Nio cuts prices for its cars — and delays business expansion plans

BEIJING – Chinese electric vehicle brand Nio announced on Monday that it will cut the price of its vehicles by the equivalent of $4,200 with immediate effect and end free battery replacements for new buyers.

The move runs counter to Chief Executive William Lee’s April claim that Nio will not participate in a “price war.” Tesla and other Chinese electric car companies cut prices earlier this year to attract buyers.

The price cut also follows Lee’s comments on Friday that the company is delaying capital spending and some R&D projects, according to Nio’s first-quarter earnings report by FactSet.

Lee said the delay was part of an effort to address the cash flow impact of lower deliveries.

The company reported cash and cash equivalents of 14.76 billion yuan ($2.07 billion) as of March, lower than it disclosed at the end of 2021 and 2022.

Analysts at China Merchants Bank International said in a note Monday that Mr. Nio’s “decision to cut non-core projects is too late.”

“The company is also facing a dilemma between brand positioning and profitability as it now begins to cut service perks. .”

Analysts downgraded Nio’s stock to “hold” from “buy”.

Nio also announced on Monday: Free battery replacement service is no longer offered to new buyers.

According to the latest monthly data, Nio’s deliveries fell to 6,155 in May, down from an average of just over 10,000 per month in the first quarter. The monthly average for the fourth quarter was about 13,350 units.

Looking ahead, Nio said it aims to deliver at least 20,000 vehicles per month in the second half of this year.

Nomura analysts said they expected the company to improve deliveries with new models such as the ES6 SUV and ET5 touring sedan.

“However, we expect NIO’s implied upside to be limited by increased competition and limited market share improvement in 2023F,” analysts said in a report.

Nomura said he assumed Nio’s coverage was a neutral evaluation. The company previously rated Nio as a “buy.”

Nio’s cash and cash equivalents fell below $1 billion at the end of 2019. However, the company was revived in 2020 with a lifeline of about $1 billion from investors, including government-backed groups.

Lee said over the weekend that the company has enough cash to support its operations.

However, the company reported a gross profit margin of 1.5% in the first quarter, down significantly from 14.6% in the same period last year and 3.9% in the fourth quarter.

China’s automobile market is the largest in the world. Thanks to government subsidies and license plate regulations, the local electric vehicle industry is growing, with new energy vehicle penetration reaching about one-third of new passenger cars sold. This category includes hybrid vehicles.

China’s highest administrative body, the State Council, announced earlier this month that it would extend incentives to buy new energy vehicles to boost consumption, according to state media. Details were not disclosed.

“Despite the short-term headwinds, NIO is proud of its multiple upcoming plans, including its lowest-priced SUV ES6, tailwinds from multi-year EV introductions, premium EV market leadership in China, the largest EV market, We believe we continue to be well-positioned for EU/global expansion, etc., and to expand our product portfolio,” analysts at Mizuho Securities said in a note on Friday.

Mizuho maintained its Buy rating on Nio but lowered its price target to $20 per share from $25.

Nio shares are down about 20% since the start of the year, at $7.73 a share.