Chinese Tesla challenger Nio is bleeding money and cutting jobs
Nio lost US$478 million in the second quarter, but many of China's electric vehicle makers are hurting
Electric vehicle maker Nio, considered China’s Tesla challenger, is seeking further job reductions and new funding, as it battles with mounting losses.
The Shanghai-based company announced those initiatives at its earnings call on Wednesday after reporting a larger-than-expected loss of 3.3 billion yuan (US$478.6 million) in the second quarter.
“We target to reduce our global headcount to be around 7,800 by the end of the third quarter from over 9,900 in January 2019, and aim to further pursue a leaner operation through additional restructuring and spinning off some noncore businesses by year end,” said Nio founder, chairman and chief executive William Li Bin in a statement.
At the earnings call, Li disclosed that Nio has already spent a total of 20 billion yuan over the past four years to build up its business. The company and the broader car market in China now faces challenging macroeconomic conditions, caused by uncertainties from the trade war with the US and softer demand in the world’s largest car market.
New York-listed Nio has made “significant, positive progress” in its latest fundraising efforts, said chief financial officer Louis Hsieh Tung-jung at the same call, without providing details.
The firm’s shares were down 5.5% to US$2.05 at the close of trading on Wednesday, a nearly 67% decline since the start of this year.
Nio’s latest initiatives show how China’s electric and hybrid vehicle makers are bracing for a downturn this year after the government scaled back its subsidy program. Beijing announced in March that it would slash subsidies on new-energy vehicles (NEVs) by up to 60% as part of a policy to improve technological standards in the green car market.
Subsidies on NEVs with a driving range of 250-300 kilometers were lowered to 18,000 yuan from 34,000 yuan. For cars with a range of between 300-400km, the subsidies have been cut by a sharper 60% to 18,000 yuan, from 45,000 yuan earlier.
Nio, which is backed by Tencent Holdings, is among dozens of EV companies established in China over the past few years, with an eye on upending larger carmakers such as Toyota Motor Corp and Tesla. China has been pushing for a strong EV sector to rival efforts in the West.
“With projected annual sales of a mere 20,000 vehicles, it’s unlikely that Nio can recoup its original expenditure and work out on its own without funding support,” said David Zhang, an independent automotive industry consultant, in a telephone interview on Thursday. “It’s a matter of survival for the company.”
In the first six months of this year, NEV sales fell 12% to 12.3 million units. Last year, nationwide vehicle sales fell 2.8%, the first contraction since 1992, as consumers tightened their belts amid mounting concern about a slowing domestic economy and the US-China trade war.
Nio has had a rough year so far. In June, the company had to recall nearly 5,000 vehicles after battery fires sparked safety concerns. That followed its decision in March to cancel plans for a second factory in Shanghai.
The company aims to further improve efficiency and streamline operations within its sales and service network as well as research and development activities, according to CFO Hsieh.
“At the start of this year when we did our forecasts, we did not expect China’s car market to decline as much as it has,” Hsieh said. He indicated the company looked forward to increasing momentum on its sales.
Market projections, however, point to an industry-wide decline. The China Association of Automobile Manufacturers, a government-backed industry consortium, has cut its forecast for NEV sales in 2019 to 1.5 million units from 1.6 million units, according to a report it released on July 24.
“The market outlook for the coming months remains cautious,” said industry consultant Zhang, who saw other companies pursuing a different strategy. “EV start-ups like Xpeng and WM Motors have launched ride-hailing platforms to destock and diversify their sales,” he said.