NIO is establishing a joint venture with a state-owned fund, Beijing E-Town International Investment and Development company (E-Town Capital), the company said during its first-quarter earnings conference call. E-Town Capital will put 10 billion yuan ($1.45 billion) into NIO China, as the Beijing-based JV will be called, in exchange for a minority stake.
The news comes as NIO faces a slew of challenges including cuts in government subsidies and immense pressure to improve its sales. The company reported a net loss in the first quarter of $390 million, a 70% increase from a year ago. NIO has sold 15,000 units of its flagship ES8 SUV since June 2018, when it started delivering the model. That’s just 1% of China’s total electric vehicle car sales, including battery and hybrid models, in the same period. Subsidy cuts could further impact NIO’s business—government subsidies for the ES8 were cut by 40% to 67,500 yuan ($9,800) last year and will be reduced further to 11,250 yuan ($1,600) beginning June 26, NIO said.
The overall economic environment isn’t helping NIO either. The carmaker expects ES8 deliveries to decline amid macroeconomic concerns over the “lingering US-China trade war,” Louis Hsieh, NIO’s chief financial officer, said during the earnings call. Overall, China’s auto market continues to weaken in its first annual sales contraction in two decades.
Those factors have made the lifeline offered by E-Town Capital a timely one for NIO, and has implications for an industry where nearly 500 electric vehicle manufacturers are competing. NIO represents the class of EV startups that could rock the Chinese auto industry by building brands with an image premium enough to appeal to China’s customers, which have always looked to Germany, Japanese, and American brands. But because some startups don’t have their own manufacturing facilities, they risk alienating customers with poor quality vehicles.
In NIO’s case, E-Town Capital will help it build a new manufacturing facility for its next generation of vehicles, Nick Wang, the company’s vice president of finance said on the call. NIO, which earlier this year abandoned the plan to build its own factory in Shanghai, has been relying on state-owned JAC Motors to produce cars.
E-Town Capital, founded a decade ago, has total assets of more than $7.89 billion and has listed “new energy smart cars” as one of the four industries it wants to promote. It has also invested in a joint facility by Mercedes-Benz and state-owned BAIC BJEV, which has EV manufacturing capabilities.
While NIO now has a strong helping hand, many are EV makers struggling and analysts and auto executives alike are predicting that only a handful will survive as subsidies fade.
Source: Quartz
Translated by Jennifer
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