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Nio’s struggles continue as coronavirus outbreak drags down sales

Nio, China’s top EV startup, said Monday that the coronavirus outbreak contributed to a dip in the company’s sales last month. Nio sold just 1,598 vehicles in January, which is nearly half the amount the company sold in December, and down 11.5 percent from January 2019.

The comparison to January 2019 is particularly stark because Nio was only selling one vehicle at that time last year: the relatively expensive seven-seater ES8 electric SUV. Nio launched a more affordable five-seater SUV called the ES6 last June that looks to be a far more popular vehicle. But as the new January sales numbers show, the ES6’s popularity hasn’t been enough to help Nio escape the existential danger that’s loomed since the company started selling cars in 2018.

The fact that the company says the coronavirus outbreak had an impact on sales in January, when China and the rest of the world were still coming to grips with the outbreak, means February could be even worse for Nio. Multiple cities in China are now on lockdown, and even some of the biggest companies in the world have been forced to suspend manufacturing and sales operations until they get the green light from the Chinese government.

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Any sustained drop in sales presents a real risk for Nio. The company announced at the end of 2019 that it doesn’t have enough cash to fund its operations for another year, and its current sales volume is already too low to provide enough revenue to help keep the business afloat — especially because Nio uses a contract manufacturer for its SUVs that takes a cut for every vehicle produced. Just last week, Nio announced it raised $100 million from an investment fund, and late last year it raised $200 million from its CEO and Tencent, a major backer. But the company is losing hundreds of millions of dollars per quarter, and exited the third quarter of 2019 with just $274 million in cash, so it is in need of far more than what it’s recently raised.

Nio was one of the first electric vehicle startups in the world to follow Tesla in putting a product on the road, but the company has struggled mightily at becoming a self-sustaining business. The coronavirus outbreak is just the latest in a stunning sequence of setbacks.

Not long after Nio’s first SUV went on sale in the middle of 2018, the United States started a trade war with China. That put a damper on a Chinese economy that was already cooling off after decades of unchecked growth. The affluent class that Nio was targeting with its high-priced ES8 was suddenly less likely to pony up for the $70,000 SUV.

Price-conscious buyers were further discouraged when, around January 2019, the Chinese government announced plans to reduce subsidies on high-end electric vehicles. As a result of all this, sales of the ES8 dropped sharply in the first half of 2019.

Nio started making up for that drop in the middle of 2019 when it put the cheaper ES6 on sale. The startup admitted the ES6 cannibalized some ES8 sales, though it appeared to be worth it as ES6 sales quickly trended up. But at the same time, something else had a far greater impact on Nio’s ability to sell the ES8. In late May and early June, scattered reports of battery fires forced Nio to ultimately recall nearly 5,000 ES8 SUVs, depressing sales even further.

To make matters worse, while all this was going on, Tesla was allowed to become the first foreign automaker to build and operate its own factory in China. The Silicon Valley company picked Shanghai — the same city where Nio had planned to build its own electric vehicle factory.

Tesla broke ground on its Shanghai factory at the beginning of 2019, and by March, Nio had announced it no longer planned to build its own factory. Handcuffed by low sales, Nio then delayed a planned third vehicle, an electric sedan. The startup eventually laid off around 3,000 workers in China by the end of 2019, including close to 300 workers from its US offices across three rounds of layoffs.

Nio has said it is “working on several financing projects,” and there have been multiple rumors over the last year that it may get a lifeline from one of China’s big state-owned automakers. But none of those have materialized. Instead, Nio continues to find itself in the unenviable position of trying to scale up an automotive business while simultaneously trying to raise the billions of dollars that such an operation requires. Those are two extremely difficult tasks on their own, and the coronavirus outbreak won’t make accomplishing them any easier.

This Article was first published on theverge.com

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