Why did Nio decide to cut prices across all models? 

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. 

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : TechNode – https://technode.com/2023/06/16/why-did-nio-decide-to-cut-prices-across-all-models/