Considering the tight market conditions, Nio has also put its expansion plans on hold for the time being. It has stopped any additional incentive programs such as free battery swaps for new users.
In the latest development on Monday, June 12, Chinese electric carmaker Nio announced cutting the prices of its cars by around $4,200 with immediate effect. Furthermore, the company shall also be ending free battery swaps for new buyers.
This is quite surprising since back in April 2023, Nio CEO William Li’s claimed that the company won’t be joining a “price war”. Rivals such as Tesla and other local Chinese electric carmakers announced a price cut earlier this year in a bid to attract more customers.
Interestingly, last Friday, the Nio CEO also announced that the company has been delaying its capital expenditure plans along with some research and development projects. Li said that this delay will be a part of their efforts to address issues relating to cash flow due to fewer car deliveries.
As of the March-ending quarter, Chinese electric carmaker Nio reported cash and cash equivalents of 14.76 billion yuan ($2.07 billion). This was much below what it disclosed by the end of 2021 and 2022. In a note on Monday, June 12, analysts at China Merchants Bank International said:
“Nio’s decision to cut non-core projects is too slow. It now also faces a dilemma between brand positioning and profitability, as it has started to cut service benefits, which could dent its brand image and thus sales more severely than expected.”
As a result, the analysts have cut their rating for the Nio stock to hold from buy.
Nio Failing on Timely Deliveries
As per the latest monthly figures for the month of March 2023, the total deliveries from Nio stood at just 6,155. This was down from the first-quarter average deliveries of just over 10,000 vehicles a month. During the fourth quarter, the monthly average deliveries stood at a staggering 13,350 cars.
Interestingly, Nio remains optimistic while setting up the target for at least 20,000 monthly car deliveries during the second half of the year. Nomura believes that the Chinese electric carmaker will improve deliveries with its new models – the ES6 SUV and ET5 touring sedan.
“That said, we expect NIO’s implied upside to be capped by intensified competition and limited market share improvement in 2023F,” Nomura analysts wrote.
By the end of 2019, Nio’s available cash dropped to less than $1 billion. However, in 2020, the company received a lifeline of around $1 billion from investors, including government-backed entities, which helped them recover. Recently, Li, the company’s CEO, stated that they have enough cash to support their business operations.
Unfortunately, Nio experienced a significant decline in gross margin during the first quarter. It dropped to 1.5%, down from 14.6% compared to the previous year and 3.9% from the fourth quarter.
With strong government subsidies in place, the Chinese automotive market is the largest in the world. As a result, the electric car industry is growing pretty fast with every one in three cars sold being electric. In a note on Friday, analysts at Mizuho Securities said:
“Despite short-term headwinds, we believe NIO remains well-positioned with multiple upcoming ramps including its lowest cost SUV ES6, a multi-year EV adoption tailwind and market leadership in premium EVs in China, the largest EV market, EU/Global expansion, and an expanding product portfolio.”
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
