A car is a (very) complex thing. Forgive me for starting out so simple, but it is probably what best sums up the situation we are experiencing in the automobile market, the transition to electric car and the emergence of new brands.
That a car is a (very) complex thing has two problems in the jump to the electric car. The first is that the traditional manufacturer has to be completely transformed. From your way of thinking to the most practical changes in your industrial process. Where before thousands of parts of an engine prevailed, now minerals, cables and algorithms prevail.
Los movements of the manufacturers are like those of Goliath, slow and heavy. The problem is that the institutions are asking them to move with agility and speed like David’s. An agility that is causing, on some occasions, false steps to be taken.
The second problem is that building a car brand from scratch is almost a pipe dream. Especially if you want to sell mass vehicles. It does not matter if you want to have the most capable SUV of the moment than an electric car that succeeds in the market. It seems that there is only one good formula: spend billions of euros and wait for years to find profitability.
How, then, to keep the brand alive all those years? giving the esperanza investors that the product is groundbreaking and attractive enough that sales can offset huge investments in facilities, raw materials, and workers.
Tesla did it with a product like no other. His cars were the most advanced electric cars on the market and during the years when the electric car was not believed in they have created a product and a brand image that is not comparable to any other. They will like it more or less but they were in the right place at the right time.
The odds of failtherefore they are huge. The turning points at which everything can go to hell multiply over time. And now NIO is in one of those moments.
It is not the first time that this Chinese manufacturer, focused on premium electric vehicles, has found itself in an extremely delicate situation. The last great crisis was experienced in 2019, from which it emerged with a significant injection of government money. Immediately afterwards, in 2020 he got a huge growth in their shares, reaching more than 60 dollars per share.
Now, however, investor support is once again more subdued. The actions are in some, much more discreet, 11 dollars/share. And its economic viability is once again in doubt, as reported by Bloomberg.
From the economic newspaper they point out that part of the future It goes through the injection made by CYVN Holdings LLC, an investment group owned by Abu Dabhi, which was made in June with 7% of the shares. A purchase that is estimated at more than 700 million dollars but that may be insufficient if the company continues to burn money as it has been up to now.
NIO announced that it would deliver 250,000 cars in 2023. At the moment it has delivered just over 50,000 units
Only in the first quarter of the year the company reported expenses worth 1,100 million dollars, according to Bloomberg. Despite this, managers remain confident with their plans. Already in October they pointed out that in the coming months they would begin to operate in European markets, either with their brand or with the marketing of different sub-brands.
Despite the March results, the brand continued to state that they were convinced that by 2023 they would deliver 250,000 vehicles. A figure that they are far from meeting, since in the first half of the year they have barely managed to place a little more than 50,000 units.
And, while all this was happening, a price war has been taking place in China that not only threatens to take NIO ahead. It is a consequence of which he had already been warning. Prices were being so low that firms like NIO were losing well over $10,000 per unit sold. All this, according to Bloomberg, has squandered gross margins and has made the company recalculate its break-even point, which bodes ill for the future, according to analysts.
In this price war, the company wanted to stay on the sidelines, in what was a movement for demonstrate solidity and a brand value higher than its rivals. They were not willing to lose money but, like the European manufacturers, they have ended up getting into the game. This, in turn, has put pressure on its cheaper firms, blurring the lines between brands. If NIO, which is its premium brand, lowers prices, what makes the difference in practice from its cheaper sub-brands, ask analysts at CMB International Global Markets Ltd.
The challenge that NIO faces is huge. Some experts say that they have a powerful and loyal fan base that can maintain the brand with their investments. Until now, the firm had carried out an enormous job to make its customers feel that their cars were a premium and differential product, including meetings and dinners just for them.
However, Bloomberg experts point out that increasing sales volume also inevitably means that this aspirational image is diluted. The challenge is to keep the number of dissatisfied customers to a minimum, but they assure that the price reductions have not been liked by a sector of them.
These are challenges that all aspirational, premium or luxury brands face. The (partial) opening of Tesla’s superchargers, for example, upset some of its customers. Luxury firms like Ferrari have to deal with the balance point of selling as much as possible without degrading the brand image. But, in any of the two cases, we are talking about companies with a viable economic situation.
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Photo | NIO