chinese city of Guangzhou and will be able to produce 350,000 EVs by the end of 2022, according to a Chinese media report.

Carmakers are aggressively expanding production as Chinese EV sales accelerate, with strong momentum expected in the next few years. UBS analysts estimated in a Dec. 11 research note that Chinese EV sales will surge 55% to 1.6 million units next year and maintain double-digit annual growth to reach more than 5.5 million units in 2025.

EV push in Hefei

Analysts are echoing China’s grand ambitions to hold a commanding lead in the global EV market. In a finalized blueprint issued Nov. 2, the central government said that new energy vehicles (NEVs)—namely electric, plug-in hybrid, and hydrogen-powered vehicles—would account for 20% of total car sales in 2025. This is equivalent to 5.15 million units, according to last year’s sales figures, and Hefei is one of several municipalities which has committed to supporting this vision.

Auto production in Hefei accounted for around 3% of China’s auto sales last year. Now, the local government has set a 2025 output target of 1 million NEVs, according to a document released last month (in Chinese). The government has high hopes for local EV makers, which it expects to “gain influence in the global market.” Hefei is also planning to build a local supply chain with at least 10 “hidden champions“—relatively unknown but globally competitive companies, in segments such as battery, powertrain, and Lidar.

While not unattainable, such a goal will require a hard push, and the city is beginning within its own borders. In Hefei’s recent stimulus program, the city will exempt EV drivers from payment in public parking lots and allow them to travel in the city’s bus lanes during off-peak hours. The government is planning to electrify all public transit starting next year, while the taxi fleet will be 100% electrified by 2025.

Historically known for manufacturing display panels and electronics, Hefei is now considered one of the country’s emerging EV capitals, surrounded by major industry players such as Volkswagen and its two manufacturing partners. Moreover, the city has had its own EV darling, with its RMB 7 billion ($1 billion) investment in NIO in April.

Hefei is not the only city with EV aspirations. Guangzhou, capital of southern Guangdong province, in September promised to be listed among the three biggest EV manufacturing bases in the country by making at least 1.5 million NEVs in 2025. As one of China’s auto manufacturing hubs and a foothold for Japanese auto giants Toyota and Honda, the southern gateway city is determined to stay ahead, and recently doubled down on EV startup Xpeng.

More local governments are playing catchup. Xi’an, the capital of northwestern Shaanxi province last week said it will extend government subsidies and tax exemptions on EVs to the end of 2022. Meanwhile, in central China, buyers of fully electric cars in Wuhan have been eligible since May for an additional RMB 10,000 rebate on top of Beijing’s subsidies.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

This week, Tu Le from Sino Auto Insights joins the show to discuss the stratospheric rise that electric vehicle stocks have experienced this year, and what those firms will need to achieve in order to justify their share prices. They also discuss the major players on the software side of the EV equation. 

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

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Hosts:

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Guest:                   

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Share prices for electric vehicle makers Nio and Xpeng plunged more than 10% on Tuesday despite triple-digit annual growth in November deliveries. Investors were unimpressed with growth numbers bolstered by a very low base in 2019 when China’s EV sales sank by nearly half after government subsidies were slashed.

On the same day, news broke that Congress is likely to pass legislation this week forcing Chinese companies delist from US stock markets with new audit-oversight rules.

Nio delivered 5,291 electric crossovers in November, more than doubling the number in the same month last year, according to an announcement from Monday. However the EC6 drove growth with a 71% month-on-month rise while the ES8 and ES6 declined slightly from a month earlier. The growth rate slowed to 4.7% on a monthly basis.

The EV maker, backed by the government of Hefei city in eastern China, said that it is expanding the manufacturing capacity of its Hefei plant to meet order growth but did not disclose the number of order backlogs. The company in September reached a monthly capacity of 5,000 units on a single shift and aims to increase the number by 50% by January, CEO William Li said during its third-quarter earnings call.

Xpeng Motors recorded deliveries of 4,224 EVs in November, up by 342% year on year and 38.9% sequentially. A low base in 2019 and a dip in October a result of competition from Tesla’s China-made Model 3 boosted the comparisons. The Guangzhou-based EV maker sold 1,016 G3 sports utility vehicles in the same month a year ago, according to figures from industry group China Passenger Car Association. It forecasted deliveries of around 10,000 vehicles for the fourth quarter.

Li Auto reported November deliveries of 4,646 EVs after market close on Monday, growing 25.8% on a monthly basis. The Beijing-based EV maker, which began vehicle deliveries last December, said the number of deliveries as well as new orders in November surpassed 5,000 units.

READ MORE: Nio, Xpeng, Li Auto: your cheat sheet to China’s listed Tesla rivals

Chinese electric vehicle maker Nio on Tuesday reported third-quarter revenue that beat Wall Street expectations alongside record delivery volumes and double-digit profit margin, though share prices fell 3.3% by market close on Wednesday.

The China’s most valuable EV maker earned revenue of RMB 4.5 billion ($666.6 million) in the third quarter, up 146% from the same period a year earlier and higher than the consensus estimate of $663.2 million compiled by Bloomberg.

Gross margin improved sequentially to 12.9% from 8.4%, though rival Li Auto outperformed with an impressive 19.8% margin during the same period. Quarterly losses narrowed 11% quarter-on-quarter to RMB 1.05 billion, lower than the RMB 1.15 billion posted by its peer, Xpeng Motors.

Nio in Q3 nearly tripled on an annual basis the number of vehicles delivered to 12,206 units, and forecasted a new high for Q4 of 17,000 cars. Its output growth rate exceeds its peers. However, challenges loom as the company fights for market share amid growing competition from both domestic and international rivals in the crowded Chinese EV market.

Nio improves margin

During its Tuesday earnings call, Nio attributed gross margin improvement mainly to an increase of RMB 10,000 per unit in average selling price for the quarter as sales for the higher-priced ES8 crossovers rose in Q3. Deliveries of Nio’s first model recovered by September when it sold 1,482 units following the launch of a revamped model after hitting bottom in February at just 36 units.

Significantly cheaper material costs including battery packs boosted margin, vice president of finance Stanley Qu said during the earnings call. A top client of Chinese battery supplier CATL, Nio in March said that it expected battery costs to decrease more than 20% year on year in the fourth quarter.

The Shanghai-based EV maker aims to further drive sales and boost gross profit. It is forming ambitious volume and service expansion plans for the coming months, setting a monthly production target of 7,500 vehicles in January, up 50% from September.

Another initiative for next year is constructing 300 newly designed battery swap stations across the country. The company’s recharging network numbered 158 battery replacement facilities as of September. Each of its swap stations cost RMB 2 million on average to set up, but that number will be decline by half next year thanks to design improvements, CEO William Li Bin told Chinese media earlier this year.

Currently the best-financed Chinese EV startup, Nio’s cash on hand almost doubled to RMB 22.2 billion in Q3. It expects to maintain cash burn at a modest rate looking ahead, Qu said during the call, pledging to ensure service network expansion is well planned and executed. Most of the capital expenditure for capacity expansion will be covered by its manufacturing partner JAC Motors, according to Nio financial chief Steven Feng.

Hurdles remain

With gross margin shy of double digits, Nio’s may continue to struggle for profits amid internal issues such as production delays. Supply chain partners continue to weigh on production capacity.

Currently, Nio customers have to wait for up to six weeks for deliveries as demand rises and parts remain in limited supply. Nio hopes to reduce that time length to three to four weeks, according to Li. Li said Nio would reach its target capacity of 7,500 units in January, while acknowledging it would not immediately be able to shorten delivery times.

Xpeng faces the same issue, with CEO He Xiaopeng last week acknowledging to analysts that the company was encountering “a temporary bottleneck” in battery supply, which would probably continue for a few months. Still, He said supply chain partners would expand their capacity to meet Xpeng’s needs in the next six to 12 months.

Faced with growing competition from both automakers at home and abroad, both Nio and Li Auto are expected to accelerate spending on research and development to gain an edge in self-driving technologies. Nio’s Li during the call said the firm’s second-generation technology platform, called NT 2.0, equipped with “the most advanced chipset in the industry” and enhanced artificial intelligence capabilities, would be deployed on its first sedan scheduled for release early next year.

The EV maker, backed by Chinese internet giant Tencent, recently released its advanced driver assistance function, Navigate on Pilot, in head-to-head competition with Tesla and Alibaba-backed Xpeng. Li Auto plans to catch up by tripling the size of its self-driving team to 200 scientists and engineers by June, and launching a similar function as early as 2021.

Competition heats up

US-listed Chinese EV makers have collectively delivered 70,399 vehicles as of October this year, lagging Tesla’s nearly 100,000 China-made sedans during the same period, according to figures from China Passenger Car Association.

Concerns linger about the company’s profitability after short seller Citron Research last week warned that Nio’s valuation was too high to be justified by market share, along with a possible sales hit by the upcoming launch of Tesla’s locally built Model Y early next year.

Li maintained during the call that Nio targets a more premium consumer segment than Tesla with a higher average selling price. With deliveries in October more than double on an annual basis, it is clearly not affected by Tesla’s most recent price cuts, he said. October deliveries for Xpeng, whose P7 model directly competes with the Model 3, declined 14.4% from a month earlier.

Nio’s share price has surged over 1,000% since January, indicating that a correction may be due along with near-term pressure from Tesla. Still, around 63% of analysts covering Nio have rated its shares “buy.” Bank of America, Deutsche Bank, and JP Morgan on Wednesday raising their price targets on the stock, according to a CNBC report.

 “We believe Nio will continue to take share in the premium segment from traditional ICE incumbents, …ultimately emerging a major winner in the China auto market by the middle of the decade,” Deutsche Bank analysts led by Edison Yu wrote in report on Wednesday.

Chinese electric vehicle makers looking to expand to markets in Europe need a localization strategy for the culturally diverse region, although adapting to the various demands of each country could put a strain on their finances, according to an industry expert.

“Europe, like Southeast Asia, is very diverse, and therefore a marketing strategy in Germany might not work in France and Italy. The complexity ramps up significantly for EV makers and that could be a drain on their capital,” said Tu T. Le, founder and managing director of business intelligence firm Sino Auto Insights, on Oct. 29 during the TechNode Emerge 2020 conference.

Chinese carmakers have long sought to expand overseas amid Beijing’s ambition to build a world-class auto industry, and the aspiration has now been passed to young EV makers.

Nio is stepping up its global expansion with plans to begin selling in some European countries in the second half of 2021, according to a Reuters report. A Chinese media outlet reported last week that it aims to open its first overseas showroom in Copenhagen, Denmark and sell 7,000 SUVs within the next two years. Nio declined to comment when contacted by TechNode on Thursday.

Meanwhile, Alibaba-backed Xpeng Motors beat its rivals to the punch with a late-September shipment of 100 crossovers to Norway which were scheduled for delivery in partnership with a local dealer starting this month. 

With deliveries of several thousand units per month, Chinese EV makers have yet to carve out a prominent position among traditional automaker giants in their home markets. Flush from US market listings and investments from local Chinese governments, the companies are looking to establish footholds in Europe, a market where even Tesla has faced tough competition.

The California-based carmaker is losing ground with its EV market share falling sharply to 13.5% in Western Europe in the third quarter from 33.8% in the same period a year ago, industry analyst Matthias Schmidt said in a report earlier this week. Meanwhile, local giants Renault and Volkswagen, the two largest EV makers in the region, grabbed market share from Tesla in the first three quarters of the year.

While investor sentiment sends Chinese EV stocks higher, the companies have a long road ahead to succeed in such a market. In an interview in June, Nio president Qin Lihong acknowledged the barrier for entry to Europe is high and its current approach to build a sales network in China may not apply in the West.

“Chinese EV makers really need to focus on individual European countries as opposed to looking at Europe as one big market. Moving forward, what they do with new funding and where they invest could be an important indicator of how successful they’re going to be,” Le said.

With China’s electric vehicle (EV) sector still reeling from a withdrawal of government support, three companies have emerged as viable challengers to Tesla in the world’s largest car market: Nio, Xpeng Motors, and Li Auto.

The three Tesla wannabes vary in their approaches and development.

Nio is the showiest, led by its charismatic founder, William Li Bin, and boasts the deepest pockets and boldest business plan. The company is known for its grand, customer-centric strategies ranging from a network of luxurious showrooms to a free battery swap service. It was the first of the three to deliver cars to its customers, in June 2018.

Alibaba-backed Xpeng has its targets set on self-driving technology, and began delivering cars just six months after Nio. Led by a former Alibaba executive, its vehicles have been criticized for bearing a close resemblance to Tesla’s—this is no coincidence.

The staid Li Auto is more practical, solving the most urgent issues of early EV adopters, and was the last of the three to begin deliveries, in late 2019.

Comeback story

While EVs may be exciting, investors have doubted the viability of the market as a whole and question Chinese EV makers’ prospects. Even in their home market, these companies are dwarfed by Tesla, whose locally built Model 3 is the country’s top-selling EV. Critics had viewed Nio’s prospects as gloomy, last year speculating that the company was insolvent and wondering if other companies might follow in its footsteps.

But the Chinese government is bolstering a surge in EV adoption and clean energy vehicles are expected to grab a quarter of total car sales by 2025. The state’s efforts to achieve this goal has benefited EV makers, including Nio. The company landed a $1 billion bailout from the government of Hefei, capital of China’s eastern Anhui province. As a result, its shares have rocketed a whopping 470% this year.

Nio, Xpeng, and Li Auto have reported surging deliveries that outperform legacy automakers. As investors reverse their attitudes towards Tesla’s Chinese challengers, we wonder whether they are well-positioned to sustain high growth rates into the future, and even more interestingly: which one has a stronger shot at becoming the “Tesla of China”?

Infection points

Chinese EV makers seemed to be teetering on the edge of collapse earlier this year after Beijing slashed purchase subsidies by half last year to cool the overheated industry. As a result, EV makers saw sales figures sink while cash burn rates stayed high.

Nio—then the poster child for China’s EV industry—saw its cash reserves disappear after years of aggressive spending on its retail strategy, which included building impressive showrooms across China. The market went from around 500 EV companies in early 2019, to fewer than 10 that have managed to deliver cars in 2020.

Then, the EV market quietly began to turn around. Growing consumer demand and extended government support have led to robust sales growth and narrowed losses. As the world’s biggest auto market recovers from the Covid-19 pandemic, analysts expect strong long-term growth for Chinese EV makers, with Nio and Li Auto potentially expanding their lead among the homegrown players.

Deliveries

Nio, Xpeng, and Li Auto recorded surging sales over the past two quarters, illustrating their improving performance. Analysts expect further top-line revenue growth in the second half of this year, as Tesla’s success in China draws more funding to help local EV makers grab a share of the market.

• Nio delivered a record 4,708 vehicles to customers in September, up 133% year on year. The company sold 12,206 vehicles over the summer, a new high in quarterly deliveries. Li Auto came in behind Nio, selling 8,660 of its own EVs over the same period.
• Growth may prove more difficult for Xpeng, which has just recently launched its first sedan, the P7. Some analysts have expressed concern over Xpeng’s near-term prospects considering that the P7 competes head-to-head with Tesla’s Model 3.
• Meanwhile, Tesla is seen as a growth driver for China’s EV market by increasing consumers’ awareness of these cars. The US carmaker this month launched a Model 3 with Chinese-made batteries, bringing the post-subsidy price down by almost 10%, Bloomberg reported. China’s biggest brokerage, Citic Securities, remains bullish, in a note (in Chinese) on Oct. 9 saying Tesla is stimulating the overall market.

Tackling money problems

As China’s EV makers produce and sell more cars, they have also been able to absorb costs more effectively. In the first half of the year, Nio and Xpeng narrowed their net losses by more than 50% compared with the same period a year ago.

• Li Auto improved its gross margin to 13.3% in the second quarter from 8% in Q1, impressing observers. Still, Bernstein analysts warned that future losses are inevitable as the company ramps up development of new vehicles and self-driving technology.

Meanwhile, Tesla’s success in China is good for the company—but also for its competitors. The US carmaker’s growth has local governments scrambling to bail out homegrown competitors.

• Nio’s $1 billion lifeline spurred some analysts to rethink their evaluations of the EV maker, though the company will continue to face pressure to raise more capital. UBS analyst Paul Gong in late August jacked up his target share price for Nio to $16.3 from $1 while upgrading the company to neutral from sell, according to a CNBC report, since the company’s liquidity concerns were “assuaged” by the successful fundraising.
• Xpeng followed soon after. In September, the company secured $586 million from the government of Guangzhou, capital of China’s southern Guangdong province. Analysts said that Beijing-based Li Auto could strike a similar deal with local authorities.

Strategies

Tesla’s Chinese rivals have taken vastly different approaches to gaining a foothold in the market. Nio, the most high-profile and best-financed of the three, had a market cap of $29 billion as of Oct. 14, almost equivalent to that of Xpeng and Li Auto combined (Update: These figures are slightly out of date—Nio’s stock jumped 22.57% in trading Wednesday following publication of a favorable report from J. P. Morgan, coming after this article was published in a newsletter). However, analysts are sharply divided over the company’s ability to improve margins because of its big budget, customer-centric business model, which includes offering battery swap facilities around China.

But Nio’s investment in its costly retail and community strategy appears to be paying off. Deutsche Bank said last month that a growing number of consumers recognize Nio as “a high-quality premium brand with best-in-class technology and customer service.” Meanwhile, Credit Suisse reportedly raised Nio’s price target to a new high of $25 when the company guided a record number of orders last month and expanded its monthly production capacity to 5,000 vehicles.

• Still, analysts warn that Nio sales are likely to fall off following the end of an offer of unlimited free battery swaps in October. Sales may have been artificially high if consumers sought to lock in purchases before the deadline.
• China International Capital Corporation (CICC) expects Nio’s net loss to narrow another 6.8% to RMB 4.4 billion in 2021. In a note (in Chinese) published in August, analysts said the company’s battery-leasing service could significantly lower the cost of EV ownership, while enhancing user experience with upgradable battery technologies.
• Still, bearish researchers including Bernstein think otherwise, warning that the launch of Tesla’s locally built Model Y next year could deal a blow to Nio’s sales.

Analysts are generally more positive about Xpeng and Li Auto, which have more conventional business models. These companies are more circumspect about spending, have strong growth potential, and have successfully tightened manufacturing costs.

J.P Morgan said Xpeng could be the potential winner in China with its in-house self-driving technologies and mid-to-high-end positioning. The company expects Xpeng to break even in 2023 and sell 345,000 cars a year by 2025.

• Targeting more frugal consumers than Nio and Li Auto means Xpeng could find itself locked in a price war against companies including Tesla and BYD, among others, Bernstein noted, adding that autonomous driving technology in general is still in its infancy.

While Nio is seen as the higher-tier brand and Xpeng the cutting-edge competitor, Li Auto’s pragmatic approach is viewed favorably. The company has distinguished itself from competitors by offering extended-range electric vehicles (EREVs), a bridge technology that addresses the pain points of owning a standard EV, including range anxiety and charging point bottlenecks.

Bernstein expects Li Auto to reach a gross margin of 13.5% this year and break even between 2022 and 2023. Goldman Sachs in August classed Li Auto as a “conviction buy,” predicting that the company’s stocks would outperform expectations, and estimated an annual sales volume of 445,000 vehicles in 2025.

• There has been some controversy over EREVs as a transitional technology, as well as doubt about how long it will remain relevant as EV technology improves. Nevertheless, Bernstein and CICC analysts said Li Auto could jump from EREVs to all-electric, since the latter is simpler from an engineering standpoint.
• Li Auto may break even earlier than its peers, while Nio remains a bigger threat to Tesla with a solid reputation in the high-end segment, something no Chinese manufacturer has accomplished before.

Market shifts

China’s EV sales have slumped since last year. Beijing’s subsidy cuts followed by the economic shock of the Covid-19 outbreak have left companies reeling.

More analysts have reversed their initially positive outlook for 2020, predicting a 20% drop in sales compared to last year’s 1.2 million deliveries. In August, the country’s top auto industry body, the China Association of Automobile Manufacturers (CAAM), lowered its 2020 EV sales forecasts to 1.1 million vehicles.

The situation could get even worse for EV companies, as legacy automakers including VW plan to release more EV models from 2022 onwards. This, coupled with Nio, Xpeng, and Li Auto’s relative inexperience in manufacturing, could make for a difficult next couple of years.

However, the transition from internal combustion vehicles to EVs is gaining speed. And Chinese firms are riding the wave of Beijing’s push to maintain its leadership as the world’s biggest EV market. Sales of all-electric and plug-in hybrids vehicles have to make up around one-quarter of total auto sales in 2025 in order to reach China’s mandated EV quotas, according to IHS Markit (in Chinese).

Consumer demand for EVs is expected to grow rapidly over the next few years due to increased affordability, with the high-end market seeing a rapid surge in sales. Around 1 million luxury EVs will be sold in China by 2025, according to Bernstein analysts. Half of this total will be made up of sales from smaller EV players like Nio, Xpeng, and Li Auto.

“China’s smart and electric vehicle market will enter the fast lane over the next 10 years, and the hand-to-hand fight between homegrown carmakers and overseas giants has started,” Citic Securities wrote in a note in July (our translation).

While many Wall Street analysts have taken bearish views of the field, Asia-based analysts are embracing the notion that young EV makers could co-exist with Tesla and even benefit from its China success. Nio and its peers collectively accounted for 14% of China’s EV sales in June, a significant rise from 7% a year ago, figures from the China Passenger Car Association (CPCA) show.

The road ahead

Speed is the key to success for homegrown Tesla challengers to carve out a position in the market and avoid getting squeezed out by established automakers.

Bernstein expects that the pace of sales network expansion will be a “critical determinant” for Li Auto’s performance in the coming year. As of Sept. 30, the company currently has 35 retail stores in 30 cities, only a quarter of those of Nio and Xpeng.

Time is also short for Nio and Xpeng to scale charging service networks, which IHS Markit sees as one of Tesla’s early competitive advantages in encouraging consumers to go electric. Nio last month announced a RMB 100 million ($14.9 million) initiative to build 30,000 fast chargers over the next three years. Xpeng is also ramping up with its lifelong free charging for first-time owners program, which launched on Sept. 26.

As costly projects come to life, Chinese EV makers need to continually raise capital to keep funding their ambitions. Any gaps in financing could mean being left behind.

“The combined market cap of Nio, Xpeng, and Li Auto is $50 billion, far below Tesla’s $450 billion. There is still great room for (valuation) growth,” Chinese media in August reported citing Wang Sheng, deputy head of global investment banking at CICC. (our translation).

Updates: An earlier version of this article incorrectly compared the price of Tesla’s Chinese-made Model 3 to competing autos. Additionally, Li Auto has 35 retail stores as of Sept. 30 according to an announcement released earlier this month, not 30. This article was also updated to reflect a jump in Nio’s stock price shortly after publication.

Nio will release a semi-autonomous technology that allows hands-free driving on urban highways to users in October, as Chinese electric vehicle makers ramp up efforts to combat Tesla’s Autopilot driver-assist system.

Called Navigate on Pilot (NOP), the technology will enable a Nio vehicle to drive from a highway’s on-ramp to off-ramp, merge lanes, and cruise on a highway following a route on the GPS navigation system, Nio said Saturday. It will be released via software update.

The company said that NOP would be the first assisted-driving function using high-definition maps on mass-produced vehicles in China, a practice that few automakers have adopted due to the government restrictions on foreign companies recording geographic information.

Speaking to Chinese media on Saturday during the Beijing Auto Show, CEO William Li said its test vehicles have driven more than 300,000 kilometers (around 186,400 miles) across 30 major cities collecting map data. He added NOP is more fine-tuned to Chinese traffic conditions compared with Tesla’s popular Navigate on Autopilot functionality.

Nio recently hired Ren Shaoqing, co-founder of Chinese self-driving startup Momenta, to enhance its R&D strength in vehicle autonomy. Momenta is currently one of the only 20 or so companies granted a mapping license by central authorities. Nio Capital, a private equity firm formed by the Chinese EV maker, led its $46 million Series B in 2017.

Meanwhile, the Tesla rival is reportedly considering building self-driving technologies in-house following the settlement of a $1 billion bailout, leaving the future of its partnership with Intel’s Mobileye uncertain. Chinese media reported that Nio recently reached an agreement with Qualcomm to test vehicles on its Snapdragon Ride computing platform, scheduled for mass production by 2023. Nio did not respond to a request for comment.

Automakers view high-precision mapping to be an essential component for smoothly functioning self-driving cars, helping sensor perception and path planning with more accurate localization. Tesla is an exception, however—CEO Elon Musk said that its vision-based system, which uses cameras and artificial intelligence, is easier to scale, reported The Verge.

Automakers have mostly resorted to mapping services to gain an advantage in the Chinese self-driving race. General Motors in July launched its hands-free assisted driving system Super Cruise in China by collaborating with Alibaba’s map service Amap, also known as Autonavi. Chinese media reported that the two companies have jointly mapped more than 300,000 kilometers of roads and will refresh map data via software updates every three months, citing a GM spokesperson.

Alibaba-backed Xpeng Motors expects to roll out its latest assisted-driving software, Xpilot 3.0, including a function called Navigation Guide Pilot (NGP), similar to Tesla’s NOA, in early 2021. Meituan-backed Li Auto is planning a similar launch as early as next year. Nio said it will roll out NOP with the version 2.7.0 update of its vehicle operating system Nio OS to users in October.

Nio’s current partner Mobileye last year made a push of its mapping technology Road Experience Management (REM) into China through a partnership with local chipmaker Tsinghua Unigroup. This was followed by an agreement with state-owned automaker SAIC, which will be the first Chinese OEM to provide driver-assisted functions with Mobileye’s mapping technology, according to an announcement released early this year.  

Correction: An earlier version of this article incorrectly identified Nio’s self-driving function as “Navigation on Pilot.” It is “Navigate on Pilot.”

This week, I looked at battery swap technology for TechNode’s Drive I/O newsletter. Two Chinese electric vehicle (EV) companies, Nio and BAIC, are betting big on cars with batteries you can change instead of charging. It’s an ambitious idea—it could solve some of the EV industry’s biggest problems, but there’s no guarantee it’ll work in the market.

READ MORE: Drive I/O | Big bets on battery swap

I wanted to know what drivers think of battery swap, so I visited a Nio swap station in the west Shanghai. As you can see in our video below, the swap process is pretty fast—a little more involved than refuelling a gas car, but faster than changing a tire at the mechanic. 

The Chinese Tesla challenger has seen some initial success, completing over 800,000 battery swaps with a nationwide chain of 143 service stations for car owners. The company recently doubled down, establishing a RMB 800 million ($117 million) battery asset management joint venture with several partners, reported SCMP, and plans to build 50 more swap stations next year.

Located in an understated residential area in west Shanghai, the swap station is far less flashy than you would expect.

The facility doesn’t look new and shiny, unlike some of Tesla’s spacious supercharging stations in China’s first-tier cities, but it seems to get the job done. We saw five Nio vehicles pull into the station during our 40-minute stay. Here’s what we found out while we were there. 

We spoke to three Nio owners, and all said they own more than one car. All three said they usually drive their ES6 crossovers for daily use. 

• Frequency: Mr. Bai, who has been a Nio owner for under a month, has exchanged batteries five times.
• Mr. Xie, an ES6 owner since January, uses the vehicle for his daily commute. He typically swaps batteries six to seven times each month. 
• Mr. Ji, an ES6 driver since 2019 and a businessman with frequent road trips to nearby cities, comes to battery swap stations about ten times each month.

• Why swap? Both Xie and Ji said their residential parking spaces have home chargers, but Nio’s battery swap stations are easily accessible to them for daily commutes. Money is another major reason: Xie told TechNode that Nio’s free swap service saves him more than RMB 10,000 in electricity fees each year.
• Bai, however, is among thousands of EV owners in China who don’t have a fixed parking space or fixed charging pile in their residential car parks. He said he chose Nio over other EV brands largely due to its recharging services. The Nio battery swap station is only around 2 kilometers (1.24 miles) from his home.

• How about experience? All the three customers spoke highly of the availability and efficiency of Nio’s free-of-charge battery swap services, saying that the facilities meet their daily needs.
• Still, two customers mentioned that they sometimes have to wait in lines for up to 20 minutes during evening peak hours, as more Nio EVs are on the roads. Nevertheless, they think the delay is acceptable, since the driver remains in their vehicle before getting out to have the battery swapped.

For years, batteries have been a big turn off for prospective EV owners. They drive up the cost of the cars, making them more expensive than gas autos—and then these costly batteries wear out faster than the rest of the car, causing EVs to lose value faster than gas cars. 

On top of that, they’re inconvenient. If you don’t have a special charging pile, it can take 12 hours to charge a car. And many car owners in China’s major cities don’t even have parking at home—let alone a private charging pile. Home charging installations are even strictly forbidden in some old, congested residential communities due to limited parking and power capacity. 

BAIC, a legacy carmaker with a manufacturing partnership with Dailmer, went first. It says it’s the world’s first operator of a commercial battery swap service for taxi drivers, with a network of around 200 swap stations across China.

Meanwhile, Nio is trying a newly-legal model: consumer-facing Battery-as-a Service (BaaS). Under this model, the customer buys a car and then rents a battery to go with it. The company says it can slash the sticker price by a fifth for battery-less cars.

The two carmakers will have to overcome serious challenges—and deploy serious capital—to make the model work, but their swap efforts have one big advantage over previous attempts: support from China’s powerful EV regulators.

Advantages

In theory, battery swap addresses the biggest problems with EVs:

• Affordability: A battery can account for a fifth of a car’s price, and it loses value quickly—so separating cars and batteries cuts upfront cost and depreciation. This is especially important in China, where the government aims to completely eliminate EV subsidies after 2022.
• Convenience: While charging from the mains can take hours—or 40 minutes if you can find a Supercharger—a swap takes minutes (if you can find a free swap station). Much better for road trips, poor advance planners, or professional drivers who need their car on the road all day.
• Safety: China also expects swaps to improve safety and help reduce car fire accidents, as companies will have a chance to check batteries for faults regularly when they come in for swaps.

Skeptics

Despite its advantages, many industry analysts doubt that a battery swap service can work at scale. Companies that have attempted to launch battery swap initiatives in the past have failed dismally. 

Tesla quietly closed its pilot project three years after opening its only battery swap station in 2013. Meanwhile, Israeli startup Better Place filed for bankruptcy in 2013, partly due to its ambitious plan to build a nationwide chain of expensive pit stops.

• Cash burn: Nio, like other Chinese EV makers, is already in the red. Building a network of battery swap stations in China could further worsen the company’s financial situation. Each of Nio’s 143 battery swap stations costs more than RMB 2 million to set up, according to the company. As the service has long been free for Nio’s customers, they’re not bringing in any offsetting revenue yet.
• Nio CEO William Li said recently that the production cost of a battery swap station would be cut down to half next year owing to design improvements. The EV maker will also limit new owners to six free swaps a month from Oct. 11.
• Standardization: Every company uses its own model of battery—so a Nio swap station can only swap Nio batteries. Would you buy a gas car if you could only fill the tank at Shell stations? 
• User concerns: Some Nio users complain that the company’s battery rental offerings are too expensive. The company charges a monthly fee of RMB 980 ($143) for a 70 kWh battery pack. 
• Other users posting in Nio forums worry that the swap stations will replace the new battery that came with the car with an older battery. 

Some of these problems could be easier for fleet-focused companies like BAIC. Scale, and standardization are easier to achieve for taxis, because they deploy thousands of the same car at once.

Government to the rescue

Since 2009, China has aimed to be at the forefront of global EV adoption. Slowing sales after the government cut purchase subsidies last year and concerns over the range of existing EVs has led Beijing to get interested in battery swap. 

The government has pushed an array of policy changes to support battery swap, likely hoping it will help to sell EVs after the country reported its first-ever annual decline in new energy vehicle sales last year. 

Legalizing battery-free cars: By far the biggest policy development is a change in regulations allowing EV makers to sell cars without batteries, reversing an eight-year-old rule that required NEVs to come with a battery. This move allows Nio, the only adopter so far, to slash sticker prices.

Incentives: The government also stepped up its support for battery swap initiatives by offering favorable treatment for EVs with swappable batteries. In April, Beijing cut NEV subsidies by 10%, while premium models priced RMB 300,000 and above have also been excluded from a two-year tax exemption and purchase subsidies. However, cars whose batteries can be replaced were exempted, giving them a price advantage.

• Government subsidies are also being used to build battery swap infrastructure, although in most cases the rules are unclear and vary among cities. A battery swap station in the southwestern Chinese city of Chengdu, for example, could earn as much as RMB 5 million in subsidies, according to a Chinese media report. In the central Chinese city of Wuhan, the government has offered subsidies of up to RMB 3 million per swap station. 

On equal footing: But the central government stressed in July 2019 that it’s not against non-swappable EVs. Chinese media Caixin reported that there isn’t a plan to force battery swapping, and that the government plans to let the market make the choice, citing MIIT deputy director Luo Junjie.

The players

Nio takes the consumer market: Nio was the first Chinese company to risk a consumer-facing battery swap business. The EV maker in August drastically revamped its service by allowing users to buy a vehicle without a battery, dramatically reducing costs. 

Consumers who buy a Nio ES6 crossover, with an original price of RMB 358,000 and above, now get a 20% discount (around RMB 70,000) if they forego owning a battery and subscribe to Nio’s battery rental service. 

• Nio owners currently pay a minimum fee of RMB 980 per month for the leasing program, but there is room for further reduction due to falling battery costs, investment bank China International Capital Corporation (CICC) said last month (in Chinese).
• Nio is sharing the risks of the battery swap business with partners: last month, it formed a battery asset management company with Chinese battery giant CATL, financial services group Guotai Junan International, and state-owned Hubei Science Technology Investment Group. Each stakeholder owns 25% of the joint venture.

See it in action

TechNode visited a Nio battery swap station in Shanghai and spoke with Nio owners—read the accompanying story for their comments on the service and a short video of battery swap in action.

Nio’s battery swap stations appear to be relatively popular. During a visit to one of these stations in Shanghai, TechNode saw five batteries changed in 40 minutes. Three Nio owners at the facility said that they use the service at least five times a month, with one adding that they save him up to RMB 10,000 a year in electricity. 

BJEV, the EV unit of BAIC, was the first big player in swap. With a strong presence in the commercial fleet segment, BJEV currently runs a network of 187 battery swap stations in 19 cities around China for its fleet of 18,000 taxis. The company plans to invest RMB 1.2 billion to build 82 new battery swap stations, while looking for partners for further expansion, according to a private placement plan (in Chinese) released last month.

• It also seeks to establish itself in the premium market, with plans to roll out the first mass production EV under its new Arcfox brand this month. There have been rumors that the Arcfox α-T crossover will be equipped with swappable batteries with a reported starting price of around RMB 280,000, targeting Tesla vehicles.

Rest of the pack: China’s biggest automaker SAIC jumped into the market following policy changes, with plans to launch two EV models with swappable batteries for the first time, according to a document released by the MIIT on Aug. 25. Meanwhile, Volvo parent company Geely registered a new trademark for battery swap services in April, and is on track to release an EV model with a replaceable battery later this year.

What’s next?

Beijing doesn’t see swaps as a replacement for charge batteries. Rather, battery swap is poised to act as a stopgap in China’s transition from gas-driven cars to green transportation. 

Nio sees battery swapping as complementary to charging, assuming that swap users will also regularly charge their batteries. Each swap station contains only five batteries, said Nio’s William Li during a media briefing in August. Currently, 60% of Nio owners have used the company’s battery replacement services, of whom half swap packs twice per month, and the other half more than twice a month, Li added.

But the company hopes swap will bring in customers who don’t have good access to chargers at home, and reduce losses. CICC analysts say the initiative will narrow the company’s annual loss by RMB 130 million to RMB 4.4 billion over the next year by increasing sales and bringing in revenue by selling battery packs to its joint venture with CATL.

Recycling profits: Meanwhile, both BJEV and Nio have designs to leverage battery swap into a much larger market: energy storage for the national grid. 

Providing services will leave both companies with a pile of worn-out batteries—most are retired from car use when they can hold only 80% of their original charge. These 80% batteries are still valuable in an application where you don’t care much about charge per weight—say, providing energy storage to solar farms. Providing reserve energy capacity for public usage with recycled batteries would be more cost-effective and create a second revenue stream with the ownership of used batteries, consultancy McKinsey wrote last year.

A BJEV executive reportedly estimates to expand this emerging business as early as next year, when the first batch of EV batteries on Chinese roads are about to retire. The legacy automaker has deployed a taxi fleet of over 18,000 EVs with swappable batteries in nearly 20 Chinese domestic cities as of May and plans to sell 30,000 more by the end of this year, a company executive told Chinese media.

A big bet: Battery swapping might not be consumers’ first choice for the next several years. But the business is starting to boom as the government jumps behind the technology. For local players, battery swap could be a cash strain for a long time to come, but the technology also paves the way for China’s rebound in EV uptake. 

Correction/update: An earlier version of this article, sent as an e-mail, newsletter inaccurately reported BJEV and Nio’s relative sales of swappable EVs and the release date of Nio’s battery rental offering. The article was also updated on Sept. 3 to include comment from Nio on its battery swap business.

Xpeng Motors is priming for a public listing in New York where it could raise up to $1.1 billion from a number of high-profile backers, including Chinese technology giants Alibaba and Xiaomi.

Why it matters: Xpeng’s listing is timed to benefit from strong investor appetite for electric vehicle stocks, a spillover effect from Tesla’s massive run this year as it ramped up production of China-made Model 3 sedans.

• The initial public offering (IPO) would also be a test of US investor demand for Chinese stocks amid harsher financial scrutiny and rising tensions between Beijing and Washington.
• Xpeng would be the third Chinese EV maker to list in the US after Nio and Li Auto—currently the most potent local Tesla challengers, backed by Chinese tech giants Alibaba, Tencent, and Meituan, respectively.

Details: Xpeng Motors is offering 85 million American depositary shares (ADS) at $11 to $13 each, according to a Friday filing to the US Securities and Exchange Commission. The company said each share will represent two Class A ordinary shares.

• The high end of the range gives the EV maker a valuation of $9.17 billion. After the closing bell on Friday, Nio closed with a market cap of $16.7 billion and Li Auto with $12.5 billion.
• Chinese e-commerce giant Alibaba, its biggest external shareholder with a 14.4% stake, will purchase up to $200 million in the share sale, followed by US hedge fund Coatue with an expected subscription worth $100 million.
• In the meanwhile, Primecap Management Company, a US investment firm that has held Tesla stocks since 2011, also indicated interest in purchasing $100 million worth of shares in the offering.
• California-based Primecap is currently a Tesla shareholder with a 0.7% stake reduced from 1.8% in 2012, which accounts for 1.22% of its total portfolio, according to online research platform GuruFocus.
• Sovereign wealth fund Qatar Investment Authority will subscribe for $50 million worth of shares, after joining in its $800 million Series C+. Xiaomi, Hong Kong-listed smartphone maker and a long-time backer, will also buy up to $50 million worth of shares.
• He Xiaopeng, CEO of the company and a former executive at Alibaba, will retain 31.6% of the business and 58.9% of the voting power, according to the amended registration statement.

Context: Guangzhou-based Xpeng Motors is currently the only new EV maker that has delivered both electric sedan and SUV models to customers in China.

• Xpeng has delivered a total of 20,707 EVs as of July starting in late 2018, mostly its first production model, the G3, compared to Nio’s 49,615 units which began delivery four months earlier.
• It has sold 1,966 units of its second EV model, the P7, an electric sedan boasting a driving range of 706 kilometers (439 miles) and a proprietary assisted automated driving system XPilot, in the three months ended July 31.
• The company plans to launch its third and fourth models, one sedan and one crossover, based on its existing EV platforms by the end of 2022, according to the prospectus.

Chinese electric vehicle maker Nio has quietly hired a Chinese computer vision expert to lead its self-driving unit following the June departure of Jamie Carlson, its tech lead since early 2016.

Why it matters: The management change comes as Nio works on its self-driving technology development to catch up with peers after securing $1 billion in funding from the Chinese government.

• Nio has trailed behind rivals Tesla and Xpeng Motors in making autonomous vehicles after a series of layoffs last year when the company was under a massive cash crunch.
• It dismissed 141 employees in its third round of cutbacks in December, the majority of which came from its AV team, and partnered with Intel’s Mobileye to share the cost of developing robocars. The company currently has around 40 self-driving engineers based in the US, along with 160 in China.
• The latest hire will help Nio build in-house self-driving capabilities and partly offset its R & D headcount in the US, which it has been gradually reducing, people close to the company told TechNode.

Details: Ren Shaoqing, a computer vision expert and co-founder of Chinese self-driving startup Momenta, recently joined Nio as the assistant vice president of autonomous driving, according to three persons familiar with the matter.

• Jamie Carlson, Nio’s AV tech lead since 2016 and a former Tesla and Apple engineer, left the company in June, according to a Chinese media report. Nio declined to comment when contacted by TechNode on Friday.
• Ren will report directly to CEO William Li, taking charge of Nio’s perception solution development, which provides visuals of vehicle surroundings using cameras and sensors.
• Among the most highly cited Chinese researchers in self-driving technology, Ren in 2016 co-founded Momenta, an AV startup that develops camera-based software solutions for self-driving cars.
• Nio has backed Momenta since 2017, when Nio Capital, a venture capital fund established by the EV maker, led its $46 million Series B. German auto giant Daimler was also involved, along with other investors.
• Momenta also builds high-resolution maps that facilitate more accurate road navigation and enhanced safety for AVs. It was granted a permit to draw up high-definition navigation maps from Chinese regulators in 2018.
• Momenta did not respond to a request for comment.

Context: Nio’s progress in self-driving car technology has slowed over the past year. On the other hand, Xpeng Motor has advanced rapidly, and has a growing reputation in automated driving capabilities.

• During a call with analysts on Tuesday, Nio CEO William Li revealed that the proportion of owners who ordered full Nio Pilot self-driving package is around 25%, far lower compared with the 68% of Tesla buyers which opt in.
• Li added that Nio is on track to release its Navigate on Pilot (NoP) solution, which allows the vehicle to change lanes on its own, within this year, while acknowledging its self-parking feature was “not as competitive as Tesla’s.”
• Meanwhile, Xpeng boasts the highest auto-parking success rate among all vehicles available on the market, enabled with a dozen sensors and HD map solutions, and plans to provide its vehicles with an autonomous lane change feature on highways later this year.

Shares for Chinese electric vehicle maker Nio fell 8.6% on Tuesday after the company posted better-than-expected gross profits for the second quarter amid concerns over the long-term scalability of its ambitious battery-swap program.

These second-quarter financial results are an important milestone for Nio, which, for the first time reported a positive vehicle margin of 9.7%, nearly double the 5% company management had guided.

Nio attributed the improvement primarily to a record number of deliveries during the quarter, during which it handed over 10,331 vehicles to customers in the three months ended June 30. Total revenues jumped 146% year on year to RMB 3.7 billion ($526.4 million), beating analyst estimates of RMB 3.49 billion. Losses attributable to shareholders meanwhile narrowed 63.6% year on year to RMB 1.13 billion ($160.1 million).

The margin improvement owed much to a significant cost reduction in battery packs, among other materials. Nio now enjoys a much lower purchase price for battery packs from its supplier, CATL. It now pays RMB 0.8 per watt-hour (Wh) compared with an earlier rate of over RMB 1 Wh, Chinese media reported citing persons familiar with the matter. The six-year-old EV maker became CATL’s biggest battery client in the passenger vehicle segment during the first half of this year, according to figures from Chinese consulting firm GGII.

BaaS ready for Q3 launch

Nio said it has achieved “profound progress” in its plans for a “Battery-as-a-Service” (BaaS) offering, in which a battery rental service will be sold separately from cars. CEO William Li said Tuesday during the earnings call that it was in the final stages of preparing to launch its BaaS solution offering in the third quarter. All the necessary validation procedures with the government have been completed, he said.

Beijing has traditionally required automakers include a battery pack with each new energy vehicle sold, but the restrictions are now being lifted. A government announcement (in Chinese) last month revealed that Nio will be allowed to sell the EC6, its third mass production model, without a battery.

“We believe this is going to be a very good boost to our vehicle sales… and help us with the gross margin,” Li said. Nio expects a battery-leasing program to considerably lower the price of a Nio-branded premium crossover by one third to around RMB 258,000, for example, when renting a battery pack for daily use.

The Chinese Tesla challenger is betting heavily on battery-swapping technology as part of its broader BaaS strategy, which it hopes will resolve consumer range anxiety and effectively remove the issue as a barrier for EV adoption. The company now has a network of 142 battery swap stations in 63 Chinese cities, and is rapidly expanding the swap infrastructure by opening one station on average per week, Li said last month at a company event.

Investors unconvinced

However, multiple industry people TechNode recently spoke with have expressed doubts about the scalability of such battery replacement service, given a constantly evolving vehicle driving range and the ever-shortening EV recharge time. The difficulty in reaching a shared battery standard among multiple automakers is another hurdle, making battery swap a less economical solution for EVs over the long term, UBS analyst Paul Gong said in June during an online conference.

Nio said that it recently completed 750,000 battery swaps nationwide, highlighting growing adoption from its vehicle owners. It also boasted that each battery replacement took just three minutes, far faster than even the average 15 minute charge time at a Tesla V3 supercharger.

Nio is forging an alliance with giant industry players to minimize its financial burden in the swappable battery program. Li on Tuesday revealed plans to form a battery asset management company with multiple partners, in which Nio will hold a minority stake. The joint business is scheduled to open this month, which CATL reportedly (in Chinese) intends to invest in.

Chinese electric vehicle maker Nio set a record for quarterly vehicle deliveries despite disruptions due to the Covid-19 outbreak, sending its shares soaring 16.6% to $9.23 in premarket trading.

Why it matters: Amid an extended slump in China’s EV market, Nio is accelerating into the fast lane following a significant cash injection and new production model coming to the market.

• Nio on Monday announced it had already received RMB 4.8 billion ($678 million) of the first two installments totaling RMB 5 billion in its RMB 7 billion financing project with the government of Hefei, capital city of the eastern Anhui province.
• Registered capital of its newly established China entity, Nio (Anhui) Holding Ltd., surged to RMB 5.07 billion last month from RMB 11 million, according to information on Chinese business research platform Tianyancha.com.

Details: June deliveries for Nio’s two models nearly tripled to 3,740 units from a year earlier, pushing quarterly deliveries to 10,311 units in the second quarter of this year, 191% year-on-year growth, the company said Thursday.

• Q2 deliveries exceeded the upper limit of the company’s target of 9,500 to 10,000 vehicles. Nio’s financial chief Steven Feng expressed confidence about reaching previous goals including a 5% margin on vehicles in the second quarter.
• The Chinese auto market began to rebound—June sales increased 11% year-on-year to 2.28 million units, according to preliminary figures from the China Association of Automobile Manufacturers.
• China auto sales declined 17% year-on-year to 10.24 million units during the first half of the year.

Updates on the EC6: Nio is on track to launch the EC6, its third mass market model, an electric coupe SUV likened to Tesla’s Model Y, with pricing information to be available during the upcoming Chengdu Motor Show later this month, according to multiple sources familiar with the matter.

• A set of what it called “Battery as a Service” (BaaS) solutions will also be released, through which a battery rental service will sell separately from vehicles in bid to lower the threshold for purchasing, according to people close to the company.
• During the first quarter earnings call, CEO Li Bin said the company was working on new products and service solutions “based on the separation of vehicle and battery,” which Li expects will be released in the second half of this year.
• Last week, the company unveiled its first pre-production EC6 as part of its joint plan with Chinese automaker JAC in Hefei, reported Chinese media on microblogging platform Weibo.

While China’s overall auto sales have rebounded strongly following the Covid-19 outbreak, the electric vehicle market cratered with a double-digit decline in May.

New energy vehicles (NEV) sales dropped 23.5% year on year to 82,000 units in May, according to figures from the China Association of Automobile Manufacturers (CAAM), while total auto sales leapt 14.5% on an annual basis. The decline continues a nearly year-long dropoff since Beijing announced in July cuts in EV subsidies of up to 60%. The world’s biggest EV market recorded its first-ever annual decline last year, with 1.2 million units sold.

China’s top industry regulator in 2017 set a 2020 goal of 2 million EVs, to reach 20% of new car sales by 2025. Whether China will be unseated as the world’s biggest electric vehicle market seems unlikely, yet bleak auto sales figures are a stark reminder of the chasm between Beijing’s near-term goals and actual sales.

TechNode’s recent conversations with analysts show a sharp divide on that question as well as their views on government subsidies and consumer demand. Let’s look at their estimates first.

Higher prices, tighter budgets

China’s EV adoption is strongly tied to government incentives. The central government began slashing subsidies by up to 60%, or RMB 27,000 per unit, on electric cars late last June. The market has been on a roller-coaster ride as a result, from 80% year-on-year growth to falling into a months-long slump.

Beijing in April announced that it will extend EV subsidies until the end of 2022 in an effort to stem further collapse, though they will be 10% lower in 2020 than 2019 levels, 20% lower in 2021, and 30% lower in 2022. This means for an EV with a driving range of more than 400 kilometers (around 250 miles), the qualifying subsidy is RMB 20,000 (around $2,820) compared with RMB 55,000 at the peak in 2016—leaving many to doubt its effectiveness.

China International Capital Corp (CICC), however, sees value even in a downsized subsidy, saying in an April report that it will have a calming effect by “stabilizing consumer expectations” (our translation). UBS analyst Paul Gong agreed, adding that additional financial incentives from local governments would help with market recovery.

Still, CICC recently cut its 2020 EV sales forecast by a third, to fall between 1 and 1.5 million units, on account of the shattering blow Covid-19 has dealt to economies across the globe. UBS estimated annual sales will continue at the 2019 level this year, without giving specific figures.

The subsidy crutch

The NEV sector is still not a market that can thrive without subsidies, global consultancy AlixPartners wrote in a recent report. It pointed to weak overall demand for autos amid the lowest annual economic growth China has seen in decades due to the pandemic.

This holds even more true for the less affordable electric car relative to traditional gasoline engine vehicles. The EV price differential is at least $8,000 more than an equivalent model with a gasoline combustion engine, owing to the expense of the car battery. This difference will probably deter Chinese consumers who are now more price sensitive, pressured by higher mortgages and lower incomes, AlixPartners Managing Director Stephen Dyer told journalists on June 9 during an online briefing.

Meanwhile, Bernstein estimates 67% of car sales in China last year came from models with a sticker price below RMB 150,000, “far below the prices of most EVs excluding subsidies,” analyst Robin Zhu wrote in a March report. Cui Dongshu, secretary general of China Passenger Car Association (CPCA), expects that sliding oil prices will make internal combustion vehicles more attractive to customers.

UBS, however, maintained that consumer demand for all autos is recovering as the virus outbreak shows signs of slowing. According to two surveys by UBS Evidence Lab, around 27% of 1,000 respondents from across China expressed their intent to buy cars in April, compared with 17% in February when the number of cases started climbing.

Such latent demand will boost market growth in the following months, making up for the loss in sales volume in the first six months of this year, analyst Paul Gong said at a media event on June 4. The year-on-year growth rate could be “pretty positive” in the coming months given the low base in the second half of 2019, and as competitive EV models enter the market, he added.

JP Morgan analysts also expect EV market penetration will continue. The cost of compact EVs is expected to reach parity with that of conventional vehicles as early as 2021, and larger EVs with bigger battery packs in 2024.

Competition for share

“All OEMs—foreign and local—are pushing out new models to the market to grab shares in this rapidly growing opportunity and at the same time comply with China’s strict emission requirements,” JP Morgan analyst Nick Lai wrote in a report.

Still, analysts expect Chinese EV brands will face more intense competition as foreign automakers accelerate local production in China. Tesla continues to expand its Shanghai plant and Volkswagen is eyeing the market with two jumbo investments.

Tesla has cemented its position as a market leader by delivering 11,095 China-made Model 3 vehicles in May, making it the top-selling EV model for the month, according to CPCA figures. Tesla challengers Nio and Xpeng Motors countered with new models to be delivered later this year.

Meanwhile, local EV major BYD made a big move, launching in March its new blade battery with 50% higher energy density and a 30% reduction in battery cost. Bernstein and Credit Suisse expect BYD’s profitability will improve on a sequential basis, as the local EV major will soon begin mass production of the battery as well as deliver the “Han,” the first EV model equipped with the battery, in mid-2020.

Registered capital for electric vehicle maker Nio swelled to RMB 3.85 billion (around $540 million) from a mere RMB 11 million on Tuesday, as it readies for a long-awaited bailout worth RMB 7 billion from several state-owned investors.

Why it matters: Just a few months ago, Nio was cutting costs to stretch its cash reserves. Now with this capital injection, the EV maker is poised for growth—monthly production capacity will surge 25% from current output to 5,000 vehicles in September.

• Shares have been climbing for five consecutive days, gaining 6.6% on Thursday to close at $5.97, a 400% rebound from the lowest point of $1.19 in October.

Details: Nio on Tuesday increased registered capital for Nio (Anhui) Holding Ltd. to around RMB 3.85 billion from RMB 11 million, according to Chinese business research platform Tianyancha.com. It also made a series of moves to restructure its network of legal entities.

• In April, in preparation to receive funds from its bailout by the Hefei government, the company began forming its new China entity. It renamed a former sales subsidiary as Nio (Anhui) Holding Ltd., a wholly foreign-owned enterprise.
• Nio is currently restructuring its businesses in China in accordance with the investment agreement, transferring its core businesses and assets to Nio China, a company spokesperson told TechNode on Friday.
• These include vehicle research and development, supply chain, sales and services, and recharging service Nio Power, the company said.
• However, the external financing from the government investors is not reflected in the capital injection of the new China entity, the company confirmed Friday evening to TechNode.
• Cayman Island-registered Nio Inc. indirectly controls its business operations in China through the three Hong Kong subsidiaries which will own a combined 75.9% stakes of Nio (Anhui) Holding Ltd. after the deal is closed, while three Chinese state-owned investment firms will hold the remaining 24.1%, according to the company. Nio’s three Hong Kong-registered limited companies are currently the only three shareholders, data from Tianyancha.com showed.
• Nio founder and CEO William Li said during a call with analysts late last month that the transaction is currently still in progress, and that the company is “fully confident” to close the deal “before the end of June.”
• Nio (Anhui) Holding Ltd. now has control over 32 of Nio’s enterprises in China, according to Tianyancha.com.

Context: In a final agreement reached by the company and a group of state-owned investment firms in late April, investors will inject a total of RMB 7 billion in cash into Nio (Anhui) Holding Ltd., Nio China’s legal entity, for a 24.1% stake. 

• Meanwhile, Nio will invest RMB 4.26 billion in the new entity, alongside the injection of its business assets valued at RMB 17.77 billion, for the rest of the shares. The investment will be made in five installments over a year or so, with the first installment of a combined RMB 4.8 billion due within five working days of the deal closure.
• The EV company is on track to deliver its third electric SUV model in September. The EC6 is a sport coupe with a range of 615 kilometers (382 miles) per charge.

Bottom line: This may be the struggling EV maker’s turning point.

• On Thursday, the company reported record-breaking deliveries of 3,436 vehicles in May, more than three times the deliveries in the same month last year, and the highest ever since the company began delivering cars in mid-2018.

Updated: includes clarification in the Context section that Nio’s contribution will include a RMB 4.26 billion investment along with RMB 17.77 billion in assets into the new China entity. Added points four through six in the Details section to include additional commentary from the company after publication. Updated headline.

Shares of Nio decreased 8.2% to $3.83 by market close on Thursday, after the company reported a mixed first quarter with revenues that slumped more than half from a previous quarter, and yet slightly beat analysts’ expectations with a narrowed loss.

However, the company says they expect leapfrog growth in the second quarter with an “all-time high in quarterly deliveries” of up to 158% growth quarter-on-quarter in Q2, or around 10,000 cars. The EV maker claimed it has witnessed “a solid recovery” in sales, with deliveries more than doubled to 3,155 units in April from a month earlier.

The Chinese electric vehicle maker opened 44 new franchise stores over the first three months of this year, expanding its sales network of more than 110 stores with some clubhouses across 76 domestic cities.

During the earnings call on Thursday, founder and CEO William Li said the company is confident in further reducing losses to achieve a vehicle margin of 5% by the end of the second quarter. A gross margin of 3% is also part of the plan, which was -12.2% as of March and has remained negative for five seasons.

“We maintain the guidance of double-digit profit margins by year-end and so far we are confident to achieve it,” Li said, adding its series of cost control measures have made significant improvement in operating efficiency, cost of car parts including battery, and production rate since late last year.

Expanding production

Losing more than RMB 11 billion last year on operations, Tesla’s Chinese rival is still bleeding cash to make cars. According to its annual report released last month, Nio has paid a total of RMB 604.4 million to manufacturing partner JAC Motors to compensate for losses over the past two years.

However, it is now poised to expand its business, revealing plans to increase production capacity by up to one-fourth to 5,000 units every month around September, the company said on Thursday. Its joint plant with JAC has a monthly production capacity of 4,000 cars, but, at the moment, only 3,500 cars “at the most”, according to Li, come off the line each month due to a wide disruption in auto supply chain caused by the Covid-19 outbreak.

“Users have been waiting for deliveries . . . and we will strike a balance between order growth and our expansion plan from a long-term perspective,” said Li, who declined to reveal specific growth numbers over the past 30 days, while adding that a series of marketing events including livestreams gave “strong momentum.”

Hanging on by a thread in the absence of major financing for more than a year, Nio highlighted that it has found a financial lifeline that will “be sufficient to support” its operations in the next twelve months.

Nio vs Tesla

In a months-long market slump now extended by the pandemic, competition has become increasingly intense in the Chinese EV market. What’s more, as Tesla has been ramping up production of locally-made Model 3 sedans, the offline battle is now being extended to the online space.

The US EV giant last month opened its flagship store in Alibaba’s B2C marketplace Tmall in bid to expand its reach online, and soon secured 2,600 orders for test drive from 4 million viewers in a one-hour webcast by a Chinese livestream celebrity.

Nio fought back immediately with the help of Wang Hang, a national TV personality, in a livestream last week that attracted an audience of more than 20 million. More than 5,000 people signed up for a test drive and 320 made car orders, the company claimed.

Facing multiple consumer lawsuits in an alleged plot to offload sales for new models, Tesla is still dominating the Chinese EV market with deliveries of more than 16,000 vehicles in the first quarter, according to figures from China Passenger Car Association. Local EV startups such as Xpeng have also joined the battle. The company last month launched what it claimed to be China’s longest driving range only priced at a third of a Tesla Model S.

Winning with subsidies

Nio expects to close the $1 billion funding from a group of state-owned investment firms by the end of second quarter, with increased policy support from the Chinese government. It last month became the only premium automaker remaining eligible for the government subsidies on EV purchase due to its battery swapping technologies.

EVs priced at RMB 300,000 and above will be disqualified from the purchase incentives effective starting July 22, but those with swappable batteries will not be affected, Beijing says. Li said the company is accelerating the development of power service solutions in line with the new government policies and expecting a release in the second half of this year, without giving further details.

China will expand the construction of charging and swapping infrastructure to boost EV consumption, Miao Wei, minister of Industry and Information Technology told Chinese media during the country’s annual political gathering on Monday. Credit Suisse last month estimated a 33% year-on-year growth of EV charging stations to 48,000 by end of this year, as both public and private sectors are investing heavily to ease the bottleneck for EV uptake.

Correction: An earlier version of this story incorrectly said that more than 400 million viewers watched a webcast about Tesla’s made-in-China Model 3 on Alibaba’s online marketplace. The number of views for the livestream was 4 million.

On Sunday night, Nio founder and CEO, William Li, appeared on the livestream of Wang Han, a famous TV personality, in front of 20 million people. As part of the sponsored appearance, Li introduced Wang to Nio’s ES6 SUV during his 40 minutes. Over 5,000 people signed up for a test drive and 320 made car orders with non-refundable deposits, the company said Monday.

Why it matters: One of the first Chinese automakers to embrace livestreaming during the epidemic, Nio is ramping up efforts with the help of Wang Han, known for being a veteran host at Day Day Up (one of China’s most-viewed talk shows) just days after Tesla made its debut on Chinese livestreaming platforms.

• With a focus to promote China-made products only, the Sunday livestream was the first-ever one for Wang, a well-liked variety show host known as a key talent at satellite television broadcaster Hunan TV.
• A major promotion during Wang’s first e-commerce livestream could cost at least RMB 2 million ($281,400), persons familiar with the knowledge told TechNode.
• Nio declined to comment when contacted by TechNode on Monday.

Details: More than 20 million viewers watched a webcast on Taobao as of Sunday during a 40-minute period session where Nio founder and CEO William Li made his debut as a salesperson for the company’s five-seater electric crossover ES6.

• The company on Monday announced it has secured a total of 320 non-refundable deposits, amounting to RMB 128 million ($18 million) in total sales.
• Nearly 5,300 people booked a slot to test drive Nio’s lineups, priced at RMB 1 as of Sunday.
• Tesla in mid-April opened its Tmall flagship store with the launch of a similar online campaign of free test drive. This was followed by a webcast featuring a top livestreaming celebrity Viya who presented her experience of test driving Made-in-China Model 3 on Taobao 10 days later.
• The one-hour show attracted 4 million viewers with more than 2,600 of which ordered for a Model 3 test drive, according to an Alibaba press release.

Context: Nio became the champion among Chinese EV startups last year with deliveries of 20,565 crossovers nationwide, several thousand units more than Baidu-backed WM Motor and Guangzhou-based Xpeng Motors. This was, however, only half of its previous annual sales target.

• Loss from operations increased by 13% year-on-year to around RMB 11 billion in the past year, compared with more than 90% surge in 2018, as the company have been prioritizing margin improvement by cutting jobs amid a series of restructuring measures, according to Nio’s annual report.

The long-awaited bail-out for cash-strapped Nio from an imminent liquidity crisis is finally arriving. The electric vehicle maker announced Wednesday it will receive a RMB 7 billion cash infusion with final commitments from several state-run capital firms, its biggest ever funding round since listing in the US stock market in Sep. 2018.

Why it matters: Nio now can really go toe-to-toe with Tesla, the absolute leader in the market, and enhance its opportunities for more financing.

• Earlier this year, Nio and the government of Hefei in the eastern Anhui province, its major new backer, revealed plans for a domestic listing on China’s Nasdaq-like tech board by 2025.
• The company later declined to comment, reported Chinese media.

Details: Nio has signed “definitive agreements” for a RMB 7 billion ($990 million) financing project with strategic investors including Hefei City Construction and Investment Holding (Group) Co., Ltd., State Development & Investment Corp., Ltd, and Anhui Provincial Emerging Industry Investment Co., Ltd.

• The investment represents a 24.1% stake of the joint venture, “Nio China.”
• Nio will set up Nio China in the Hefei’s economic and technological development area with the group of strategic investors for the cash injection
• The rest of the shares will be taken by Nio at RMB 4.26 billion, alongside injection of its core business and assets into the new entity, including car development and production, supply chain and recharging service Nio Power, valued at RMB 17.77 billion.
• The company expects to close the deal in the second quarter of this year.
• A combined RMB 4.8 billion as a first installment will be on the account within five working days when it is closed.
• Nio’s stock prices soared 16.2% to $3.9 before trading on Wednesday as of this publication.

Context: Nio and the Hefei government signed a framework agreement for an expected RMB 10 billion funding plan in late February. This came at the same time when the company kicked off production of its third electric SUV model EC6, targeting Tesla Model Y, in its joint plant with JAC Motors in Hefei.

• Tencent-backed Nio had a bumpy road in financing over the past year, making no progress in a RMB 10 billion investment plan revealed in May with E-Town Capital, an investment entity of the Beijing municipal government.
• The company raised a total $435 million via convertible notes from four Asia-based investment funds since the start of this year, alongside two rounds of convertible bond financing totaling $850 million from major backers including Tencent last year.

Tesla on Friday slightly increased the after-subsidy prices of two popular China-made Model 3 versions, immediately after Beijing announced a 10% cut in government incentives for electric vehicle purchase.

Why it matters: China’s latest adjustment for EV buying is expected to force Tesla into making tough choices: margins or market share.

• Four Chinese ministry-level authorities on Thursday announced a 10% cut from the subsidies for new energy vehicles, which include all-electric and plug-in hybrids.
• Beijing for the first time stipulated that luxury EVs priced RMB 300,000 (around $42,400) and above will not receive any subsidy.
• The policy gives companies like Nio an exemption: EVs with swappable batteries will not be affected.

Details: The standard range plus version of the made-in-China Model 3 is now rising by RMB 4,500 to RMB 303,550 after-subsidies, while the purchase price of the long range version is up by RMB 5,000 to RMB 344,050, according to Tesla’s website.

• The company acknowledged that customers are now required to cover the price and tax difference. The subsidy for the standard range plus version has been cut from RMB 24,750 to RMB 20,250 after the adjustment, a similar rate of decline to the long range version.
• Nio changed its tune on Friday morning, saying in an announcement that it will make up the additional cost for customers, if they pay non-refundable deposits by the end of this week.
• The subsidy for its all-new ES8 SUV with an 84kwh battery pack was reduced by 10% to RMB 22,500 for personal customers after the adjustment, while that of ES6 dropped even further by 28% to RMB 18,000.
• Meanwhile, Li Xiang, founder of Meituan-backed EV maker Lixiang, made a bigger promise saying that “there is no need” for its potential customers to worry, since the company will cover the cost for them, without giving a timeframe.

Context: With a price range starting at RMB 323,800 before subsidies, the made-in-China Model 3 is currently eligible for the latest incentives over the next three months, but will be disqualified for that once the transitional period closes on July 22.

• “Tesla is not going to sacrifice profit to cover the additional cost for customers in the transitional period,” a Tesla Model 3 owner surnamed Lin told TechNode on Friday.
• Still, analysts expect the policy change could pressure to Tesla to further slash prices to expand its market share, resulting in an accelerated process of localization in Model 3 production in its Shanghai facilities, investment banks China International Capital Corporation (CICC) and Citic Securities said on Friday.
• China previously offered customers for RMB 25,000 ($3,550) as incentives for EVs with a range of over 400 kilometers. This is now reduced to RMB 22,500. The actual cut varies among EV models and could be at around 30% in some cases, depending on the driving range, energy density of battery pack, and energy consumption levels.

After taking a significant hit following the nationwide Covid-19 lockdown, electric vehicle (EV) sales in the world’s biggest market are finally showing signs of recovery.

In February, according to figures from the China Passenger Car Association (CPCA), new energy vehicle (NEV) sales plunged 77% year-on-year to a mere 11,000 vehicles—the lowest since January 2017, when Beijing began phasing out subsidies on electric vehicle purchases.

China’s biggest automakers have been the hardest hit by the virus. In March, the country’s NEV giants—BYD, BAIC, and Geely—saw their deliveries plummet by two-thirds year-on-year. This marked three consecutive months of decline, in which the automakers saw their deliveries fall by more than half.

Covid-19 had effectively crippled China’s mobility industry. In February, as lockdowns to contain the disease spread across China, the need for transportation services disappeared. Taxi and ride-hailing services—usually cash cows for China’s biggest OEMs—came to a standstill due to weak demand and poor revenue, the CPCA wrote in a March report (in Chinese).

BYD, BJEV, and Geely are the largest players in China’s business EV market. Not only do they supply EVs for mobility services in their home cities, but their vehicles are also deployed in countless cities nationwide as local governments electrify their taxi fleets.

Last year, BAIC reportedly received orders for more than 80,000 EVs from various ride-hailing services, while Geely inked a deal with Chengdu to replace the city’s fleet of 10,000 gas-powered taxis with EVs by the end of 2020. But the economic pressures faced by ride-hailing operators during the outbreak resulted in a “significant number” of new car orders being canceled, said Cui Dongshu, secretary-general of CPCA, on April 9. As infection rates climbed, electrification of these fleets became a low priority. Now, as more than 50 cities resume taxi services after a month-long suspension, China’s auto giants remain in the doldrums. 

EV startups taking the lead

However, there have been a few winners. Chinese EV darling Nio and the American carmaker Tesla have bucked the trend.

The US EV giant recently reported record-high first-quarter results but did not disclose figures for sales in China. However, according to figures obtained by CPCA, the company delivered 10,160 EVs in China last month. That figure made up over 20% of the country’s all-electric market, and Tesla trailed BYD—one of China’s biggest automakers—by just a few dozen deliveries.

Late last month, Tesla’s Shanghai Gigafactory achieved weekly production capacity of 3,000 Model 3s, and is poised to offload around 150,000 China-made EVs this year.

Nio, which has faced its share of struggles, also outperformed the country’s biggest manufacturers over the past three months. During the first two months of 2020, combined sales of its flagship ES8 SUV and smaller ES6 only decreased around 12% from a year earlier.

The fall was followed in March by a 12% year-on-year increase in deliveries to 1,533 vehicles. “All signs point to a much faster demand recovery in the premium segment versus mass,” Bernstein analysts led by Robin Zhu wrote in a research note on April 8.

This appears to explain Nio’s relatively strong performance in the crumbling market over the past few months. The company has beaten the giants in the Chinese luxury EV sector. Over the past year, sales of its ES6 came out ahead of Mercedes Benz’s EQC and Audi’s e-tron in China, according to official car registration data.

However, Tesla now poses a bigger threat. The China-made Model 3 and Y could take market share from Nio, preventing the Chinese EV maker from improving earnings, analysts at China’s Everbright Securities said in March.

Nio aims to sell 4,000 cars a month this year, which the company says could “basically support its operational targets,” including a double-digit profit margin in the fourth quarter. Bernstein analysts predict Nio sales will rebound in the second quarter as the pandemic fades. “But the threat of competition from Tesla will only become more pertinent over time,” they said.

Beijing’s bailout

The turnaround for smaller EV makers can be attributed in part to China’s push to revive its flagging EV sector.

Before the coronavirus outbreak, Beijing had already been fighting to keep its electric vehicle industry afloat. The sector had gone into drastic decline since June of last year, when authorities cut subsidies by up to 50% for EV purchases. The hope was that reductions would spur innovation in a sector many believed had become too reliant on government support.

But in early January, China’s industry minister said the country would suspend further subsidy reductions in order to counter the months-long slump. The announcement came 10 days before China’s economy was turned upside down by wide-ranging quarantines and stay-at-home orders to curb the spread of Covid-19. As infection rates soared, authorities shuttered production plants and closed brick-and-mortar stores. Although February is typically a slow month for China’s auto industry, the shutdowns led to an unprecedented decline in deliveries.

Beijing is now leading a sector-wide bailout of its EV industry by backtracking on plans to completely axe subsidies this year as well as lowering barriers to entry for new EV makers. The government hopes to restore growth in the world’s largest market for electrified transportation in an offensive that, at this stage, seems to be working.

As China moves closer to something resembling normalcy following the drastic disruption to the economy, the State Council, China’s cabinet, made a surprise announcement: Subsidies and tax breaks for EV buyers will remain in place until 2022. The government had originally planned to do away with them completely this year.

The communiqué, which came just two and a half months after regulators decided that no further cuts would be implemented in 2020, represent a dramatic shift in direction. After NEV deliveries slid by nearly 80% in February, authorities ultimately decided to take matters into their own hands instead of allowing the industry to stand on its own two feet.

Beyond subsidies

Postponing further subsidy cuts represents just one of the ways that Chinese authorities are attempting to restore the industry to its former glory and rescue automakers that have been deeply affected by the virus.

The country’s notorious production quota system is also reportedly being temporarily relaxed. The system has been used to drive EV production by requiring domestic automakers to follow strict guidelines on reaching EV building goals.

Bigger automakers—which have been some of the hardest hit in the past three months—may now be allowed to focus on better-selling gas-driven cars and to delay new EV launches in order to improve their dwindling cash reserves.

Local governments are also helping to bail out troubled automakers with massive cash injections. Nio has signed a deal with the government of Hefei, the capital of east China’s Anhui province, worth RMB 10 billion (around $1.4 billion). The long-awaited deal is expected to rescue the company from a liquidity crunch after months of no investment.

Meanwhile, the government of Henan province invested RMB 2.02 billion for a 60% stake in Shanghai-based EV maker Reech Auto. Although the company has yet to start producing vehicles, they have struck a deal with state-owned carmaker Changan to produce its vehicles.

Beijing is also making it easier for fledgling automakers to enter the market by lowering barriers to entry. The government will no longer insist that EV makers be capable of product development, according to draft changes to current policies released on April 7 by the Ministry of Industry and Information Technology. The measures had previously been put in place to calm a regulatory bubble that had seen nearly 500 EV companies established throughout China.

Chinese automakers are looking for novel ways to reach customers as people in China shy away from going outdoors.

To curb the spread of Covid-19, the new flu-like virus that has rocked the country over the past few weeks, cities across the country have imposed strict rules limiting people’s movement. The epidemic has had a profound impact on China’s auto sector, with numerous manufacturers repeatedly postponing the reopening of their production facilities. Just one-third of Chinese automakers have resumed production, the China Association of Automobile Manufacturers (CAAM) said on Feb. 13.

The move originated with Nio Houses, the company’s exclusive clubhouses for customers in its flagship stores. Prior to the Covid-19 outbreak, Nio owners had organized events and made connections in these spaces, which are equipped with a co-working space, a café, and even a childcare center.

In an online network that is not subject to the restrictions of space, Nio is not only trying to draw the attention of customers with different interests and backgrounds, but also fulfilling an ambitious goal: building connections with its community using a customer-centric strategy. Nio’s customer loyalty is the company’s strength, and it is playing to that strength to solidify its reputation.

Tesla: A latecomer in online engagement

Nio is not alone in its online crusade. Tesla has also taken to short videos and live-streaming in China, but unlike its competitor, the American EV maker has suffered from poor planning and unprofessional hosts.

On Feb. 8, just one day after Nio launched its revitalized online marketing campaign, two Tesla stores in the Pudong area of Shanghai opened accounts on Douyin. Tesla stores in other Chinese cities have also set up Douyin accounts.

In comparison to Nio, Tesla’s official Douyin account consistently posts swanky, yet less focused, content that ranges from videos of the Cybertruck and Roadstar 2 to goofy skits. The company’s default policy has been to let its local stores determine what content they post. Tesla has yet to designate a person to develop a central content strategy, two Tesla salespeople said when contacted by TechNode last week.

In one of these livestreams, a young Tesla employee used the last 15 minutes of the show to make small talk with his dozen viewers. These conversations included urging a customer to take out a loan on a new car, adding that a RMB 40,000 (about $5,700) down payment on a car was “quite cheap.” The host went on to make fun of his own hair, saying that he was unhappy with the wavy hairstyle and complaining that salons have remained closed because of the outbreak.

In another livestream, a salesperson wearing a facemask walked around a Model X in a Tesla store, providing detailed information about the car. A female assistant took the camera and occasionally asked questions sent by viewers. The sales supervisor was knowledgeable about EVs and careful in the choice of his words. Faced with a hardball question about the car’s wind noise, he acknowledged that the Model X’s fastback roof and frameless doors make wind noise reduction more challenging than for other cars. However, the distracting spectacle of several employees goofing off nearby spoiled the professionalism of the video. During the 20 minutes that TechNode viewed this livestream, fewer than 10 viewers were watching the show.

One possible explanation for Tesla’s less-focused content is less need—sales have been good since the company began accepting orders for its Chinese-made Model 3. Meanwhile, Nio has warned that it expects deliveries to drop off in February.

Unclear results

EV makers in China have always taken an internet-first approach to their businesses. But the recent virus outbreak has made this modus operandi a matter of necessity rather than just convenience.

As the government has encouraged—and constrained—people to stay indoors, the entire process of buying a car has moved online. Many EV companies are providing “online showrooms” via live-streaming, where potential buyers ask questions and interact with the host just as they would in a physical space.

Interested individuals can book a door-to-door test drive, in which the company brings the car to them and takes them back home after the drive. And if they decide to buy that electric vehicle, they can order and pay online, and have the car delivered directly to them.

A Tesla salesperson in Shanghai told TechNode that if the deposit for a China-made Model 3 is paid now, a test drive can be arranged for March. If the customer feels the vehicle isn’t up to standard, the deposit will be returned.

However, the process relies on piquing the interest of customers, and so far, live-streaming has had mixed results for EV makers.

According to TechNode’s investigation, vehicle-related live-streams do well in audience terms, often drawing more than 100 viewers per show. One Nio video detailing the company’s self-driving capabilities attracted more than 1,000 viewers. However, the company’s lifestyle livestreams typically get many fewer views.

“Everyone cares more about hardcore content,” an EV fan in Xiamen told TechNode, referring to videos about actual cars rather than other topics.

The diverse types of content are directed at different audiences: those who are interested in buying cars and those who are already part of the EV community. Nio in particular is clearly attempting to expand its Nio House concept to the online space by providing non-vehicle-related services and content.

Nevertheless, numerous viewers appear to be less than impressed with some of the livestreams, describing the live shows as “boring” and lacking in informative content. Given that these livestreams have yet to garner many viewers, it’s unclear how successful the format may be in converting viewers to buyers.

If EV live-streaming gains a widespread following, it could potentially allow companies to scale back their presence in brick-and-mortar stores, dramatically reducing overhead.

For now, however, this avenue of sales is all that EV companies really have, as many city governments have enforced temporary closures of nonessential stores to stop the spread of the virus.

“Offline channels are basically blocked,” said a user on microblogging platform Weibo. “Now only those online can be used.”

China has pledged to step up efforts to maintain its global leadership in the EV adoption race, planning to invest RMB 10 billion this year to expand the already world largest EV charging network, a top government official said on Thursday.

Why it matters: More investment from government bodies could ease the burden of struggling automakers and reverse the downward trend in sales by making charging more accessible.

• The move comes as Beijing pushes a new round of technology investment initiative with focuses on 5G networks, data centers and charging facilities for EVs, called “new infrastructure” by Chinese top leaders beginning this year.

Details: China will invest RMB 10 billion ($1.42 billion) to expand the country’s charging network by 50% this year to stimulate EV deployment, Cai Ronghua, a deputy director at the National Development and Reform Center (NDRC) said during a media briefing on Thursday in Beijing.

• A total of 600,000 charging points will be established this year, with private charging points accounting for two thirds of the total number, according to a Xinhua News Agency report (in Chinese). China runs the world’s biggest EV power network with over 1.2 million charging points as of 2019.
• The top economic planner expects over 200,000 new public chargers, or 48,000 charging stations, available along highways, urban roads and in the countryside.
• Widespread charging infrastructure is expected to reduce the “range anxiety” from potential customers. China in 2015 planned to build a countrywide network of 4.8 million charging points to accommodate 5 million EVs on the roads by 2020 but has only achieved one-fourth of that.
• EV makers are ramping up the efforts. Chinese media reported in January about Tesla’s plans to open 4,000 new superchargers across China this year, which almost doubled the current number.
• Nio, however, plans to expand its battery-swapping network by 40% to 173 stations this year. It currently runs 25 supercharging stations but offers users access to more than 300,000 public chargers from service operators on its app.
• The cash-strapped EV maker has reportedly spent RMB 2 billion on charging service network and been looking to spin off Nio Power, its EV charging service unit in search of external funding since mid-last year, with no updates being disclosed.

Context: China has announced a series of policy stimulus, including two-year extension of subsidies and tax breaks on EV purchase in bid to cement its position as the world biggest EV market.

• Germany is playing catching-up. Chancellor Angela Merkel’s government in November increased EV subsidies by 50% to €6,000 (about $6,600) per vehicle, almost double the subsidy in China, while calling for industry for participation to build one million points over the next 10 years.

The slump in sales for China’s EVs continued in March, but were still four times better than February. Tesla accounted for over 20% of the total market share, the country’s top industry body said on Thursday.

Why it matters: The latest sales figures show that China’s EV market, hit hard first by subsidy cuts and then by the Covid-19 outbreak, is now on the mend.

• Tesla is playing a growing role in the world biggest EV market, echoing industry expectations that the company would lift the market from its nine-month slump.

Details: New energy vehicle (NEV) sales in March fell 49% year-on-year to around 56,000 units. In February, sales fell nearly 80% year-on-year, the China Passenger Car Association (CPCA) said on Thursday.

• Just over 11,000 NEVs were sold in February, as EV makers struggled to resume operation from a nationwide business disruption caused by the pandemic. It was the lowest point after January 2017, when Beijing began imposing as much as 30% cut on EV subsidy.
• Tesla contributed sales of 10,160 cars, more than one-fifth of the country’s 47,000 pure electric passenger vehicles sold last month. The EV giant delivered 3,563 and 2,314 cars to customers in the first two months, respectively, according to the government’s car registration numbers.
• The company’s Shanghai Gigafactory is now its only production base making cars given a large-scale shutdown in its US factories and has been ramping up production to make 3,500 cars per week.
• Meanwhile, sales of China’s biggest EV maker BYD plunged for the third consecutive month by nearly 70% from a year earlier to 12,256 units.
• Much the same thing was found in Geely whose EV sales dropped 69% year-on-year to 2,503 units in March.
• Tesla’s main rival Nio was one of the few automakers bucking the trend, with deliveries growing 11.7% year-on-year to 1,533 vehicles last month.
• Sales of general passenger car from manufacturers to dealerships fell 40.4% year-on-year to around 1 million units last month, a quick recovery from an 82% nosedive in February.
• CPCA maintained its projections on China’s NEV sales at around 1.6 million units in 2020, up 23% from last year. Around 111,000 clean energy vehicles were sold this year as of March.

Context: China last year recorded its first-ever decline on an annual basis in NEV sales to 1.2 million units, as the central government moved to cut subsidies on EV purchases.

• The total market sales have been falling for nine months since then. Beijing earlier this month announced extension of subsidies and tax breaks for another two years in bid to revive the market.
• Cui Dongshu, secretary general added the prolonged incentive policies would be a big and long-term boost for the market, offering EVs a price advantage against internal combustion engine vehicles.

Nio stock moved 9% higher on Tuesday after the company announced stronger-than-expected delivery results for the first quarter alongside plans to hand over all-new ES8s, its seven-seater SUV later this month.

Why it matters: Nio’s first-quarter performance was a big relief for investors. It also eased worry over potential knock-on effects from recent Luckin Coffee fraud scandal on other US-listed Chinese companies.

• Nio shares slumped 9.81% to $2.39 on Apr. 2, when Luckin said its COO and several others fabricated nearly half of its sales. The stock rebounded 9.31% to $2.7 on Tuesday after March delivery was announced.

We are pleased to see the gradual recovery of our production in March, with special thanks to the great support from our supply chain partners since the second half of March.

—Founder and CEO, Li Bin

Details: Nio on Tuesday reported an 11.7% year-on-year increase in deliveries to 1,533 vehicles in March. 1,479 vehicles of those were ES6. Its five-seater SUV, the bigger ES8, made up the balance.

• Total deliveries for Q1 were 3,838, a 4% decrease year-on-year but 9.7% higher than the company’s median guidance.
• Nio had its best-ever quarter delivery numbers of 8,224 vehicles in the fourth quarter of last year.
• The company says they are on track to expand their sales network to 200 stores by the end of this year.

Context: Despite a general auto sales slump amid the Covid-19 outbreak, analysts expect the world’s biggest EV market to resume growth. China has made signals it will ramp up support with measures to boost consumption in electric vehicles.

• Beijing last week announced a two-year extension of new energy vehicle subsidies and tax breaks, along with new incentives for the replacement of diesel vehicles in bid to lift the slowing market.
• China-based Huachuang Securities on Wednesday maintained its estimates of 1.6 million units for China EV sales this year, a 30% increase than the last year.

Nio is losing the head of its electric power engineering division, the company confirmed on Wednesday, as it begins another round of consolidation and headcount trimming in an effort to live up to ambitious profitability goals laid out by its CEO last month.

Why it matters: Nio’s executive departures are speeding up again, signaling the start of another round of restructuring in bid to gain profitability.

Details: Nio’s senior vice president of e-propulsion, Huang Chendong, who oversees research and development in powertrain, battery management systems, and car control, will step down on June 30, Chinese media reported Tuesday citing persons close to the matter.

• Huang’s resignation comes as the company announces an organizational reshuffle for his team, the report said, merging powertain research and development with XPT, a Nio subsidiary that manufactures and supplies powertrains, among other parts, for the EV maker.
• The vehicle dynamics and chassis controls team will integrate with a general car engineering department in the company. The move is expected to combine resources and lower costs, but more importantly, enable XPT to sell components to other automakers, adding another revenue stream.
• Huang is the second key executive in recent weeks to step down. Chinese media last month reported Zhu Jiang, vice president of Nio’s user development, will leave his position in May after more than three years as the head of sales and marketing.
• The Tesla challenger has adopted a user-focused community strategy featuring luxurious clubhouses and a social network crowded with devoted users on its app. Nearly 70% of new orders are currently coming from existing owner referrals, up from 45% as of last year, founder William Li said last month.
• A company representative confirmed the departures to TechNode on Wednesday.  

Context: Continuous improvement in operational efficiency has been among the top priorities for the cash-strapped EV maker which recently claimed it has implemented “rigorous measures” in daily operations to fight headwinds from an extended market slump.

• Pressured by the Covid-19 outbreak, Li made ambitious promises during the company’s Q4 earnings call, including 35% reduction in losses in the first three months of this year from a quarter ago and positive gross margin in the second quarter.

Nio, the darling of China’s electric vehicle (EV) industry, appeared to teeter on the edge of bankruptcy for months. With no major investments, the company was set for disaster as global markets began melting down over Covid-19. But Nio turned out to have an ace in its pocket: the government. 

The company is not alone. China’s government is fighting an uphill battle to keep its electric vehicle (EV) industry afloat. But authorities are now pulling back from an effort to wean the sector from state support. 

EV sales in China have plunged after the central government cut subsidies by up to 50% in June. The impact of these cuts was swift and severe. Sales of new energy vehicles (NEVs) dropped by 7% year on year to 8,000 cars in July following growth of 80% in June, marking the first fall in more than two years. 

Overall vehicle sales in the country during peak buying season—known as “Golden September” and “Silver October”—did little to boost deliveries. In January, sales plunged by more than half to 44,000 vehicles compared to the same time a year before. 

But things were about to get worse. The government had no way of predicting that in just a few months its already flagging EV sector would suffer another major hit when a new flu-like virus began circulating unabated at the turn of the new year. 

The virus, coupled with sink-or-swim measures to drive EV companies to innovate, could have devastating effects on EV makers this year. 

Bottom line: The government wanted to remove the training wheels from its electric vehicle industry, cutting subsidies and pulling back support, but its plan has backfired and 2020 could be the industry’s worst year yet.

• The China Association of Automobile Manufacturers (CAAM) was expecting a bad year before the virus, and it’s got even worse. In late December the organization forecast zero EV sales growth for the year, and since the virus, it’s warned of a further drop of 25% for the first half of the year in a best-case virus scenario.
• Regulators and city governments are now reintroducing support for the industry. In some cases, local authorities have offered to bail out troubled automakers as the sector reels from the dramatic slowdown in sales. 

Playing catch up: China was late to car production, lagging behind the US, Japan, and Germany in building gas-driven cars. But the Chinese government saw EVs as an opportunity to catapult itself into pole position to become the driving force behind electrifying mobility. 

To achieve this, authorities created incentives for automakers to produce electric vehicles, eventually leading to a regulatory bubble that bred nearly 500 EV companies in the country. 

• In 2009, the government introduced subsidies for EV buyers in China to encourage adoption of NEVs, spending more than $60 billion.
• The average subsidy was around RMB 60,000 (about $8,500) per vehicle. 
• The government also extended support to companies that produce batteries—the most expensive component of an EV. China is now home to two of the world’s biggest battery makers, CATL and BYD. 
• Authorities also began giving away license plates for these kinds of cars, waiving fees that add significantly to the price of purchasing gas-driven vehicles. 
• The government support created fertile ground for new EV startups—including Nio, which was founded in 2014.

Poor product: Even with subsidies, Chinese consumers have proved suspicious of electric vehicles. Nio hasn’t been immune despite its legions of loyal fans. The company’s sales are still far from being able to support its business. 

• In interviews, car buyers have expressed concerns over the range, safety, and battery life of EVs. Subsidies may have offset some of these concerns in the past, but government cuts have made these vehicles a far less attractive proposition. 
• Apart from fires, battery performance has car owners complaining that EVs aren’t living up to automakers’ promises. Several taxi and ride-hailing drivers TechNode has spoken to said that the batteries underperform, especially in winter, when they see a drastic decline in performance.
• This makes range anxiety a significant concern for taxi drivers as well as general car buyers. EVs typically perform better on urban roads, where, unlike traditional gas-driven cars, they use less energy. On highways, range can decrease dramatically, especially when driving at speeds in excess of 100 km/h. 

And dangerous: Safety questions have further hurt consumer confidence. Nio, the poster child of China’s EV sector, last year recalled nearly 5,000 of its flagship ES8 SUVs over a battery fault. At the time, the number made up around a quarter of all its vehicles sold. 

• The cost of the recall was huge. Nio spent around RMB 340 million in a bid to ease fear and anger from its customers, according to its 2019 Q2 results. This caused an 8.8% quarter-on-quarter increase in costs of sales to RMB 2 billion over the three months ended Jun. 30.
• Nio wasn’t alone. Tesla and BYD owners also reported fires in China, while videos of burning cars make their way around social media. 

Sink or swim: Seeing these problems, authorities decided that EV companies were not innovating fast enough, instead relying on government support to sell their vehicles. The government started scaling back support last year, hoping that competition would force EV makers to address the public concerns and develop Tesla-beating batteries. 

In June, the subsidy system saw dramatic cuts, and, at the time, the government hoped to phase them out entirely. Nio and other EV makers were forced to make a difficult decision—absorb the costs or pass them on to their customers. 

• EVs with a range of 400 kilometers or more saw subsidies cut by half. Meanwhile, cars that can only travel 250 kilometers on a single charge no longer receive a subsidy.
• Local governments also did away with their own financial support systems, instead diverting the funds to EV charging infrastructure.
• The scale of the cuts had many alarmed—subsidies were reduced by up to 70% in some cases.. 
• Regulators also raised barriers for new EV makers, as a quick fix to the bubble created by earlier support. Companies that want to outsource manufacturing of their EVs, a popular model used by Nio and other firms including Xpeng, must have invested at least RMB 4 billion in R & D over the past three years. 
• To encourage competition further, China opened up its automotive sector to the world, scrapping foreign ownership limits on companies that make NEVs, allowing companies like Tesla to run wholly-owned subsidiaries in China. 

The fallout: But the subsidy cuts backfired, and apprehension over buying EVs increased. This, coupled with the economic uncertainty from the US-China trade war meant that the EV market took a dramatic turn for the worse. A month after the cuts, Nio’s sales plunged by more than a third, with ES8 deliveries plummeting by 80% to 164 vehicles.

• The overall EV market has seen consecutive declines over each of the past six months.
• China’s NEV sales recorded its first-ever annual decline to 1.2 million units in 2019, down 4% compared to the year prior. In December, deliveries dropped by nearly 30% year on year, a smaller decrease compared to previous months. Following a historical low in during the Spring Festival holiday, sales fell by a further 77% to just 11,000 vehicles in February. 
• More expensive cars and a weakened economy also mean Chinese consumers have less buying power.

As if it weren’t bad enough without a pandemic: As China worked to get the Covid-19 outbreak under control, cities were brought to a standstill and whole industries shut down. On Jan. 23, just weeks after the virus was first reported in Wuhan, the city was locked down. The measures quickly spread across the country and authorities extended the Lunar New Year holiday, forcing automakers to shut their factories. 

• Experts say the Covid-19 pandemic will now have a devastating effect on China’s EV market. Analysts from US investment bank Jefferies predicts that vehicle sales in China could decline by as much as 10%. 
• Meanwhile, Robin Zhu, analyst at asset management firm Bernstein said in a note that he expects “high single-digit” declines in the auto sector as a whole. 
• New electric vehicle manufacturers including Nio have had trouble keeping afloat as the company struggles to sell vehicles. CEO William Li said this week that its management team has significant concerns about its capacity to sustain operations over the next 12 months due to financial constraints. 
• The company has already cut thousands of jobs to deal with the mounting pressure, and, until recently, had a hard time raising fresh funds. 
• Bernstein analysts estimate that Nio could only have enough cash to support itself until the second quarter, making a cash injection. The EV maker also said in its fourth-quarter results that it doesn’t have enough capital to get it through the next 12 months.

U-turn: The dramatic decline in the electric vehicle market has led the government to rethink its approach. Authorities appear to have realized that scaling back support may have been premature and it was unwise to let the industry go it alone. But for Nio, a little help selling cars wouldn’t save the company—it still loses money per car. It needs investors to make payroll.

• In January, before authorities lost control of the outbreak, Miao Wei, Minister of Industry and Information Technology (MIIT), said that Beijing would suspend its plan to completely remove EV purchase subsidies this year. 
• The government looks unlikely to increase subsidies at a national level, opting rather to freeze them as they are.
• The move is aimed at calming the market and preempting bankruptcies among EV firms. 

Local rescue: As Nio looked bound to fail, a local government stepped in. The eastern Chinese city of Hefei saw its chance to raise its own profile while bailing out the poster child of China’s EV market. The near-complete deal will see Nio moving its China headquarters to the city, where it manufactures its vehicles in a partnership with state-owned automaker JAC.  

• A number of cities in the southern Chinese province of Guangzhou, as well as China’s central Hunan province, said in early March that they would reintroduce subsidies to boost consumption. 
• Nio in late February revealed a major financing project set to close in April worth more than RMB 10 billion with the government of Hefei, a city in eastern China. The investment may be enough to bring Nio back from the brink, and it without it, the company most likely would have faced insolvency.

What’s next? EV makers face compounding issues. Aside from a months-long sales slump, these companies now have to contend with the fallout from Covid-19. The virus not only means that companies won’t hit their production targets, but that Chinese consumers will have less spending power over the next few months as a result of the epidemic.

China won’t allow its electric vehicle industry to fail. The government will continue to adjust its policies to ensure success and support the industry, as well as the companies that represent it. Nio’s bailout is just the tip of the iceberg and recent policy changes could foreshadow renewed government support going forward. 

The government is already taking additional steps to aid its ailing EV industry. In a recent guideline issued to boost consumption in the country, the central government underlined its efforts to provide financial support to drive EV adoption, as well as rolling out a wider network of charging infrastructure.  

Nio claims that it needs just three months to start making money per car. If it’s right, maybe all it needs is more time to turn things around—but its path to sustainability is reliant on getting people to buy its cars, which right now, might be a hard sell.

Nio founder William Li predicted that the company will achieve long-awaited per-car profits by mid-year as it reported disappointing earnings for the fourth quarter of 2019 on its Wednesday earnings call.

Nio shares tumbled 16% to $2.43 on Wednesday after it reported a 21% year-on-year decrease in vehicle sales and a worse-than-expected net loss of RMB 2.9 billion ($411.5 million) in its fourth quarter financial results. The electric vehicle maker earned RMB 7.82 billion in full year revenue, also below market expectations of RMB 7.95 billion, while posting another annual loss of RMB 11.3 billion, although that number has more than halved compared with the year prior.

Things look desperate for the high-end electric auto maker, as the disruption to the global auto supply chain brought by the Covid-19 outbreak will probably linger for months. Meanwhile, it is facing tough competition from Tesla, which swept 30% of the country’s EV market last month with a production ramp-up at its Shanghai facility.

To the evident surprise of analysts on the call, Li made big promises to hit a positive vehicle gross margin from the current 9.9% loss and double-digit profit margins by the end of this year. “Gross margin improvement is one of the top objectives for Nio in 2020,” Li said during the call.

With the company’s cash reserves having fallen further according to Q4 filings, it’s on a clock to convince increasingly skeptical investors that its largely unproven business model can be profitable. But a pending deal with the government of Hefei to inject a reported RMB 10 billion could buy it time to fulfill Li’s promises.

Cost efficiency becomes a top priority

Nio’s sales continued to bounce back from the withdrawal of government subsidies which began in June. After reporting a record output of 8,224 cars in Q4, Shanghai-based Nio deserves the title as a top Chinese EV maker with aggregate deliveries of 31,913 cars nationwide over an 18-month period as of last year, the highest in the premium EV segment.

Nio’s sales bottomed out in the second half of last year after July, when it reported its second-lowest monthly sales figure of just 837 cars, an immediate result of the Chinese government cutting EV purchase subsidies by more than half. It later posted double-digit sequential increases in the third and fourth quarters, bucking a broader slowdown in overall car sales.

Investors have long been skeptical about Nio due to its stunning cash burn amid an extended market slump. Losing more than RMB 17.2 billion over three years ending in 2018, the company has only RMB 1.05 billion in cash and equivalents as of December, down from RMB 1.96 billion in Q3. The company said its cash reserves were inadequate for “continuous operation in the next 12 months,” repeating a warning made three months ago.

Li declined to share an annual sales target or to lay out specifics on how the company will achieve double-digit gross profit margin by year-end, but said a monthly output of 4,000 cars would “basically support its operational target.” He added that the company has secured more than 2,100 non-refundable orders over the past month or so, with manufacturing to fully resume after pandemic-related disruptions by the end of April. In late February, Nio also began production of the compact crossover EC6, set for release in September.

Nio cited a variety of favorable trends that support its gross profit goals, including a substantial reduction in cost of production with supply chain optimization, falling battery costs, and economies of scale as it ramps up production. Nio financial chief Feng Wei said a 10% decrease in the cost of raw materials and car parts other than batteries would also be “reasonable” according to the company’s estimates.

Reducing sales and a cutback in marketing will also help cut costs as the company fights to stabilize its cash position. 

Nio is reining in a costly marketing strategy that’s included everything from star-studded press events joined by popular singers to the company’s unique club-style showrooms. Known as “Nio Houses,” the 22 elegant showrooms are mostly located in prime urban locations, with footprints of at least 1,000 square meters. The clubhouses offer cafés, meeting rooms, event spaces, and even daycare centers available only to car owners. 

Li confirmed that “basically” no new Nio Houses will open this year, while the company will continue plans to open around 200 “Nio Spaces,” a type of smaller and more capital-efficient franchise store by the end of this year. Closure of some “less efficient Houses” is also expected, Chinese media reported earlier this year citing Zhu Jiang, vice president of user development.

Another 30% drop in manufacturing costs may also be achievable by year-end, since the company will pay less to manufacturing partner JAC for operating losses, a result of lower-than-anticipated sales volume.

But these cuts are not enough to keep the company afloat without more cash from investors.  Its lifeline is an expected investment from the government of Hefei, the capital of eastern Anhui province. Li confirmed plans to sign the deal by the end of April. The major financing project is “necessary if Nio is to remain solvent,” wrote analysts at Bernstein led by Robin Zhu.

Electric car maker Nio delivered just north of 700 cars in February, half the number it had produced a month earlier, it said on Tuesday as automakers report plunging sales due to the Covid-19 virus crisis.

Why it matters: Nio is one of many Chinese EV makers that have been heavily affected by both weak demand amid a national health crisis and increased competition from Tesla’s China-made Model 3.

• Tesla bucked the industry-wide slump in February, delivering 3,958 Model 3 cars during the month, or around a third of the country’s total volume, Bloomberg reported citing Cui Dongshu, secretary general of the China Passenger Car Association (CPCA).

Details: Nio’s car deliveries dropped 55.7% sequentially to 707 units in February, according to an announcement released Tuesday. More than 90% of cars delivered were its five-seater SUV ES6, with the bigger premium SUV ES8 making up the balance.

• Still, Nio’s February decline was a moderate 12.8% on an annual basis, significantly outperforming the drop seen in the wider EV industry.
• Nio attributed the sales decline to ripple effects of the Covid-19 outbreak, saying that deliveries have been restricted since the company is taking a cautious approach to restarting its service operations and as people avoid public gatherings.
• Founder William Li said the company has since made an “aggressive” push into online sales channels with “some encouraging order numbers,” but did not reveal further details.
• Chinese media on Friday reported that the Tencent-backed EV maker captured more than 1.25 million views for its 925 livestreams on Chinese short-video platforms as of March 2.

Context: China’s new energy vehicles sales including all-electric cars and plug-in hybrids plummeted 77% year on year to around 11,000 units in February, marking the eight consecutive month of decline since July, according to figures released Monday by CPCA.

• Nio reported a year-on-year decline of 12% to 1,598 units in January deliveries, bringing an end to five months of growth while issuing a warning about reduction in production and deliveries in February.
• The Shanghai-based EV maker has raised a total $435 million via convertible bonds this year, along with a strategic investment project with the government of the eastern Chinese city of Hefei announced late last month.

Chinese electric vehicle maker Nio on Thursday announced the sale of $235 million in convertible bonds to fund its operations. Its shares fell 3.9% by market close during a tumultuous week for global markets.

Why it matters: Proceeds from the offering will relieve near-term cash flow pressures. The company continues to operate in the red even as it nears a major investment from a city-level government.

• Nio last week confirmed it has been in talks with the government of Hefei in eastern Anhui province for a financing project of more than RMB 10 billion ($1.4 billion).
• The two parties expect to close the deal in two months, Chinese media reported citing founder William Li.

Details: Nio is raising $235 million via convertible notes from several unnamed Asia-based investment funds. The notes will bear zero interest and expire in March 5, 2021, according to an announcement released Thursday.

• Nio expects to close the deal no later than March 11. The notes will be convertible into company shares at $3.50 per American Depositary Share (ADS) after about six months.
• The China-based EV company has used convertible bonds to raise a total $435 million in two separate rounds from four Asia-based funds this year alone.
• Nio is pivoting its funding strategies during a prolonged capital winter, raising small amounts from multiple investors which help it sustain with short-term funds and disperse risks for investors, analysts at investment bank China International Capital Corporation (CICC) said (in Chinese) last month.
• The CICC analysts said that Nio’s fundamentals are improving, and short-term funds could relieve operating pressures before cornerstone investors join in. CICC last week raised the Nio target price from $3.10 to $4.10, after Nio revealed its funding project with the Hefei government.
• Others remain skeptical about Nio’s chances of success, including Citi analyst Jeff Chung, who earlier this week downgraded Nio’s shares to neutral from buy with price target reduced by a third to $4.30.
• “The collaboration will require Nio to spend a portion of the cash injection on the headquarters move, which may put the company under more pressure in case of prolonged sales weakness,” Chung wrote.

Context: Nio’s third quarter earnings beat forecasts with a 25% year-on-year increase in revenue and net losses narrowed by 10% from a year earlier.

• The Chinese EV maker accumulated net losses of more than RMB 8.4 billion ($1.2 billion) in the first nine months of 2019, with net cash of $274 million as of September.
• Goldman Sachs estimated another cash outflow of RMB 14 billion before it could achieve breakeven in 2023.

Cash-strapped electric vehicle maker Nio on Tuesday announced that it has reached an agreement with officials in the eastern Chinese city of Hefei, where the company’s joint manufacturing plant with JAC Motors is located.

Why it matters: The long-awaited funding deal is expected to provide relief for the Tesla challenger from a liquidity crisis, and allow for the launch of its third electric SUV model scheduled for delivery in September.

Details: Nio and the government of Hefei, the capital of eastern Anhui province, signed a framework agreement on Tuesday morning at a plant jointly owned by the company and JAC, according to an announcement released by the government on its official Weibo account (in Chinese).

• Nio has yet to reveal the details of the funding agreement, but the government expects the investment will exceed RMB 10 billion ($1.4 billion), making the company “an EV major” and enabling annual output of RMB 100 billion in revenue over the next five years.
• Nio will relocate its China headquarters to Hefei, including its research and development, sales and marketing, and manufacturing facilities, company president Qin Lihong confirmed on Tuesday in a WeChat Moments post.
• The Tencent-backed EV maker also kicked off mass production of its electric coupe SUV, the EC6, which will have a range of up to 615 kilometers (382 miles) with its new 100 kilowatt hour battery pack. The company unveiled the model for a yet undisclosed price range at its annual press event, Nio Day, in Shenzhen in December.

Context: Rumors of Nio capturing investment from different automakers have been circulating on Chinese media this year, including a reported up to $1 billion financing round from southern China’s biggest OEM, GAC.

• GAC, a Toyota and Honda partner, later denied the report saying the total amount of the funding will not exceed $150 million, and that it had not reached a binding agreement with the company.
• The EV maker is reportedly in talks with China’s auto giant Geely for an investment project totaling $300 million, according to a Chinese media report last week. The two companies have declined to comment.
• Anhui province is where the hometown of founder William Li is located. Li grew up on a farm in Anqing, a city neighboring Hefei, before leaving for Beijing for his undergraduate studies.

Hillhouse Capital, a longtime Nio investor and once its third-largest shareholder, sold off its holdings in the Chinese electric vehicle (EV) firm in fourth quarter after reducing its stake significantly earlier in the year, according to a filing on Friday.

Why it matters: Caution about the EV maker and about the electric car sector in general from a top-ranked private equity firm underscores the industry’s fragility and as well as the uphill battle Nio still faces in attracting badly needed funding.

• Hillhouse also sold off all of its 147,700 Tesla shares at the end of 2019 which it had bought in the second quarter, according to a regulatory filing.

Details: Asia-focused investment firm Hillhouse Capital Management has sold its entire stake in Nio over the last quarter, the company revealed on Friday in a filing made to the US Securities and Exchange Commission (SEC) after market close.

• The fund-management company nearly doubled its Nio holdings to 41.9 million shares in Q2 of last year, but reversed and sold off two-thirds in the third quarter, reducing its holdings to 13.36 million shares.
• Known for being an early investor in Chinese tech giants Tencent and JD.com, Hillhouse was Nio’s third-largest institutional shareholder with a 6.2% stake in the company behind Tencent and Scottish investment house Baillie Gifford, Nio wrote in its annual report released in April 2019.
• The investment firm was an early Nio backer, leading its $100 million Series A in 2015 with a follow-on investment in the EV firm’s $600 million Series C two years later. It held 7.5% of its shares as a principal shareholder when Nio went public in the US in September 2018.
• Nio’s share price reached its lowest point of $1.19 in the beginning of October and remained depressed for most of the quarter. Shares shot up by more than 53% to $4.87 on Dec. 30 after the EV maker posted smaller-than-expected quarterly losses.
• A Nio executive told Chinese media that the company respects investor choices, and declined to comment further. Hillhouse did not respond to TechNode’s request for comment.
• Hillhouse held 210 million shares worth $8 billion by year-end from 54 companies including Chinese e-commerce giant Alibaba, video-streaming platform iQiyi, and video-conferencing firm Zoom, according to filings.

Context: Hillhouse’s filing follows a day after Nio announced another $100 million short-term debt offering in convertible bonds from two unnamed Asia-based investment funds, which is expected to close on Feb. 19. The company had just announced a similar deal to raise $100 million just a week earlier, on Feb. 6.

• Nio’s stock price dropped 6.5% to $3.77 on Friday amid lingering concerns over whether it will be able to raise new financing in amounts significant enough to sustain growth.

Electric vehicle maker Nio on Monday posted an 11.5% drop year on year in January sales, outstripping peers during a historically low season for the Chinese auto market.

Why it matters: The likely significant impact of the coronavirus outbreak is beginning to show. In January delivery results, Nio warned of an expected drop in production and deliveries in February after two months of growing sales.

• Nio did not give a specific figure for February, but is currently monitoring the situation alongside efforts to battle the outbreak with the government and industry.
• Swiss investment bank UBS expects a hard hit to China auto sales with a year-on-year decline of more than half in February, China auto analyst Paul Gong said at a media briefing on Monday.

Details: Nio delivered 1,598 electric vehicles (EVs) in January, including 1,493 units of its five-seater sport utility vehicle, the ES6. It only handed over 105 units of its premium ES8 SUV, the lowest on record for the past year and a half.

• The decrease was primarily due to the reduced business days in the month, the company said in the announcement, a result of the Spring Festival holidays, a historically low season for auto sales in the country.
• The company also blamed the extended holiday period, which was initially set to end on Jan. 30, for its sales results. Nio founder and CEO William Li said it partially resumed operations by offering services and engaging with customers online during the holiday.
• Nio share prices rose by a modest 1.6% to $3.87 on Monday after the results were released.
• It also comes as the company closed a $200 million funding round using convertible bonds with major investor Tencent, which it revealed in September. The first tranches of the bonds are due to mature in less than a year.
• According to an SEC filing released Monday, the Shenzhen-based tech giant now owns more than 30% of the EV company through several subsidiaries, compared with the 13.3% stake it held at the end of 2018.
• Tencent had no choice but to convert debt into equity to avoid losses, as it would seriously endanger Nio to pay out the debt in September given its cash balance is only adequate to ensure operations for a few months, David Ho, founding partner of Guangzhou Xiuyong Enterprise Consulting Co., Ltd said when contacted by TechNode on Tuesday.
• Ho estimated Nio will need to fill a funding gap of up to RMB 5 billion ($720 million) to survive the year. However, there is little hope of major financing from Chinese state-owned automakers.
• “This presents a high political risk for the heads of Chinese state-owned automakers,” (our translation) Ho said, adding that established OEMs now have to invest heavily to save themselves and dealers from the ongoing coronavirus outbreak.
• Nio and Tencent declined to comment.

Context: Chinese biggest EV maker, BYD, on Monday reported EV sales falling by more than three-quarters to 7,133 units in January from the same period last year.

• Meanwhile, BJEV, the EV unit of Daimler’s Chinese partner, recorded a 55.5% drop in sales to a mere 2,006 units last month.
• Cui Dongshu, secretary-general of the China Passenger Car Association, forecasted a 15% to 25% decline in China auto sales in January due to the outbreak.

GAC, Nio in talks about investment of up to $150 million

Cash-strapped electric vehicle maker Nio has raised $100 million in convertible bonds, relieving immediate cash flow concerns, but now faces delivery delays for its February shipment amid a viral outbreak that has brought much of the country to a standstill.

Why it matters: The cash infusion may temporarily alleviate financial pressures for the troubled EV maker, which had just RMB 2.55 billion ($357.3 million) in cash and equivalents as of the third quarter of last year.

• However, given the company’s difficulty raising financing, there has been growing concern among investors about whether it will be able to pay for its ambitious growth plans in its competition with Tesla.
• The new cash it raised was inadequate in tackling the challenges from the virus let alone launch its EC6 SUV, Nio’s challenge to Tesla’s Model Y, Tu Le, managing director of Sino Auto Insights consultancy, said when contacted by TechNode on Friday.
• Whether the company can make “any significant gains” in the first half of this year could be a concern, when all automakers are doing their best to just hold on and Nio is no exception, Le added.
• Nio’s shares plunged 7% to $4.08 on Thursday.

Details: Nio is selling around $100 million worth of convertible bonds, which mature in 360 days with zero interest, to two “unaffiliated” Asian-based investment funds, according to an announcement released Wednesday.

• Shanghai-based Nio said it will issue $70 million in convertible notes to one of the two unnamed funds through a private placement and expects to close the deal on or around Feb.10.
• The notes will be convertible into company shares at $3.07 per American Depositary Share (ADS), around 70% of the current market price, six months from the issue date. It completed the sale for the balance to the another fund on similar terms in January.
• Nio reiterated that it is currently working on several other financing projects, though the outcomes remain uncertain. In a notice sent to Chinese media, the EV maker said it is currently focusing on the funding programs with “strategic value” to business growth.
• Nio has delayed deliveries of its electric crossover ES6 initially scheduled for delivery in February, according to two customers TechNode spoke with on Thursday who asked to remain anonymous.
• Both customers said that the company salespersons did not give a timeframe for the ES6, that production has resumed but there were staff shortages due to the outbreak. The two customers placed orders about a month ago, and now expect that the delivery will be rescheduled to April.
• Nio will minimize the impact of the virus with suppliers and catch up during February deliveries as operations resumed fully on Feb. 10, the company told TechNode late Friday.

Tesla says deliveries of China-made Model 3 will be delayed

Context: This is Nio’s third convertible bond offering after going public in the US in August 2018.

• It raised $650 million by selling a five-year convertible note to investors including Tencent and Hillhouse Capital Management last January, Reuters reported.
• This was followed by a financing program totaling $200 million from main backer Tencent and Nio founder William Li Bin nine months later.
• Last month, the company confirmed that it is in talks with Chinese automaker GAC regarding an investment of up to $150 million.

Update: added comments from Tu Le and the company.

Chinese ride-hailing platform Dida Chuxing is seeking up to $300 million in pre-IPO funding from investors including Tencent, Chinese media reported Thursday.

Why it matters: Beijing-based Dida is the second-largest ride-hailing service in China and one of the few to say it is profitable.

• If able to raise the targeted amount, Dida is well-positioned to keep eroding Didi’s share of the market, which has been slowing along with the broader economy.

Details: Dida is looking to raise as much as $300 million in a last round of funding before filing for an initial public offering in the US, Chinese media reported Thursday citing people familiar with the matter.

• The company has been in talks with potential investors including Tencent with a pre-money valuation of $1 billion, the source said, adding that it is eyeing a US listing, though a date has not yet been set.
• The Didi rival expects to double the size of its business to 2 million orders per day this year. Currently around 70% of the traffic on its platform is for its carpooling service, which benefited from Didi’s nationwide suspension of its Hitch carpooling service following two passenger murders in 2018 by drivers. Dida’s carpool service increased tenfold in a year’s time as of mid-2019, according to the report.
• A spokeswoman from Dida Chuxing declined to comment when contacted by TechNode on Friday.
• Founded in 2014 by Song Zhongjie, a former HP executive, Dida provides taxi-hailing and carpooling services in 359 cities. Its user base of 5.64 million monthly active users (MAUs) as of December is one fifth the size of Didi’s, figures from Chinese mobile internet research firm Trustdata show.
• The company first claimed to be profitable in September, which it attributed primarily to its carpooling and value-added businesses including advertising, car maintenance, and auto insurance. A company executive said it charges RMB 1 to RMB 3 ($0.14 to $0.43) as a service fee from each carpooling order.
• Dida has so far recorded a total of four funding rounds including its latest, during which it raised an undisclosed amount from Nio Capital in March 2017.
• Its 2015 Series C raised $100 million, led by China Renaissance Capital Investment and followed by existing investors including Yiche, also known as BitAuto, a Nasdaq-listed auto information service provider formed by Nio founder William Li.
• Nio Capital is a mobility-focused venture capital firm formed by electric vehicle maker Nio, alongside Sequoia China and HillHouse Capital. Li has been the chairman of the Dida Chuxing board since 2018.

Context: China’s ride-hailing market has started to slow, reporting a 6.3% year-on-year decrease in total daily active usage in the third quarter of 2019, the fifth consecutive quarterly decline, analysts at Sanford C. Bernstein wrote in a report citing figures from Chinese research firm TalkingData.

• A reduction in user discounts and subsidies from ride-hailing platforms was the main driver for the decline, the report said.

Didi Chuxing unveils holiday measures to boost safety, car availability

China’s Guangzhou Automobile Group (GAC) on Thursday confirmed that it is in talks with Nio regarding an investment of up to $150 million.

Why it matters: A successful deal with southern China’s biggest automaker will help Shanghai-based Nio with its cash flow issue, which has dogged the company for months, and significantly lower costs along its supply chain.

• Nio reported combined net losses of RMB 8.43 billion ($1.22 billion) over the first three quarters of 2019, with cash and equivalents plunging more than 70% to RMB 1.96 billion as of September.
• It warned investors that it would be unable to continue operations beyond the next 12 months without sufficient financing in its Q3 earnings report.

Details: In an announcement released Thursday morning, Shanghai and Hong Kong-listed GAC said it has been discussing a financing proposal with Nio, but had not yet reached a binding agreement.

• GAC expects the total amount of the funding will not exceed $150 million, which will not have a major impact on its balance sheet, it said in the notice.
• GAC warned investors that talks were in the early stages and there was still “great uncertainty” about the deal. Nio declined to comment.
• GAC shares declined 2.7% to RMB 11.76 on Shanghai Stock Exchange on Thursday. Shares for Nio surged by more than 14% to $4.29 by market close on Wednesday, before dropping 5.3% in after-hours trading.
• Rumors about the potential investment began circulating on Wednesday when Yu Linglin, a former auto reporter, said GAC was raising funds for an up to $1 billion investment deal in Nio.
• In an article published Wednesday on her WeChat public account, Yu said that Geely and China’s FAW were also on a list of Nio’s potential investors, without revealing further details.
• Another Chinese auto media outlet, Chedongxi, reported that the two companies have been in talks for months and GAC has conducted several rounds of due diligence on Nio, citing persons with knowledge of the matter.
• Some in the industry expect that the possible deal would not only provide Nio relief, but also allow for extensive supply chain cost-cutting, as it may gain access to GAC’s suppliers and favorable pricing.
• The five-year-old EV maker currently manufactures its own powertrain and battery pack in a production base in Nanjing, which sharply increased costs compared with direct purchase. It also reportedly has struggled with limited bargaining power in negotiations with local suppliers because of its short sales history.
• Some of the EV maker’s components are sourced from a single supplier, an operational risk. It plans to adopt a multi-source volume purchasing strategy for “better cost competitiveness,” the company wrote in its annual report released April 2019.

Context: GAC and Nio forged an alliance in December 2017 followed by a joint venture in the southern Chinese city of Guangzhou months later in a bid to nab share of low- and mid-level auto markets and reduce supply chain costs.

• The JV released late last month its first mass-market SUV with an estimated range of 643 kilometers (400 miles) and a starting price of RMB 260,000, and is reportedly targeting RMB 1.5 billion funding to finance growth.
• A long-time manufacturing partner to Toyota and Honda in China, GAC is China’s fifth-largest automaker by revenue as ranked on the Fortune 500 list. It reported a 4% decrease in general auto annual sales to around 2 million units last year, but more than doubled year on year its new energy vehicle sales to 42,200 units.

Nio, GAC joint venture unveils first EV model

Piano teacher Sun Lei drove her Nio ES6 from her home in Guangzhou to Shenzhen twice per week in December. With a round trip of 5 hours, she had to make sure she had enough time to practice ahead of the big day.

The moment came on Dec. 28 when Sun took to the stage at the annual Nio Day event with 16 other members of the makeshift group “Blue Sky Chorus.” They sang of the virtues of owning a Nio to the thousands of fellow fans in attendance.

“I am a super fan of Nio and everything was worth it,” Sun said. She first volunteered to compose the performance after growing tired of stories in the media bashing the company. Sun wanted to set the record straight and share her positive experiences as a Nio owner. The company was not directly involved in organizing the performance though it did ask for volunteers to take part in Nio Day.

The NEV maker has adopted an Apple-style community strategy seldom seen in the auto sector, forming a tight army of devoted users to promote its cars to potential buyers. Early EV adopters from all walks of life—executives, business owners, and professionals—act as informal sales staff repaying the struggling company for the plethora of “user-centric” services offered.

The efforts started bearing fruit in the second half of 2019. Nio reported a robust 35% month-on-month rise in vehicle deliveries in the third quarter, followed by another 70% jump for the three months after. And, more notably, existing owner referrals accounted for more than 45% of the 20,000 or so shipments last year. Several car owners from the advertising industry even took it on themselves to launch their own local promotional campaigns to help the company in cities including Qingdao and Wuhan, Nio Chief Executive William Li said at the event.

Still, the much-heralded “Tesla of China” continues to bleed money. Cash is tight and it will struggle to see out the next 12 months of operations without external financing, according to its latest earnings report. However, Nio firmly believes that the relentless support of its users constitutes a trump card for the NEV maker ahead of an unlikely comeback.

Nio Day 2019

Thousands of auto enthusiasts descended on Shenzhen, southern Guangdong province, on Dec. 28, to attend Nio Day 2019. Top of the bill at the annual user event was the new EC6 sporty SUV.

This year’s event was smaller than previous incarnations, real estate veteran and Nio devotee Tom Tian told TechNode. The first-ever event at Beijing’s Wukesong Stadium in 2017 drew a crowd of 10,000, all fixed on the eight cars showcased on stage. That year, Nio unveiled China’s first EV recharging service solution, and an in-vehicle smart speaker, alongside its debut mass-produced ES8 model. A performance from US pop-rock group Imagine Dragons rounded off the show.

For many Nio fans, the company has been at the forefront of China’s push to become a global manufacturing superpower. Aspirations of becoming the country’s most innovative NEV maker brought in followers in their droves and they continue to stand by to this day.

Nio-lievers: China’s emerging middle class

Tian, also a go-karting enthusiast, first came across Nio in November 2017 at a test-drive event for the EP9 supercar at a circuit in Beijing. A year later and he was the 4,220th owner of the ES8 SUV model—Nio assigned numbers to the first 10,000 vehicle owners. He already had two cars including a Mercedes GLE, which he now rarely drives.

Tian drives his Nio to work each day in the capital where NEVs are not subject to the same restrictions as traditional gasoline-powered autos. He also does so essentially at no cost, thanks to Nio’s battery-swapping service that switched to a free-for-users model last August.

Tian is not alone. Chang Luqiu went electric at around the same time. Previously torn between Tesla and Nio, he made up his mind after watching the first Nio Day in 2017. Chang gifted his BMW sedan to his mother and now drives an ES8 to work every day. “I feel proud to be a Nio owner,” Chang said.

Nio’s army of loyal fans come mainly from China’s growing middle class. TechNode spoke to multiple owners including business owners and corporate managers. Riding the crest of a wave of China’s phenomenal economic growth over the past 30 years, these educated professionals are well-paid and come from industries such as real estate, technology, and finance.

The country is now home to more than 33 million households with a combined annual income of RMB 200,000 ($29,000), according to a report from Hurun, the research firm behind China’s annual rich list report. Having achieved financial security in the early years, these progressive affluent spenders are globally minded and hard to please. They have grown a refined sense of quality related to global brands and seek emotional satisfaction through this taste.

The Nio Day excitement hit a crescendo as CEO William Li took to the stage. The crowd greeted him with loud cheers and even sobs. Nio fans refer to him as “Brother Bin,” using his first name. While sheer patriotism does explain some of their devotion, there are also other factors at play.

Community is ‘the only way out’

The events of this year’s Nio Day were unthinkable. Some 17 Nio owners formed the “Blue sky chorus,” spending a month of writing and rehearsing a song together to express their love for the brand. Over 150 others volunteered to pick up attendees from nearby airports and train stations before the event.

What’s more, the devotion is transforming into tangible benefits. CEO William Li attributed a 25% rise in Q3 sales to a “thriving and growing” community, adding that nearly half of new orders came from existing owner referrals over the past year. Nio President Qin Lihong told TechNode that offering the best user experience consistently to gain their continuous support is “the only way” to help the company out of its financial predicament.

These affluent customers are repaying the company’s efforts. Li pledged to build a user-centric enterprise and has invested heavily since the beginning of operations in 2014. The company has built 22 clubhouses nationwide featuring bespoke design elements. They offer users a space to hang out, read books and even leave their children for daycare. In the case of property veteran Tian, all eight Nio owners in his neighborhood know each other.

The expensive added-value retail and club strategy has helped the company form its own private social network as well. Nio claimed its users organized and joined in over 16,000 activities last year via its app. These included attending lectures, making dumplings, and playing football. These middle-class Chinese with time, money, and status are able to socialize, show off their talents, become leaders, or just offer a helping hand to like-minded individuals.

Devoting their time and efforts to the community gives them a constant sense of personal fulfillment, a deeper feeling of inner contentment, and strong sense of their own identity. And all of this is backed up by strong patriotic sentiment. “[We] all hope that China can build quality cars on its own,” said Tian.

“Each Nio owner is a part-time salesperson, and that is the cornerstone for Nio to expand its business rapidly in the future,” Bill Lin, an EV enthusiast told TechNode. He said that the community is Nio’s most valuable asset. Anthony Lin, a Nio investor agreed, adding that rivals cannot come close to replicating the success in this aspect.

With that in mind, Nio is now raising the stakes. The cash-strapped EV maker has burned more than RMB 1 billion each quarter in the name of sales over the past two years. This includes fixed investments on brick and mortar clubhouses and expenses for marketing events. President Qin did not reveal the per capita cost of user acquisition, stating that building the community “has nothing to do” with the company’s financial plight.

“The company’s cash balance is not adequate to provide the required working capital and liquidity for continuous operation in the next 12 months,” Nio stated in its third-quarter earnings call, laying bare the grave challenges faced.

Analysts believe a lot of Nio fans may have overlooked the earnings report and fail to realize the significance of the stretched balance sheet. With new investment still far off, users are going to great lengths to help the firm navigate choppy waters and continue to push the NEV sector forward.

GAC Nio, a joint venture (JV) between Chinese automaker GAC and the electric vehicle startup, is reportedly seeking RMB 1.5 billion ($216 million) in a fresh round of funding to support expansion initiatives including opening flagship stores and clubhouses across the country.

Why it matters: Signals that GAC Nio is seeking funds externally may mean that interest from its namesake investors is flagging. With it, the possibility of further collaboration between the two companies is vanishing, and hope from some of Nio’s investors that the EV maker could be rescued by GAC is also disappearing.

• GAC Nio’s first EV model may compete with GAC’s premium EV, Aion LX, launched last year. It bears striking resemblance to the GAC SUV and is similarly priced.
• GAC and Nio set up the JV with registered capital of RMB 500 million (around $72.2 million) in April 2018. Both companies hold 45% share, and the remaining 10% has been reserved as employee incentive compensation.

Details: GAC Nio is seeking to raise around RMB 1.5 billion to finance growth with a pre-money valuation of the same amount, according to a Chinese media report.

• It reportedly plans to increase investment in product development, user community, and sales network expansion.
• The company is about to close the financing, according to a company spokeswoman, who declined to give further details.
• The EV maker last month unveiled its first mass production model, the Hycan 007, a five-seat SUV with an estimated 643 kilometers (400 miles) of range.
• Delivery has been scheduled for April this year with a conservative annual target of 15,000 units, Liao Bing, the founder and CEO, said.
• Similar to Nio, the company is using a direct sales model featuring self-owned showrooms, called Hycan Park. GAC and Nio will provide delivery services.
• It is also using word-of-mouth to market the cars, and has formed an online community in its app.
• GAC Nio is also planning to use clubhouse-style stores, called Hycan Pop, as part of the user community strategy. Potential partners include community centers, kids clubs, and inns, the company said at a press conference.

Context: With a price range between RMB 200,000 and RMB 300,000 (around $28,900 to $43,300), Hycan is positioned to appeal to the expanding, middle-class market, complementing Nio’s high-end offerings, Nio president Qin Lihong told media during its annual launch event in Shenzhen last month.

• Nio last month reported a robust 35% quarter-on-quarter growth, delivering 4,799 vehicles for the third quarter, followed by a 71% sequential surge in the fourth quarter.
• GAC also posted a 110% annual growth selling around 42,200 electric vehicles in 2019. Southern China’s biggest automaker began delivering its first all-electric model, the GE3, in late 2017.

Nio, GAC joint venture unveils first EV model

Electric vehicle maker Nio reported 25% sequential growth in December deliveries, bringing fourth quarter totals to 8,224 units and in line with the company’s forecast.

Why it matters: Nio has formed a community of devoted users to promote its cars to potential buyers, a marketing approach which has started to pay off.

Details: Nio said on Monday that total deliveries increased 25.4% month over month to 3,170 vehicles in December.

• Deliveries of its five-seat ES6 SUV resumed growth, rising 22.7% sequentially to 2,537 units after declining 7% in November.
• Sales of its first mass-production model, the ES8, also recovered with 633 units delivered during the month.
• The Tencent-backed EV maker attributed support from its buyer community as the driving force behind its growth. More than 45% of new orders in 2019 came from existing owner referrals, according to CEO William Li.
• The December delivery figure was 4% lower than the same period in 2018, when Nio delivered a record 3,318 ES8s in a month, bucking a broader slowdown in overall car sales.
• The company has delivered a total of 31,913 vehicles as of December, for 18 total months of deliveries.
• Nio shares decreased 3.92% to $3.68 by market close on Monday.

“These results are attributable, not only to our products and services that continue to stand out from competition in quality, performance and pricing, but also to our passionate, loyal and supportive user base. Through favorable word of mouth and referrals, our existing users remain a steady and relevant driver of new orders.”

—William Li, Nio founder and chairman

Context: The December delivery figures surpass the company’s outlook for the fourth quarter of 8,000 units.

• The car company issued a first set of online community rules on its app in September 2018, including a reward of 100 Nio Values for referring a friend.
• Nio Values are tied to user participation and contributions to the community, and those with a greater contribution have higher voting rights as well as more priority when registering for popular events, according to the rules.
• Voting rights within the community can be put toward voicing opinions on corporate activity. The company cited the example of a trust fund created by Li using 50 million shares, the proceeds of which were decided by the community.

Nio shares surge despite lingering investment concerns

Nio shares swelled by over 50% overnight after the embattled NEV maker posted a surprise bump in revenue to beat Wall Street estimates for the third quarter, thanks to recovering sales and lower spending. 

Why it matters: The latest results suggest Nio has hit a financial turnaround of sorts. Still, the company has yet to reveal new investment plans, and some on Wall Street remain skeptical over whether the rebound is sustainable.

• The company has made “significant positive progress” on several financing projects, recently installed Chief Financial Officer Feng Wei said during the earnings call without revealing details.
• A person close to the company told TechNode earlier this month that several domestic companies, including Chinese property developer Evergrande, were interested in buying Nio. Founder William Li was quick to reject these claims.

Details: Nio shocked Wall Street with a 25% year-on-year increase in total revenue to RMB 1.8 billion ($257 million) for the third quarter on strong vehicle sales, beating analyst expectations by more than $23 million.

• Shares touched a high of $4.87 in Monday’s trade before closing up 53% at $3.72.
• Net losses narrowed 10% annually to hit RMB 2.5 billion for the quarter.
• The company delivered 4,799 ES6 and ES8 sports utility vehicles in the three months ended Sep. 30, 35% higher quarter on quarter. Vehicle margins improved to -6.8% compared with -24.1% from the last quarter, but remain 2.5 percentage points lower than last year.
• Aggressive cost-cutting has helped with a 25.3% sequential decrease in losses from operations to RMB 2.4 billion.
• CEO William Li said Nio has received over 100 non-refundable orders on average each day over the past two months and expects record deliveries above 8,000 vehicles in the fourth quarter.
• Li attributed the sales growth to the competitiveness of products and a “vibrant” user community. More than 45% of new orders in 2019 came from existing owner referrals, he added.
• The Chinese Tesla challenger aims to hit a positive gross margin next year by scaling up deliveries in 100 domestic cities with over 200 capital-efficient sales offices called Nio Spaces.
• Cash flow continues to be tight with only $274.3 million in cash and equivalents as of September, of which $100 million came from major shareholder Tencent as part of a $200 million convertible bond deal announced earlier this year.
• The company admits cash balance is inadequate to provide the required working capital and liquidity for continuous operations for the next 12 months.
• Nio investor Anthony Lin told TechNode that he was not concerned about the company’s cash flow, adding around $400 million revenue from vehicle sales and services is expected for the fourth quarter.

Context: China’s new energy vehicle sales have slid for five consecutive months following subsidy cuts, with November sales falling 37.5% to 95,000 units compared with June, figures from the China Association of Automobile Manufacturers (CAAM) show.

• Sales growth at Nio indicates the company has been wrestling market share away from competitors in a general slump, Tu T. Le, managing director of Sino Auto Insights, told TechNode on Tuesday.
• Profits in China’s auto industry for January to November this year dropped 13.9%, according to data from the National Bureau of Statistics.

Nio gets mixed reactions with new battery promising longer range

Electric vehicle startup Nio on Saturday announced it will not begin delivery of its third mass-market model until the beginning of the fourth quarter of 2020. The long-rumored compact crossover comes with a new 100 kWh battery pack. Unveiled at a yearly launch event, the battery’s reception was much warmer as details about the new vehicles had already been leaked prior to the event.

Why it matters: With the new battery pack, Nio is hoping to eliminate range anxiety and beat competitors.

• Tesla is looking to release a version of Model 3 with a 100kWh battery pack, according to code reportedly leaked in its recent software updates.

Details: Nio fans at the annual “Nio Day” in Shenzhen were ambivalent about the liquid-cooled battery pack.

• The new 100 kWh battery pack will be equipped in both the EC6, its third electric SUV model, and redesigned the ES8 SUV. According to founder William Li, it only takes 5.5 hours to fully charge the battery with a new 20 kW DC fast charger for home use.
• The company also released a set of energy upgrade plans for current owners with the 70 kWh pack. The plan includes a one-time RMB 58,000 ($8,300) fee for replacement or a subscription of RMB 1,280 per month.
• The new battery pack allows EC6 drivers to go up to 615 km (382 miles) on one charge. It extends the range of the ES8 to 580 km. Nio fans cheered when this announcement was made.
• Prices for EC6 models were not revealed, and all the vehicle models with 100 kWh battery pack will not be delivered until the fourth quarter of 2020.

Nio seeks to allay customer fears over range with new battery swap stations

On-site reactions: TechNode was at the launch event and talked with a few Nio owners.

• Several said they would buy the new battery pack. Others were more concerned about the availability via Nio’s battery swapping service network.
• A Nio owner surnamed Tian told TechNode that he will not consider it until the new battery pack is available for swapping. Currently, he swaps his battery free of charge every day on his way to work.

Context: Nio has bet big on battery swapping technologies as part of a broader “Battery as a Service” strategy. This term was coined by William Li to describe a comprehensive energy ecosystem including battery swapping and valet charging services.

• Li revealed on Saturday that Nio owners have so far swapped batteries over 230,000 times in the company’s service network of over 120 swapping stations in China.
• Investors have questioned if the incentive policy is economically sustainable for the company. Li responded in an earnings call in September, saying that the cost of electricity is “quite low” with an additional cost of around RMB 50,000 each day.

A little known Chinese electric vehicle startup will likely become the first of its kind to be saved by a government-led buyout. After shelving its plan to invest in struggling EV maker Nio, a county government of China’s eastern city of Huzhou is planning to take over Youxia Motors. Youxia’s chairman, Wei Jun, said in 2017 that the company would be “China’s Tesla,” but the company has yet to deliver a real car after five years of operation.

Why it matters: Chinese local governments have been strong backers of electric vehicle startups, in line with Beijing’s goal to be the world’s leader in clean energy transportation. Now, as the once soaring industry is deflating, some of them are finally biting the bullet with further bailouts.

China NEV sales decline extends in November

Details: A fully state-owned urban investment corporation, controlled by the Wuxing district government Huzhou, is planning to acquire land from Youxia Motors. It will also take over its unfinished construction project, the government said in the minutes of a recent meeting published (in Chinese) last week.

• The regulator has approved a takeover plan submitted by Huzhou Wuxing City Investment Development Group, intended to “better utilize resources” and prevent the project from going into default.
• A coastal city in the eastern Zhejiang province, Huzhou is known for being a potential new backer of cash-strapped EV maker Nio with an RMB 5 billion bailout plan in October.
• The local government later confirmed it had held talks with Nio on the matter, but had dropped the plan, given a high investment risk.
• A spokeswoman of the district government declined to comment when contacted by TechNode on Thursday. Youxia Motors was not available for comment.

Context: Youxia Motors released an all-electric vehicle model in July 2015 after being set up for one year, the first among Chinese companies. However, it also gained a notorious reputation as the so-called “Youxia X” coupon model was almost completely converted from Tesla Model S.

• The company secured support from the Wuxing district government in 2017, striking a deal with local authorities to build an EV factory in the eastern Zhejiang province.
• Construction began later next year with plans for the series production of its first model in an annual capacity of 200,000 units in 2019. The company closed its latest financing of $350 million in Series B in August last year with no new investment since then.
• The government of China’s southwestern municipality Chonqing in October warned local banks to stop collecting payment from Lifan, a local OEM close to bankruptcy earlier this year, along with others. A debt commission was also formed under the support of the city government, Chinese media reported.
• Lifan posted a staggering net loss of RMB 947 million for the first half of this year. It sold a manufacturing plant with a license to EV startup Lixiang for RMB 650 million ($93 million) a year ago.

In this episode, the guys welcome Tu Le, Managing Director of Sino Auto Insights, to discuss China’s dynamic electric vehicle and automotive industry. Tu explains how an investment bubble and generous government subsidies led to an explosion in EV startups, but how as the money has dried up, these firms are now under intense pressure to prove that they can actually compete with the large international automakers.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Guest

• Tu Le – @sinoautoinsight

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Nio and Xpeng Motors are joining forces to expand their vehicle charging networks in a bid to address a vulnerability in electric car adoption as struggling Chinese automakers look to boost growth.

Why it matters: The collaboration—aimed at widening the charging pile network—highlights a lack of support for the EV industry from China’s slow pace of public charging facility construction. Low charging facility penetration rates is seen as a significant barrier for EV purchases.

• China on Tuesday reported a mere 3.6% monthly increase in November for its EV infrastructure network with a total of 496,000 public charging piles.
• The number of new charging facilities in November rose 45% compared with the number in January, according to figures from Chinese Electric Vehicle Charging Infrastructure Promotion Agency (EVCIPA).
• Growth in China’s charging station network has slowed to around 50% year on year over the past three years, after a short-lived surge in 2016 when the number of charging piles doubled to more than 150,000.

Details: Nio’s recharging service Nio Power and Xpeng Motors have signed an agreement to share their country-wide networks and connect payment processing systems to enhance user experience, the two companies said on Wednesday.

• Xpeng will “gradually” integrate its charging network and payment system with Nio Power, and car owners across the two brands will be able to access to one another’s supercharging piles across the country using the mobile apps for each carmaker, according to the plan. The two companies have not revealed a specific timeframe.
• Nio Power will also become one of the suppliers to offer Xpeng customers charging pile home installation services, for which the Xiaomi-backed EV maker currently charges no fee.

China’s EV darlings left stranded as VCs look elsewhere

Context: Rather than independently building out charging infrastructure, Chinese electric vehicle makers are collaborating to expand the power network amid a prolonged slump in the world’s biggest auto market.

• Following full integration of the two charging networks, Nio said that more than 90% of China’s fast charging facilities will be available to its customers, around 180,000 charging piles. Owners of non-Nio cars accounted for 55% of all Nio’s charging map users, company president Qin Lihong said in August.
• A Xpeng spokeswoman said it is running nearly 200 supercharging stations in around 30 Chinese domestic cities, following a partnership with China’s largest charging network TELD in October. Nio did not disclose the number of supercharging stations in its network when contacted by TechNode on Wednesday.

As electric car brands struggle, the government has released a 15 year plan for the industry’s development. Since subsidies were withdrawn in June, industry darlings like Nio and SAIC have seen sales flatten out, as Chris Udemans wrote in July. Some analysts expected this plan to be more targeted in upgrading the industry—so when I saw it was out, I dropped everything to ask experts what it meant.

I thought I was going to write about cars. But after a week of reporting, I’m convinced the real story is tuktuks. Low speed electric vehicles (LSEVs) are taking over rural China without subsidies—in fact, experts are not even asking if they can be saved, but if they can be stopped.

They are “so underrated,” says David Li, Executive Director of the Shenzhen Open Innovation Lab. Li helps international entrepreneurs interested in mobility access resources in China. While people talk of an EV downturn, he said, “go to an LSEV company—they say they are still growing 30 percent per year.” 

Bottom line: No rescue line for Nio is in sight. While some new energy vehicle (NEV) brands scramble to keep profit margins, other segments of the supply chain see opportunity from the disappearance of subsidies. The most interesting story in the market may be what Beijing decides to do about golf cart-like low speed electrics on rural China’s roads. 

What’s new: The 2021-2035 New Energy Vehicle Industry Development Plan draft doesn’t mention subsidies, but does promise support for the industry.

• Insiders all commented on the hard, higher sales target of 25% market share by 2025 (which analysts estimate would mean hitting 6 million in sales) and the scrapping of the 2030 target. 
• State-owned enterprises in China have KPIs, and for the first time, the plan explicitly requires R&D investment into NEVs to be part of them. An employee from state-owned NEV-bus manufacturer Shenlong Keche told TechNode he expected R&D money to go towards battery endurance and storage. China’s state-owned mining, refinery and chemicals enterprises are likely to focus efforts on lithium extraction and refining. 
• The plan aims to speed up building charging infrastructure.
• Analysts flagged a link between EVs and the carbon trading market. While it’s not yet clear what form such a mechanism would take, it could have implications for every part of the supply chain. 
• Hydrogen fuel cells get more attention.
• All of the above is vague on details—like most national plans, implementation is left to local government. 

Life after subsidies: Electric car brands have been relying on subsidies to make their cars cheaper. Without subsides, cars are more expensive to the average consumer who was already hesitant about limited range. But remember, these car brands assemble cars—they don’t make them. Other parts of the supply chain don’t think the future looks all bad. 

• Swappable battery companies expect to see more adoption of their technology. They have been “waiting for subsidies to end,” Li told TechNode. Fixed battery NEVs have no viable used car market. Buying one forces owners to bear the battery cost (the most expensive and short-lived part of the car). Swappable battery make NEVs cheaper to buy and also mean they retain value as other car parts live longer than batteries. 
• More companies have introduced models around the size of a Smart car, to target cost-conscious consumers.
• Startups are providing services around NEVs like swappable battery stations, ride hailing (see Xpeng’s Pengster), parking, and charging space. Problems that will need solutions are edging closer into view. Once this round of electric cars are on scrap heaps, who’s going to dispose of the batteries?
• If car brands can’t make themselves profitable, the state is happy to see some die. There are over 500 standard-size NEV companies and over 1000 low-speed electric vehicle (LSEV) companies. The state can afford to cull a few. China already makes half the world’s NEVs.

Forget about cars—think small: While Tesla-likes suffer, there are other EV companies that are doing just fine without subsidies: makers of low-speed electric vehicles, a category that includes everything from a one-person pod on three wheels up to four-seaters only slightly smaller than a standard electric car. Their speeds generally top out around 45km/hr. 

• Think tank GGII says (in Chinese) by 2018, LSEV inventory exceeded 3 million. GGII predicts that the total number of low-speed electric vehicles in China will reach 4-5 million by end 2020. 
• Growth slowed in 2018 but mainly due to bans and policy uncertainty.
• “Even companies with small market share are making hundreds of thousands of cars,” says Li. 
• Large LSEV brands are getting out of the grey area and moving in on standard-size EV companies. Last year, Levdeo bought Yema Auto, obtaining permits to produce fuel and “real” NEVs as well as plants in Chengdu and Mianyang. Rumours say it plans to go into car sharing. 
• Shandong Automobile Industry Association says that (in Chinese) Shandong province produced 695,900 low-speed electric vehicles in 2018, up 2.23% year on year. Exact numbers are hard to pin down (Liaocheng city in Shandong, for instance, has said that most of the LSEVs on their roads are illegally produced). Low technical thresholds mean it’s really the kind of car you can make in your backyard.
• The industry is not concentrated, but leading players include Levdeo, Yogomo, Shifeng, and Lichi.

Winning in Pinduoduo territory: Go down to China’s third and fourth-tier cities in provinces like Shandong and Hebei, or rural towns. There’s no buses, let alone EV charging poles. “Rural China is not going to spend RMB 200,000 (about $28,000) on an electric car,” says Li. “Elon totally missed the market.” While Tesla and other high-end EV brands fight over China’s well-heeled urbanites, LSEVs are catering to a huge market who are not swapping out their old cars, but keen to buy their first. 

Moving violation: Central government wanted China to create Teslas. Instead, they find themselves confronting golf carts, and a terrifying phenomenon—China’s elderly who’ve never taken a driving lesson, on wheels. 

• Since you don’t need a license to drive them, they’ve been crashing all over China’s small towns. 
• With no technical standards to limit size or control quality, some LSEVs are as big as standard vehicles and aren’t that much slower. 
• Some of them are bad for the environment due to poor-quality lead-acid batteries.
• They cause headaches for police, who have no way to punish traffic rulebreakers. 
• For all those reasons, Beijing has been trying to regulate the industry since 2015, and there have been efforts to ban vehicles locally (both preceding links in Chinese). 

But rural China loves them, as do local governments: LSEVs are still “sneaking around,” a father-of-one from Hebei’s provincial capital Shijiazhuang told TechNode. He bought an LSEV for his parents three years ago for RMB 7,000. This consumer segment doesn’t have range anxiety. They just want to be able to pick up their grandkids from school and do some grocery shopping. Also, LSEVs don’t need charging poles: they can be charged on 220V at home. 

Local governments are not encouraging LSEVs just because they are anti-carbon crusaders. Their primary concerns are money and jobs. Under the pretext of developing NEVs, some local governments have built industrial parks which are really for LSEVs. They know they aren’t going to get domestic NEVs to set up shop in their jurisdiction and see LSEVs as a development shortcut. It’s no surprise that bans are not enforced harshly as Beijing is asking local governments to kill off a profitable industry, and sometimes their largest taxpayers and employers.

Legitimizing contraband: Industry insiders say the policy they’re watching is not the top-line EV plan, but LSEV technical standards slated for release in 2021. Set too stringent, they could cut away at an industry built on low price points; set too low could mean perpetuating low quality and safety. Reports say some producers are putting off further production until their release. 

Overtaking on non-Chinese roads: As John Artman pointed out in this space a few weeks ago, global doesn’t mean US. Li, who works with international entrepreneurs who are looking at sourcing vehicles in China, told TechNode he gets more interest from places like Kenya and India than the global North: “It’s much easier for me to talk to someone from Ghana than London.” The latter, he finds, see EV markets exclusively through the prism of Tesla. 

China wants to sell NEVs to the world. LSEVs could find huge, hitherto untapped markets, especially where there is little besides roads in terms of transport infrastructure. If China’s EV tech is to go global, LSEVs may be what really go far along the Belt and Road. 

Additional research by Coco Gao.

Chinese electric car maker Nio reported November delivery data figures that were flat to disappointing October numbers, spurring a more than 6% drop in its share price on Thursday.

Why it matters: The November delivery numbers highlight weak sales for the company’s lower-priced five-seat SUV, the ES6, which was expected to be a key sales driver.

• However, Nio beat out rivals WM Motor and Xpeng Motors in new energy vehicle (NEV) sales amid slumping overall auto sales for the first 10 months of the year, according to data recently released by China Banking and Insurance Regulation Commission.

Details: Nio delivered 2,528 electric vehicles (EVs) in November, almost flat sequentially to October, when it delivered 2,526 cars. November marked the fourth consecutive month of delivery growth, the company said in an announcement released Thursday.

• ES6 deliveries decreased 7% month-over-month to 2,067 units in November, with ES8s making up the balance. Nio did not address the decline in ES6s.
• Still, Nio’s delivery results contrasted with falling overall NEV sales in the country, which accelerated to 45.6% year on year in October, the fourth consecutive month of decline.
• Nio has delivered a cumulative total of 28,743 vehicles as of end-November since it began delivering cars in June 2018, with the ES6 making up about 30% of the total sales. The company began delivering the ES6 in June.
• Nio founder and CEO William Li Bin attributed the “solid” delivery results to an expanded sales network, adding that it has opened 37 Nio Spaces, touted as “more cost-efficient” than its clubhouse-style Nio Houses, of which there are 21.
• ES6 was the world’s top-selling all-electric car in the high-end luxury SUV segment in October, Li said in a public event late last month.
• Nio’s share price rose more than 5% after market opened on Thursday, but pared the gains and fell 6.2% to $2.27 by market close.

“Our strong sales performance was also attributable to the competitiveness of our ES6 among all premium electric SUVs and the passionate endorsement by our existing users… As we continue to build more cost-effective NIO Spaces and improve the performance of the existing ones, we are confident in our deliveries going forward.” 

—William Li Bin

Context: Nio last month announced it will hold this year’s Nio Day, its annual press event, on Dec. 28 in Shenzhen, without revealing further details.

• Chinese media reported that the company is planning to launch its third mass market model, an updated ES6 coupe, roughly equal in price to the current ES6, which starts at RMB 358,000 ($53,000).

Electric vehicle (EV) maker Nio has appointed a former auto analyst as the company’s new chief financial officer, the automaker announced on Sunday, replacing Louis Hsieh who left unexpectedly in October citing personal reasons.

Why it matters: Hsieh was key in taking Nio public in New York last year, and his resignation led to much speculation about why an important figure would leave the company in the midst of a search for new investment.

• Chinese media reported at the time that Hsieh’s departure could signal a new financing deal that required the CFO to be replaced. Nio declined to comment on the matter.
• Nio has yet to finalize a deal with state-backed capital fund Beijing E-Town, which the company announced in May alongside its financial results.

“[Feng Wei’s] financial and operational experience in the automotive-related fields, together with an impressive track record in equity research, makes him an excellent choice to lead our finance teams.”

—Nio CEO and founder William Li in a statement

Details: Prior to joining Nio, Feng Wei was an auto analyst at China International Capital Corporation (CICC). His appointment at Nio is effective starting Monday.

• Feng joined CICC in 2013 as a senior associate but quickly climbed the ranks to head automotive research. He holds a bachelor’s degree from Tsinghua University in Beijing and a joint master’s from RWTH Aachen University in Germany and Tsinghua University.
• He has worked for companies including Everbright Securities and German automotive manufacturer ZF Group.

Nio shares surge on October delivery figures

Context: Feng’s arrival comes as Nio attempts to keep its head above water as conditions in China’s auto market become increasingly difficult. EV sales continue to slide in the second half of the year after the government did away with subsidies for buyers over the summer.

• Officials in China’s eastern Zhejiang province deemed Nio “too risky” for an investment, ending talks with the company to build a manufacturing plant in Huzhou.
• In September, Nio announced plans to reduce its headcount to around 7,700 by the end of the year from almost 10,000 in January, as it sought to assuage investor concerns after disappointing second-quarter results.