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.