NIO CEO pledges improving finances even as Tesla challenge looms in China
- Shanghai-based NIO has accumulated a deficit of almost US$6 billion since its founding in 2014
- The firm’s third-quarter earnings, set to be released on Monday, are expected to show it is still a long way to profitability
The head of Chinese electric car maker NIO pledged an improvement in the struggling company’s finances, as demand picks up and its cost-cutting efforts start to bear fruit.
NIO’s sport utility vehicles will be competitive not just against other electric models, but all premium cars in the same price range, said William Li Bin, the company’s co-founder and chief executive. Meanwhile, expense reductions will help NIO’s gross margin to widen in 2020, he said.
“I am very confident of our products’ competitiveness,” Li said in an interview in Shenzhen on Sunday. “There are many concerns in the market, but our sales are real.”
NIO has accumulated a deficit of almost US$6 billion since its founding in 2014, spending extensively on marketing and product development for a foothold in China’s burgeoning electric car market. Third-quarter earnings, which are set to be released on Monday, are expected to show there is still a long way to profitability.
“NIO’s balance sheet implies serious liquidity risk,” said Robin Zhu, an analyst at Sanford C Bernstein in Hong Kong with an underperform rating on the stock. “The key will be whether they are able to announce major new financing.”
Shares of NIO have plunged 61 per cent since the company had its initial public offering in New York last year. That has left it with a market value of US$2.5 billion, compared with Tesla’s market capitalisation of about US$78 billion.
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To further fuel demand, the company has launched promotional incentives including zero per cent interest for three years and guaranteed subsidies for cars registered before the end of February 2020. NIO’s sales will probably rise 44 per cent next year to 29,973 vehicles, according to research firm LMC Automotive’s forecast.
Yet losses will probably continue to mount: for 2020, the average loss estimate is US$1.2 billion on revenue of US$1.7 billion, based on analysts’ predictions compiled by Bloomberg. The loss for the third quarter ended last September probably was US$381 million, the average estimate shows.
“Our cost-cutting effort is still underway,” NIO’s Li said. “But we can see a further reduction in expenses in the first quarter of 2020.”
To curb spending, the company has shifted from adding NIO Houses – fancy showrooms with users’ lounges – to setting up much smaller stores called NIO Spaces. By the end of the third quarter, NIO had cut its staff to 7,800 from 9,900 in January.
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“NIO Houses have been very useful to our brand building and user experience – they differentiate us,” Li said. “But it would be too costly to keep investing heavily in them.”
With just about US$500 million in cash, equivalents and short-term investments as of June 30, NIO has had to take steps to fill up its coffers. The company said in September that Li and shareholder Tencent Holdings had each agreed to subscribe to US$100 million in convertible notes. Li said NIO will give an update on that funding project on Monday.
“NIO has indeed been short on cash recently,” co-founder Qin Lihong told reporters in Shenzhen on Sunday. “We are still trying to get more funds, but I wouldn’t expect any really big news soon. Please pay attention to our third-quarter report.”
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