Original article was published on The Verge – Transportation Posts
Chinese EV startup Nio has rebounded from the early months of the COVID-19 pandemic, setting a company record for deliveries and revenue during the second quarter of 2020. Buoyed by a return to strong automotive sales in China, a successful rollout of the updated version of its first electric SUV, and a recent $1 billion investment from local government entities, the startup now appears to be on its most solid footing since late 2018.
Nio, which is backed by Tencent, has found that footing at a pivotal moment. While the pandemic helped put a number of other startups in danger of going out of business around the world — including some seen as potential frontrunners, like Byton — competition has once again heated up in China as the automotive market quickly rebounds there. And with Tesla now the most valuable automaker in the world, there is renewed optimism about the potential of electric vehicle startups to succeed in China before legacy automakers like Volkswagen, General Motors, and Ford start shipping dozens of their own EVs.
Nio currently sells two electric vehicles: the ES6, a smaller SUV that starts at around $52,000, and the revamped version of the ES8, a larger SUV that starts at around $67,000. A third, the EC6 compact SUV, will start shipping in September.
The ES6 has sold well since debuting in the middle of 2019, with monthly deliveries more or less trending upward except for when the pandemic shut down China earlier this year. That changed a bit in the second quarter of 2020, as Nio shipped 2,907 ES6 SUVs in April, 2,685 in May, and 2,476 in June. Still, that was the best three-month run for either of Nio’s vehicles, narrowly edging out ES8 sales in the final quarter of 2018. Nio also shipped 2,610 ES6 SUVs in July, the first month of Q3, so they’re back on the rise.
The ES8, meanwhile, has largely been on life support since Nio had to recall nearly 5,000 of them in June 2019 because of a design flaw in the battery pack. But the revamped version — which started shipping in April and features improvements to the interior as well as the SUV’s range and performance — boosted ES8 deliveries from just 36 in February and 54 in March to 248, 751, and 1,264 in April, May, and June, respectively. (ES8 sales did dip to 923 in July, though.)
This helped Nio generate $526.4 million in revenue across the second quarter, a record for the six-year-old startup. Nio still lost $166.5 million this past quarter, but that is the company’s slimmest loss since going public in 2018. It is finally generating a positive gross margin on its vehicles (9.7 percent, following quarter after quarter of negative margins) and has grown its previously anemic cash pile to $1.6 billion.
In all, it’s a striking recovery for a company that entered 2020 on the brink and then had to deal with the effects of the pandemic. Nio struggled mightily in 2019, its first full year of sale. Deliveries of the ES8 cratered early in the year, thanks to a change to the Chinese government’s electric vehicle subsidy policy. That kept the startup deep in the red, so it abandoned a plan to build its own factory and instead chose to continue using a contract manufacturer. A planned sedan was delayed, and the ES8 recall happened soon after. Nio even sold its team in the all-electric racing series, Formula E.
With losses mounting, Nio went through multiple rounds of layoffs both in China and in the US (where it has an R&D center) to cut costs. The ES6’s successful debut kept the company afloat, and ES8 sales started to rebound as 2019 came to a close. Nio also inked a deal with Intel’s Mobileye division to develop autonomous vehicles. Things were still challenging, but they were starting to look up until the COVID-19 pandemic hit.
Nio spent much of its tumultuous 2019 searching for a funding partner that could help feed the startup’s need for cash. That partner ultimately arrived in early 2020, when Nio announced a $1 billion deal with a provincial government and coterie of state-backed financing partners. The deal closed in the second quarter of 2020.
This timely rescue came at a price, though. In exchange, Nio is building a new headquarters in that province (Anhui). Nio also has to commit its “core businesses and assets in China, including vehicle research and development, supply chain, sales and services and Nio Power” to a new subsidiary there. While its US arm remains up and running, Nio’s once-great plans to grow beyond China seem murkier than ever.
Without the deal, though, it’s unclear if Nio would have survived. And it will likely need as much help as it can get to compete in China. Tesla’s recently opened Shanghai Gigafactory has helped the Silicon Valley automaker rocket to the top of EV sales charts in the country, with more than 11,000 sold in July alone. Fellow Chinese EV startups, like XPeng and Li Auto, have rushed to the public markets to raise even more money as they try to grow market share.
Nio tried to strike out on its own as an independent startup and had a good head start on many of its current peers. But it burned through billions of dollars along the way and wound up in a bad place before the pandemic. Nio stabilized itself with backing from the state just in time to launch a new, even more affordable vehicle in the EC6 that could put it on the path to profitability — something that was barely on the horizon six months ago.