FROM startup to prominent brand, Chinese electric-vehicle (EV) maker Nio entered the industry when it was still budding and rode the wave of demand to the top, where it is now facing competition from an influx of new and traditional carmakers.

To combat challengers eating away at its market share, the automaker has shifted strategies to prioritise sales and boost production.

From the second half of 2022, Nio’s monthly delivery volume stagnated at around 10,000 units, prompting the company’s founder William Li to say in April that if monthly sales remained the same level, he and Qin Lihong, Nio’s co-founder and president, “would have to start looking for jobs elsewhere”.

The figures worsened for April and May, with factors such as product upgrades causing monthly deliveries to plummet to just over 6,000 units. This weighed on market sentiment: when Nio announced its May sales figures on June 1, its share price dropped to US$7 for the first time since June 2020. But the company adapted and in July hit a significant milestone by delivering over 20,000 units for the first time.

Intensified competition

From 2020 through 2022, China’s leading new-energy vehicle (NEV) startups Nio, XPeng, and Li Auto competed closely with each other, with their sales volumes showing little disparity. The trio respectively claimed the top positions in annual deliveries.

However, in 2023, Li Auto, which makes hybrid EVs, shot ahead with cumulative sales of more than 244,000 cars in the first nine months, compared with Nio’s 110,000 and XPeng’s 81,000, according to company filings.

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Nio is facing increasing competition in its core focus of the premium market, where cars are priced above 300,000 yuan (S$56,858). Auto giants BMW, Mercedes-Benz and Audi are moving into the same space as they step up their electric expansion, while domestic carmakers are also making efforts to penetrate the high-end market. Among the latter are BYD’s Denza, Zhejiang Geely’s Zeekr, Chongqing Changan Automobile’s Avatr, and iM Motors, a SAIC Motor brand.

In addition, a brutal price war has shaken the domestic market this year as carmakers fight for a slice of demand weakened by the Covid-19 pandemic. Initially triggered by Tesla, both NEV and traditional car manufacturers have been dragged into slashing prices.

On Aug 14, Tesla announced that it would offer another round of a limited-time insurance subsidy of 8,000 yuan for its Model 3 rear-wheel drive version; and slash 14,000 yuan off the long-range and performance versions of its Model Y SUV, resulting in starting prices of 299,900 yuan and 349,900 yuan, respectively, putting the industry benchmark brand in close competition with Nio’s main models.

Sales focus

Nio has responded by prioritising sales. From July, it began incorporating order conversion rates into performance assessments and bolstered commissions for sales staff, according to a report the same month by automotive data and analytics company LandRoads.

Minimum sales commissions for each new car have been raised from 800 yuan to 2,000 yuan, while minimum commissions for inventory and display vehicle sales were increased from 800 yuan to 4,000 yuan.

The company also eliminated the position of product expert at stores, giving the responsibilities of that role to sales personnel. “Nio’s current strategy is to prioritise sales and spend resources on the most important tasks,” said a former employee of the automaker.

By surpassing 20,000 car sales in July, Nio generated around six billion yuan in sales, according to calculations based on company filings. The Shanghai-based company also re-entered the top 10 list for NEV sales by domestic passenger car manufacturers published by the China Passenger Car Association, securing a 3.2 per cent share of the market in July. Li Auto had a 5.3 per cent market share, while XPeng didn’t make the list.

Nio was late to act in the price war, but ultimately rolled out price incentives. In June, the firm reduced the starting prices of its entire vehicle lineup by 30,000 yuan. The firm also announced several limited-time purchase incentives in August, including coupons for battery replacements and discounted prices for home charging stations.

“Nio should have lowered prices way earlier,” an expert from China Automotive Technology and Research Center told Caixin.

Now the company is trying to keep the sales momentum going. It has been expanding its sales capabilities in hope of stabilising monthly deliveries at above 20,000 units starting in the fourth quarter, before eventually reaching monthly sales of 30,000 vehicles, according to Li in an Aug 29 earnings call.

Deliveries in August dropped to around 19,300 vehicles and again in September to around 15,600 vehicles, but those figures still represent year-on-year growth of 81 per cent and 44 per cent, respectively, according to company filings.

To keep up with demand, Nio has made various changes in deliveries and production capacity. The firm’s F1 factory in Hefei now primarily focuses on churning out the new ES6 five-seater SUV, where it had previously produced the older versions of the ES6 and ES8, according to sources familiar with the matter. The production of the new ES8 six-seater SUV has been diverted to its other plant in the same city.

Delivery capacity has been a pain point for Nio. The automaker had high expectations for its ET5 sedan, with Qin, the president of the company, boldly claiming at the Chengdu Motor Show in Aug 2022 that within a year, ET5 sales would surpass those of the BMW 3 Series in China, which had an average monthly sales volume of 13,000 units last year.

However, when ET5 deliveries finally began in Sep 2022, the delivery capacity fell short of expectations, resulting in a significant loss of orders – the model’s monthly sales have never exceeded 8,000 units since its launch.

One potential customer told Caixin that due to the long waiting period for delivery of over two months, he cancelled his ET5 order and bought a Tesla Model 3 instead.

Knockout stage

While Nio had a strong turnaround in the third quarter, the market landscape looks only set to get rougher.

As EV brands under traditional automakers are eating away at market share, China’s top three EV startups are beginning to compete more closely with one another.

Beijing-based Li Auto is planning to release its first pure electric vehicle, the Li Mega, at the end of this year with a price point of above 500,000 yuan, placing it in direct competition with Nio in the premium EV market.

Meanwhile, Guangzhou-based XPeng has partnered with auto giant Volkswagen to jointly develop two EVs under the Volkswagen brand specifically for the Chinese market. The companies plan to start producing the models in 2026.

Nio, XPeng and Li Auto have all previously said that only a few car manufacturers will ultimately survive in the highly competitive NEV market.

Li Xiang, the founder and CEO of Li Auto, predicted in April that the period from 2023 to 2025 will be the “knockout stage” for electric car manufacturers, characterised by cut-throat competition in technology, products, and delivery. CAIXIN GLOBAL