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Analysis EO
Jul 1, 2020
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Analysis EO
Jul 1, 2020

H1 2020 at a Glance: Chinese EV’s ‘New Forces’ Come to the Fork in the Road

► The sudden epidemic has hit China's new energy vehicle (NEV) sales hard. The ‘new forces’ (the latest generation of new EV makers) are having to face a life-or-death situation sooner than they expected.  ► Only 11 new brands in China's EV market sold/delivered cars in the first five months of 2020. Among them, NIO (NIO:NYSE), Li Xiang, Xpeng and WM Motors showed overall stability in sales and thus form the tier-one team. ► Saleen and Byton, among others, suffered major operational, financing and production problems and are now facing an abrupt contraction or collapse. ► In contrast with the rigid financial situation for other players, the four tier-one players all raised new funding (NIO, Li Xiang and WM Motors) or planned to go public (Xpeng) signaling their advantages for the second half of 2020 in the EV car making competition. The life-or-death moment is coming Entering 2020, the sudden epidemic has hit China’s new energy vehicle (NEV) sales hard. Only 13,000 NEV units sold in February, down 72.4% MoM, 75.2% YoY. The downturn helped accelerate the polarization of the new forces, which had generally just begun to deliver models last year.  11 new brands sold vehicles in the first five months of 2020. Among them, NIO, Li Xinag, Xpeng and WM Motor showed overall stability and a strong growth in sales as the epidemic slowly got better – they thus formed the tier-one team, which accounted for more than 80% of market share in China’s NEV market in the first half of 2020. For the other players, however, things were not going that well. The slumping market demand brought by the epidemic worsened automobile manufacturers’ general health, especially among those who haven’t realized mass production and have a rigid cash flow. Just last week, Byton was exposed to a business crisis. Its Nanjing factory is being closed due to unpaid bills, while the Shanghai and Beijing offices have also been rented out, and the salary of employees for the past four months is still owed. Coincidentally, Bordrin recently announced that their capital chain was ruptured. The indebted CEO fled to the US. Saleen was sued by its state-owned shareholders for suspicion of embezzling state assets, while Qiantu Motors, Singulato and Enovate have postponed their mass production timelines repeatedly. Lack of money is a problem that almost all new companies have to face. Winning support from investors and entering mass production is even tougher when the top players already started generating revenues.  Capital investors haven’t lost all faith in the new forces – they are just getting smarter Though the negative news circulating around the business is doing harm, the investors still hold high expectations. Tencent saved NIO by purchasing USD 425 million in convertible debt. NIO raised another USD 354 million by issuing American Depositary Shares (ADSs) in the first half of 2020.  The company’s stock hit the lowest point in the first two months of 2020; however, encouraged by the company’s Q1 2020 financial performance, its stock price surged 40% in six trading days. Its domestic peers – Li Xiang, Xpeng and WM Motor – are all in the process of fundraising. Xpeng is reported to have secretly filed for an IPO on the US stock market, aiming to raise USD 500 million; Li Xiang is likely to close a Series D financing led by Meituan; WM Motors is also on going its USD 1 billion Series D funding.  In addition, the government released favorable policies this March, including extending the purchase subsidy and purchase tax exemption for NEVs by two years and encouraging the elimination of diesel trucks with national emission standards no. 3 or below in the Beijing-Tianjin-Hebei region and other key areas. The policy benefits are not only great news for the new forces but have also inspired investors to continue to support the business. But their support is not blind. Among the five investments with a total value of CNY 6.4 billion that occurred in neo-automaking industry in the first half of 2020, the four tier-one players account for four. This is in contrast with last year’s eight investments totaling CNY 22.6 billion occurring in the same period. Enough of such craziness, seems to be the consensus; the market is getting smarter on its bets by putting money on the top players. The giant competitors and the stubbornly high costs are still big obstacles  While the top four Chinese new forces are gaining positive growth in sales and from the market, they are still failing to make a profit and are falling behind international competitors such as Tesla on NEV production and sales. Tesla China's new version of the Model 3 was released in May in response to the new 2020 NEV subsidy policy that came out in March. The pre-subsidy price of CNY 323,800 is down to CNY 291,800. Along with the acceleration of localization and the development of new-energy batteries, Tesla's price advantage will gradually come to the fore, which will have an impact on the sales of domestic NEVs. The sales of Model 3 exceeded 10,000 units twice in the first half of 2020. The high-cost dilemma faced by the new forces is not likely to be solved soon. According to NIO’s quarterly report, the company posted a net loss of USD 1,691.8 million in the first quarter, with just USD 2.4 billion in cash reserves on the books. Ongoing losses at the current rate and the cash reserves won’t allow the company to sustain two such quarters of losses. Though the CEO is confident that the company will achieve 5% of the gross profit margin by the end of the second quarter, the rate remained minus in the first quarter. And that is the situation all the new forces are facing. For the new forces, in addition to ensuring that vehicles are delivered properly off the assembly line, the next step for them to achieve real profitability is to boost the mass production of NEVs. Tesla kept losing money for six years in a row until its best-selling Model 3 realized mass production (100,000 units per year). Under the pressure of high expectations from the market and dominant sales records from their international competitors, China’s tier-one new forces have no choice but to speed up commercializing their models with lower prices while competing with their tough domestic competitors. What can be determined is that, after the large sums of money concentrated in the tier-one players, the market will begin to look for results very soon.

Analysis
Mar 7, 2020 · sohu
Analysis EO
Feb 19, 2020
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Analysis EO
Feb 19, 2020

Automotive and Mobility in Shanghai, Top 20 Startups

China, the world’s largest automotive market in the world, is exhibiting its strong ambition to drive new demand from its domestic consumers and improve innovations as it embraces new challenges in a tricky market.  In 2018, the country’s auto scene saw a sudden drop; the passenger car sales went down for the first time in recent decades, with a 2.8% drop (year-over-year). Next year, the decline expanded to an estimated 8%, according to data provided by the China Association of Automobile Manufacturers (CAAM).  Contrary to this, China has become the largest Electric Vehicle market, representing more than half of the sales in 2018. The burgeoning market is expected to maintain healthy growth, along with used car sales and aftermarket.  China is a country with a relatively low car parc per thousand people (173, in 2018), compared to leading markets such as the US (837), Australia (747), Italy (695) and Canada (670), and even emerging markets like Malaysia (433) and Russia (373). This considerable gap creates significant opportunities to improve and move towards a mature market. Robust demand is set to drive the market forward. Technological innovation around mobility services, autonomous driving, digitalization and electrification is spawning along the way. Good examples in the battery industry are BYD and CATL, two of the top five players worldwide. Talents are abundant, meanwhile, for example, cross-industry entrepreneurs William Li and He Xiaopeng transferred from the Internet industry to auto, who founded NIO (NIO:NYSE) and Xiaopeng Motors, respectively.  Shanghai, one of the most shining centers of manufacturing and finance of the country, is the home to Tesla’s challenger NIO, and, from our perspective, will see the next line-up of automotive and mobility giants.  Below is a map illustrating Shanghai’s most valuable VC-backed startups. Although we do not see much billion-dollar companies among these yet, we are expecting them to contribute their power in the race towards the car of tomorrow.  How has the auto and mobility industry progressed through 2019? Despite the significant uptick in Shanghai’s automotive and mobility-related Venture Capital (VC) activity in 2017, the industry has inevitably endured its period of  turnaround in the last two years, due to macroeconomics, market correction and concerns on commercialization over cutting-edge technologies. As shown in the graph below, the aggregate deal value dropped by 14.7% (Compound Annual Growth Rate), with a significant slash in terms of the number of deals closed (from 87 to 29).  The consequences of the funding compression will be dramatic with structural changes in the local auto industry Along the value chain, car manufacturing & hardware has been playing a critical role, with the most money pouring into this sub-sector since 2017. Unicorn stampede (for instance, WM Motors and NIO) is driven by a surge in mega-deals from 2015 to 2019.  Mobility and transport saw a boom in terms of dollars invested in 2016 due to Uber’s Chinese division. Hellobike, a brand that has survived between the competition of two then-giants ofo and Mobike by focusing on tier-two and tier-three cities, only captured its Series A from investors like GGV Capital and Joy Capital in 2016.  Counterintuitively, Shanghai comprises a smaller chunk of China’s autonomous driving (AD) unicorn table in comparison to Beijing, where there is a group of big pure-play and later-stage AD technology companies. Beijing’s attraction can be attributed to the talent and innovation environment, with a selection of L4 companies such as Momenta, TuSimple and Pony.ai. In Contrast, Guangzhou has gathered a group of Waymo challengers like WeRide, probably due to the city’s fast pace in opening for autonomous vehicle road tests.  The modern automotive industry is moving from an era of manual control to one of advanced driver assistant systems (ADAS) and later autonomous technology. The shift requires a significant technological improvement in artificial intelligence (AI) algorithms, sensors, processors and electronic components. In Shanghai, there is NASN, Motovis and Zong Mu, who are researching on ADAS. NASN focuses on electronic control units (ECU) at the same time. Hesai makes Lidars for autonomous vehicles and robots. Investors' expectations about the timing and scope of autonomous driving deployment diminished as urban settings have been proven tough to conquer after years of effort. The appeal of low-speed options has started to become compelling. Regardless of different types of domains, the transition relies on the integration of all kinds of components – all the players participating in the new AD ecosystem have a chance to profit from the part of the value chain they are involved in.  Given the trend towards autonomous vehicles, players need to strengthen B2B sales and aftermarket revenue Automakers/dealers need to think about how to reclaim aftermarket revenue; mobility companies, on the other hand, have already shown ambition around the aftermarket (for instance, DiDi’s Xiaojuchefu).  When players change their value propositions from ‘manufacturer’ or ‘mobility service provider’ to ‘integrated mobility service provider,’ primary markets react to the change. From the graph below, we see a relatively high average amount of late-stage deals in aftermarket sub-sector. Startups like Tuhu, AutocloudPro and Haoqipei and Lechebang are leveraging software systems to change this fragmented and underdeveloped industry and provide customers with standardized and high-quality maintenance, repair and insurance services. 

Analysis EO
Oct 24, 2019
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Analysis EO
Oct 24, 2019

NIO’s Path in 2019: A Long Road to Recovery or A Privatization Offer?

Car, a big-ticket item whose value depreciates fast, is easily exposed to economic uncertainties. The slowing economy and the US-Sino dispute have hit China’s auto market harder than anything else. Sales of electric cars and plug-in hybrids (collectively known as new energy vehicles) slumped 33.1% and 38.4% in September 2019 compared to last year. Even established automakers like General Motors (Its sales in China tumbled 17.5% in September) and Ford (its sales plummeted 30.3% in the third quarter of 2019) have been reeling from the impact of weaker consumer demand. While China is ramping up stimulus measures to boost consumer spending, it takes time for them to work magic on the economy. A slew of auto startups that are branded as “China’s answer to Tesla” are waiting to have their resilience tested by the market amid a major ongoing industrial overhaul that looks set to last well into next year.  It’s been a tough year for NIO, the Shanghai-based electric vehicle marker, as it seeks to survive a bleak macroeconomic environment and grapple with internal problems. Media, industry watchdogs and analysts have not been favorable to the company. Venture capitalists, for instance, have expressed concerns as the auto market has been struggling against a slowdown. Co-Stone Asset Management's Chairman Zhang Wei said he has not found a single Chinese EV maker worthy of investment. He also criticized NIO for its problematic money management.  Zhou Xiangdong, another manager with Demo Capital, claimed that NIO has been desperate for external financing to keep the company afloat. NIO's stock performance has been disappointing  A series of internal issues including declining sales, car recalls and a high turnover rate has wiped out 76.14% off NIO’s stocks to date, while its arch-rival Tesla’s shares have shed 22.79% and SPY (SPDR S&P 500 ETF Trust, which is designed to track the S&P 500 stock market index) has climbed 19.23%.   NIO stocks have experienced a previous ‘support’ period (support occurs where a downtrend is expected to pause, due to a concentration of demand) that starts on June 17 with an intraday low of USD 2.35. The support ends in the resistance zone created by a 17.34% plunge on September 24, when the intraday high of USD 2.24 is well below the September 23 intraday low of USD 2.71. A so-called ‘bullish engulfing’ reversal pattern has been created on October 2, when NIO’s stock recorded an intraday low of USD 1.19. Key resistance (resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply) remains and the stocks failed to recover lost ground. Chinese tech media 36Kr (the link is in Chinese) reported on Oct 15 that NIO was in talks with the government of Wuxing District of Huzhou City, a city in Zhejiang Province, about  a 5-billion-yuan (USD 707 million) investment deal and a plan to set up a car factory there that can churn out around 20,000 units. “The story is merely a publicity stunt to bolster NIO’s stock price,” Zhou said.  The contract turned out to be rejected by the local government on October 16, sending the stock plummeting 5.8% in afternoon trading. Houzhou government stepped back facing ‘high risks’ of the case. Previously, the government had shown unprecedented interests in car-making business and invested CNY 20 billion (USD 2.8 billion) in a ‘supercar factory program’ led by Leshi (300104:SZ) in 2016. It introduced another car program with Youxia Motors (the link is written in Chinese), which sees to start mass production in the third quarter of 2020, according to the company’s co-founder Li Wei. It is challenging for local governments to support two OEMs at the same time. In addition, observing Leshi's failure, officials became prudent in investing in car manufacturing.   NIO's Q3 outlook: A long way to profitability After an overview of NIO’s Q3 financial results, which likely triggered the long-waited  ‘bullish engulfing’ pattern, we believe the slump of its stock is likely to bottom out. Despite all the negativity engulfing NIO, the company has already started to steer itself towards a safer position.  # Assumption 1: Revenue  NIO’s ES6 sports utility vehicle ES6’s price-performance ratio has improved a lot compared with ES8, another SUV model. ES6 showed encouraging delivery results in Q3, compared with ES8. However, ES6 is cheaper than ES8. If we take the price gap into consideration, we expect ES8 and ES6 to generate yearly revenue of USD 62,000 and USD 54,000 per unit.  # Assumption 2: Cost of sales We use the cost-to-revenue ratio to assess how much it costs NIO to deliver vehicles in Q3. Historically, the ratio ranged between 1.07 and 1.33. We used a conservative number of 1 to cap the cost of sales at USD 260 million.  #Assumption 3: Operational expenses The debate over huge staff paychecks, especially if they are lured from Silicon Valley, has been over as NIO cut headcounts and closed its Bay Area office. A former NIO employee said that those laid off were mostly from marketing and overseas R&D departments. NIO had the ambition to build an EV ecosystem and it has been over-confident about what a new EV maker can do in today’s China  -- until the company fell on hard times.  NIO’s business has encompassed almost every aspect of a car’s lifecycle, from car making to marketing and sale. Its operations either represent future technology trends or its endless pursuit of better user experience. Examples abound of its huge investment in a host of segments including autonomous driving research (setting up R&D centers in both China and the US), NIO Power (which assuages car owner’s anxiety about the low battery), NIO App (car owner community) and NIO House (direct sales). NIO found it hard to sustain a business model that is underpinned by large capital infusions, which are hard to come by when the macro-economic environment deteriorates. In a bid to reinvent the business model, the company has been considering spinning off NIO Power to make it an independent unit. In the past five years, NIO is changing how this traditional industry sells, communicates and interacts with consumers, causing disruption to the value chain. While the company has just around 190,000 vehicles on the road, NIO App has logged over 800,000 downloads and over 200,000 daily active users (DAUs). Users of NIO app have formed a vertical community with tremendous ‘private traffic ’ – a marketing buzzword in China these days that refers to influencers and brands are marketing in vertical communities or websites. As such, NIO needs to think twice about streamlining its operations without harming the brand image.  To sum up, we believe that NIO is going to cut R&D expenses, as well as Selling General & Admin expenses (SG&A) in the third quarter. In the previous four quarters ending in 2019Q2, the average R&D expenses-to-revenue ratio was 0.67 and SG&A-to-revenue ratio was 0.86.   We decided to use 0.5 and 0.8 as our benchmarks for evaluating R&D expenses-to-revenue and SG&A-to-revenue ratios in Q3.  With all these factors put together, NIO is expected to report USD 339 million in operating loss in Q3,  a decline of 28% quarter on quarter. The dwindling loss would be a significant improvement but it suggests profitability is still a long way off. Moreover, we are still concerned about the sheer size of the company’s cash-burning game and its inability to service outstanding debts. In the second quarter of 2019, the company slashed borrowing but reported widening losses at a rate of 125% over the previous quarter, with its cash pile also shrinking by 54%.  By the end of Q2, NIO had CNY 3.46 billion (USD 489 million) in cash and short-term investment. NIO had around USD 689 million in liquidity at the beginning of the third quarter, with the USD 200 million convertible notes purchased by Tencent and its founder Li Bin (William Li). In our estimates, NIO has to spend around USD 339 million in the third quarter. On current trends, NIO will need another USD 1.2 billion for the next year.  “The worst thing that could ultimately happen to our company is that we end up becoming another Qoros (a car brand that has been acquired by Chinese conglomerate Baoneng), and that’s the last thing we expect,” says a NIO executive who asked not to be named. In this case, building a long position at some point may seem to bring profits as a buyout bid could be another lifesaver for the sinking boat.

Analysis EO
Oct 17, 2019
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Analysis EO
Oct 17, 2019

2019 Q3 Is a Cold Zone for NEV, Sales Volume Slipped to 61k in September

China's passenger vehicle market has experienced its first downturn since 2018.  According to the China Association of Automobile Manufacturers (CAAM), in September, 1.9 million passenger vehicles were sold in China, an increase of 16.8% on an M-o-M basis – but a drop 6.3% compared to the same period in 2018.  In recent years Chinese policymakers have provided significant policy support to cultivate the domestic NEV industry, and almost all automakers have devoted a certain percentage of their investment into NEV manufacturing. Accordingly, as the overall auto market cools down, the EV sector is being considered as the opportunity for a warm-up. Three quarters of 2019 have passed, and the NEV storyline has gone the other way. In fact, since July this year, the CAAM has downgraded the annual NEV sales expectation, from 1.6 million to 1.5 million. Even this is still not manageable if the downturn continues.  In September, the production and sales volume of NEVs fell 29.9% and 34.2% respectively over the same period. Among them, the production and sales volume of pure EVs were 74,000 and 63,000, with a Y-o-Y decrease rate of 26.1% and 33.1% respectively; the production and sales of PHEVs were 15,000 and 17,000 respectively, with a Y-o-Y decrease rate of  44.1% and 38.4% respectively. Although the sales of NEV have been declining for three consecutive months, in September there were some changes in the ranking of sales: the EU series from BJEV (北汽) led the list, with 8,710 cars sold. BMW 5 Series PHEV was the only NEV model of the premium segment in the TOP 10 list, and the ranking was upgraded to fourth. NIO became the only auto startup on the list and won eighth place with 2,190 units sold.  It is highly possible that the new energy passenger vehicle market in the rest of this year will continue to decline; for many observers the situation is not optimistic.  The CAAM believes that there are two reasons for this. First, subsidies have declined. The enthusiasm of car companies to make NEV has been affected by high costs. Second, the transition period of 'China 6' (国六), resulting in a large number of fuel vehicles sold at low prices, has grabbed the market share of NEVs. In addition, some analysts believe that the spontaneous combustion episodes, recalls, low-cost promotion and the low residual value of NEVs have also caused the sales to be sluggish this year. Higher depreciation has been a concern for the potential customer of NEVs. However, the situation may get better due to two main reasons. First, the separation of software and hardware will be the trend, which means even if the interior and exterior of the vehicles are old, the upgrade of the software will bring the latest driving dynamic to the drivers. Secondly, with the development of the charging infrastructure, the durability of the battery will improve. More importantly, the development of NEVs is still a key project promoted by the state. Although the sales volume is now in a downturn, the impact of subsidies on the market having gradually eased, the configuration and quality of new energy vehicles are still being improved. With the continuous launch of better performance models, NEVs will eventually usher in a new growth period.

Analysis EO
Sep 27, 2019
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Analysis EO
Sep 27, 2019

NIO Battles for Survival after Posting Worse-Than-Expected Loss

NIO published its second-quarter financial report for 2019 on September 24. The financial report showed that NIO’s net loss in the second quarter was as high as CNY 3.3 billion (USD 482.7 million), and shareholders had negative equity of CNY 960 million (USD 134.6 million). On September 23, NIO's stock price already plummeted by 10%. After announcing its financial results, NIO's stock price sharply dropped 20% to USD 2.17, with an intraday low of USD 1.97, which was the lowest level in the past 52 weeks. NIO’s total revenue for the second quarter of this year was CNY 1.5 billion (USD 219.7 million), down 6% from the previous quarter. In the second quarter, the company delivered a total of 3,553 vehicles, of which 3,400 ES8 and 413 ES6 were delivered. The total vehicle sales reached CNY 1.41 billion (USD 206 million), a decrease of 7.9% as compared to the first quarter. After deducting the cost of vehicle recall, NIO’s gross sales margin for the second quarter was - 4.0%, whereas the number was 7.2% in the previous quarter. The company's net loss was CNY 3.3 billion (USD 482.7 million) which was expected to be CNY 2.9 billion in the market. Before NIO released its second-quarter financial report, it was reported that NIO’s losses in the past four years had reached about USD 5 billion, which is equivalent to Tesla’s 15-year accumulated loss. Considering the losses disclosed in the latest financial report, NIO’s total losses since its inception in 2014 will reach approximately USD 5.7 billion. In response to the poor financial performance, Li Bin (李斌), the founder, chairman and CEO of NIO, mentioned in the financial report that the electric vehicle startup optimized resource input and return by implementing comprehensive efficiency and cost control measures within the enterprise. These initiatives would further enhance efficiency and streamline operations in sales and service networks and R&D activities. Li Bin also said that by the end of the third quarter, the company aimed to reduce the total number of employees worldwide from 9,900 in January to around 7,800. By the end of this year, the company would further enhance operational efficiency through additional restructuring and splitting of non-core businesses. The company’s financial results are an alarming signal to the management. In the second quarter, the financial report showed that as of the end of June, NIO had total assets of approximately CNY 18.2 billion (USD 265.1 million) and total liabilities of CNY 17.75 billion (USD 258.5), which was close to insolvency. By the end of June, the company’s current assets amounted to approximately CNY 8 billion (USD 1.1 billion). Current assets refer to assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations, which can lead to their conversion to a cash value over the next one-year period. Current liabilities reached approximately CNY 8.2 billion (USD 1.2 billion). Current liabilities refer to the total amount of debts that need to be repaid with one year or in a business cycle that is over one year. In other words, NIO's current assets are smaller than current liabilities, and the current ratio is less than one. The current ratio reflects the short-term solvency of the company. Moreover, if considering redeemable non-controlling interests, the company’s common stockholders’ equity is already negative. As of the end of June this year, NIO’s common stockholders had negative equity of CNY 960 million (USD 134.6 million). Earlier this month, NIO announced that it intended to issue and sell convertible bonds with a total principal amount of USD 200 million to investors, and the deal was expected to be completed by the end of September. Tencent’s subsidiary and the company’s founder Li Bin will respectively subscribe for USD 100 million in convertible bonds. After publishing the financial results, NIO canceled the second-quarter earnings call conference which was supposed to be carried out on September 24. However, subject to investor feedback, the quarterly earnings call conference was reopened on 25. During the call conference, NIO’s management did not answer any questions about future financing or cash flow as the company’s chief financial officer Xie Dongying (谢东萤) said NIO’s current financing plan was in a positive process and the financial report had given enough information. NIO explained six points in the conference: The company did not follow price reduction adopted by most EV companies in July and August after Chinese government reduced its subsidies to the market. EV recall was a very large expense, involving all aspect of production and transportation, which is a reasonable share of the cost. Delivering more vehicles is sure to help improve profit margins. But the decisive factor of profit margin is still the manufacturing cost and transportation cost. Negative profit margins are expected in the third and fourth quarters of this year, ranging from -6% to 10%. NIO Space will be a very economical sales solution with a construction cost of around USD 1 million. More NIO Spaces will be built in small and medium-sized cities. Free exchange of electricity is sustainable and financially friendly. NIO’s battery costs are expected to fall by 10%-15% compared to the same period last year, and from now until the fourth quarter of next year, the cost has room to fall in every quarter. Li Bin clarified the rumor of USD 5 billion in losses at the end of the conference call. He said that some media reported in their unprofessional reports that NIO had accumulated a loss of USD 5 billion, and this was incorrect. The figure he gave was CNY 22 billion, of which 10 billion was spent on research and development. Last month, Li Bin said in an internal letter: "From this year on, we really entered the qualifying stage. There will be no quick wins, no miracles, and our journey is a marathon on the muddy track. Entrepreneurship has never been easy. In fact, the entrepreneurship of smart electric vehicles is even more difficult. Everyone should be prepared to meet more difficult challenges and more setbacks."

Analysis EO
Jul 13, 2019
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Analysis EO
Jul 13, 2019

Where Will NIO Be?

As China's economic slowdown dampens new-car sales and consumers grew tightfisted given the uncertainty around U.S. trade relations, the Chinese auto market in June slumped for a 12th straight month. The deliveries in the Q2 2019 was 3,553, Chinese new car manufacturer NIO said in a statement on July 10. Shares dropped 1 cent to close at USD 3.68 apiece after it reported second-quarter deliveries that were well above expectations but still lower than in the first quarter. In the Q1 2019, NIO delivered 3,989 vehicles on losses of USD 395.2 million. The company said that the results exceeded the company's previous guidance range of 2,800 to 3,200 deliveries. Erratic sales NIO announced a recall of 4,803 ES8 cars because of the defective battery on June 27. As a startup, this recall issue will certainly bring NIO many challenges and doubts. The share price of NIO fell to USD 2.55 after the recall statement. As of May 2019, NIO ES8 has delivered 17,600 vehicles, accounting for 27.29% of the total, which means that for every four NIO ES8 vehicles delivered, at least one will be included in the recall. According to the average price, the battery cost of new energy vehicles is about 100,000 yuan, which roughly means that NIO will lose at least 800 million yuan due to the recall. NIO has undergone a dramatic change in fortunes this year. After its share price surged to near all-time highs in March, investors lost their enthusiasm, and in recent weeks, this is inseparable from the company's sales volume. New energy vehicle manufacturing is a highly concentrated and intensive market with capital, which has shifted from the period of capital + imagined the growth of grass and grass to the period of fine and deep cultivation with management and operation + industrial chain integration ability. Some people hold different views on this matter that new car companies are in their infancy, their products gradually began to mass production. Therefore, these safety risks in NIO can serve as a warning and demonstration for other automobile enterprises, including traditional automobile enterprises. He thinks that manufacturers have to pay for the transition from traditional cars to electric cars. Treating accidents as an alternative 'wealth' will be very good for the industry in the long run." NIO in throng NIO was founded by William Li (李斌), the Chairman of Bitauto (易车网) and NextEV (NIO's previous name). After launch, several companies invested in NIO, including Tencent, Temasek, Baidu, Sequoia, Lenovo and TPG. Its first model, the NIO EP9 sports car, debuted the same day the brand was established. In October 2016, NIO announced that it had been given an "Autonomous Vehicle Testing Permit" by the California Department of Motor Vehicles and it would begin testing on public roads under the "Autonomous Vehicle Tester Program" guidelines as part of its autonomous vehicle program. According to the company, it planned to launch vehicles with level-three and level-four autonomy.  In May 2018, NIO opened its first battery swap station in the Nanshan District of Shenzhen, Guangdong, China, dubbed the "Power Swap Station". Only batteries for ES8 cars would be available from this station. In September 2018, the company filed for a USD 1.8 billion initial public offerings on the New York Stock Exchange. It raised USD 1 billion from the offering and gone public on Sep 2018, well short of the earlier USD 1.8 billion targets NIO had set. The stock was priced at USD 6.26 per share, just a cent above the bottom of the range NIO was hoping to achieve. It quickly fell below USD 6 when it began trading, but later bounced back to close up more than 5% at USD 6.60. The IPO valued the company at USD 6.4 billion. Diversity of roles NIO is in the midst of a recall after three fires in two months. The company's share price has plunged 75% since it went public. Its in its biggest crisis since it listed on the New York stock exchange last September. It took NIO less than four years to go public and build an ecosystem that is different from that of traditional car manufacturers and to make this huge ecosystem work successfully. However, NIO is still far from its ideal state, and there is still a lot of room for improvement in terms of products, services and capital. In addition to taking money from the capital markets, NIO has also started investment business。 NIO and NIO Capital held an agreement signing ceremony on December 11, 2016, in Wuhan, to announce they had reached a strategic cooperation agreement with Hubei province. According to the official agreements signed between NIO Capital, the Hubei Yangtze River Industry Fund, and officials representing the Wuhan East Lake High-tech Development Zone, NIO Capital will be established in Wuhan, and fund the construction of the Yangtze River NIO New Energy Auto Industrial Park in the Wuhan East Lake Development Zone. At present, the investment strategy of NIO capital is to take the mobility platform as the basis to jointly develop the entire automobile industry form. Its investment mainly involves three major automotive sectors: energy, technology and vehicles. In the field of autonomous driving, it has invested in Momenta, Pony. Ai and black sesame. In terms of mobility, it has bet on the first car and the first tick. The NIO Capital was co-established by NIO, Sequoia Capital (红杉资本), and Hillhouse Capital (高瓴资本). Its initial fund raised CNY 10 billion, with a life span of seven to nine years and will primarily invest in innovative supply chain enterprises in the electric vehicle industry. The Fund also signed a cooperation agreement with the Hubei Yangtze River Industry Fund, considered one of the biggest domestic government industry leading funds. This agreement makes the Hubei Yangtze River Fund a cornerstone investor of NIO Capital. "2019 will be the last year for new car manufacturers in China, with none of the more than 100 companies worth investing in." At the beginning of the year, Co-Stone Venture Capital (基石资本) chairman Zhang Wei's remarks directed at the new car companies including NIO, Xpeng Motors, also let the new energy car once again involved in the public opinion storm. NIO Capital management partner Zhang Junyi thinks this view is biased. The automobile industry is an industry with a large amount of capital, at least three successful products in a row are required for enterprises to be able to stand, which requires new enterprises to have the ability of sustainable development. "The industry has gone to the state where only the top enterprises can survive. In recent years, many automobile enterprises will die out, not as traditional manufacturers or new manufacturers, mainly depending on the self-development ability and follow-up sales of these enterprises." Zhang Junyi said. Multiple challenges NIO has faced mounting pressure on its business since the beginning of the year. Apart from a slowdown in the Chinese auto market and economy, the company has fallen victim to government measures to battle overcapacity in China’s bloated automotive sector. Besides,NIO has just lost two of its top executives recently, according to the 'Technode' reported. Zhuang Li, vice-president of software development, and Angelika Sodian(安格利卡·索迪亚), UK managing director of the company, have both left.  A company spokesman confirmed the pair's departure. Zhuang Li joined NIO in July 2016 as Vice President of software development. Software is crucial to the operation of electric cars, so Zhuang’s departure is kind of "a big deal". According to a person familiar with the situation, Zhuang li was "pushed out of the NIO because the software was always very bad". In January this year, when an NIO ES8 drove to the intersection of Chang 'an street in Beijing, the information of the car's upgradable system popped up. After the owner of the car hung the P block and agreed to upgrade, the car screen suddenly stopped working went dark and the car did not move. The driver had no choice but to sit and wait for the software update, as the car was parked in the middle of the road and attracted the police. Software is one of NIO's weaknesses and a major source of customer complaints, according to a person in charge of NIO's operations. NIO has cut its U.S. workforce in the past few months. Padmasree Warrior(伍丝丽), the company's chief development officer and chief executive of North America, left late last year. Risky corporate structure "It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide," NIO said in its prospectus. Like many Chinese Internet companies with listings outside of China, NIO is a variable-interest entity (VIE), a structure created in the 1990s as a workaround for Chinese companies that are not allowed to have direct foreign ownership. VIE refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. Under the VIE structure, the Chinese company creates two entities, one in China that holds the permits and licenses needed to do business there and the other an offshore entity, in this case in the Cayman Islands, in which foreign investors can buy shares. The Chinese entity, which is usually owned by top executives, pays fees and royalties to the offshore company in contractual arrangements. The risk with this setup is that foreign investors don't actually own stock in the company, and local management or even the Chinese government could decide or force a split with the listed company, leaving U.S. investors high and dry. Bet on ES6 In the first half of the article, we mentioned that NIO delivered 1,360 new vehicles in June, including 927 ES8 vehicles and 413 ES6 vehicles. For the NIO brand, the sales figures seem to have improved as a result of the ES6 delivery, but this is a big gamble by the company. In fact, the launch of ES6 has undoubtedly put NIO in an awkward position. ES6 has almost all the configuration of ES8, except the size is slightly smaller, its product force and actual experience are even better than ES8. However, the starting price of ES6 is much lower than that of ES8, which will further reduce the market size of ES8. Combined with the adverse effects of recent recalls, ES8 sales are likely to decline further in the future. The market performance of ES6 is not bad so far. However, it can be imagined that ES6 is currently in a period of ramping up production capacity, and its delivery volume does not reflect the actual growth of orders. Whether ES6 can save NIO or not should be observed again after all existing orders are consumed. In May this year, NIO announced CNY 10 billion in financing. The company will also produce its second generation model, the ET sedan, which will debut at the 2019 Automobile Shanghai. ET will go on sale in NIO Day at the end of this year. Facing the cruel market competition and the pressure brought by limited resources, as an "emerging growth" company, where will NIO be?

Analysis
Jun 25, 2019 · 36Kr
Analysis EO
Jun 14, 2019
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Analysis EO
Jun 14, 2019

NIO is Deep In Competitive Vortex

Ministry of Industry and Information Technology of the People’s Republic of China released a statement on June 12. According to the announcement, Chinese new car manufacturer WM Motor will launch a new model, EX5 500+. Currently, there are three versions of EX5 (a compact all-electric SUV) on sale, with a range of 300km, 400km and 460km. The new model will have a battery pack with a capacity of 69kWh and a range of 520km. Xpeng Motors, another Chinese new car manufacturer, will launch an upgraded version of the G3 with a 67kWh battery pack, in two versions with a range of 480 km and 520 km. As for the ES6 that was released last year, it has a maximum range of 510 km. At the company’s annual "NIO Day" 2018 at the Shanghai Oriental Sports Center, NIO unveiled the ES6. They described the SUV in a press release: “The ES6 high-performance long-range intelligent electric SUV hit the market with a high-strength aluminium & carbon fibre reinforced plastics (CFRP) hybrid structure, the ES6 features 4.7 seconds 0-100 km/h acceleration, an NEDC range of over 510 km, and 33.9-meter braking distance from 100-0 km/h. The ES6 expands the design language of the NIO product line with a stylish and sporty exterior plus a refined, high-tech interior.” Both WM and Xpeng will be big competition for NIO, which was overtaken by WM Motor and Xpeng Motors in terms of sales last month. Data shows that the sales volume of Xpeng G3 was 2,704 In May 2019, WM Motor delivered 2,056 units EX5, NIO delivered 1,089 ES8. Xpeng is expanding rapidly in sales channels. Up to now, it has opened experience centres in Guangzhou, Beijing, Shenzhen, Shanghai, Hangzhou, Wuhan, Dongguan and other cities, and plans to add more than 100 offline stores in 2019. The relatively mature and smooth manufacturing system and the growing sales system have gradually improved the delivery of Xpeng G3. Xpeng started relatively late, delivering G3 in December 2018. By the end of May this year, the total delivery volume of Xpeng G3 has reached 5,500 units. The change in monthly sales volume shows that new car manufacturers have basically entered the market test stage in terms of delivery. NIO and WM Motor both had orders for close to 10,000 vehicles in the lead-up to the deliveries, and both have now run out of "order stock", meaning that the current sales volume is the true market volume of these brands. In addition to poor sales, NIO also faces mounting losses and a plunging share price. With sales below expectations, NIO shareholders are impatient to wait. The company's share price began falling in March when the company cut its delivery forecasts and cancelled plans to build a factory in Shanghai. NIO's share price fell further last month after it said car sales fell by 55% in the first quarter of this year and that demand would fall further in the second quarter. Li Bin (李斌), NIO's founder and CEO, said in an interview that investors should understand the cost of making cars, even though the company has lost more than 70 percent of its value in three months. NIO went public in New York in September 2018, and Li Bin said the company is moving forward with the financing announced in May to fund product development. Under the deal, Beijing Yizhuang Investment will invest CNY 10 billion (USD 1.4 billion) in NIO, taking a minority stake in a new entity called NIO China. NIO China will be controlled by NIO. "It's unrealistic to expect a company like ours to make a big profit from the start. The long-term investment value of NIO is not fully understood by the market,"   Li said.  The latest news about Xpeng will no doubt put more pressure on NIO. According to CNBC, Xpeng Motors says it's hoping to close a funding round this year which will probably be a "comparable amount" to the last round that was about USD 600 million.  Anyway, from the second half of this year, the major new car manufacturers will enter the real market competition, how they compete with traditional car companies in the market and get survival seat, will be the key to determine the future.

Analysis EO
May 28, 2019
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Analysis EO
May 28, 2019

NIO Releases its Q1 Earnings Report

NIO released its first quarter 2019 earnings report on May 28. Data shows that the company's revenue in the first quarter of 2019 was CNY 1.63 billion (USD 243.1 million), down 52.5 percent from the fourth quarter of 2018, and its net loss was CNY 2.62 billion (USD 390.9 million), down 25.1 percent month-on-month and up 71.4 percent year-on-year. Financial Highlights for the Q1 of 2019 Excluding the share payment fee, the adjusted net loss (non-GAAP) was CNY 2.504 billion (USD 373.1 million), down 25.5 percent month-over-month and up 68.2 percent year-over-year. In terms of product deliveries, NIO ES8 delivered 3,989 units in the first three months of 2019, down about 4,000 units month-on-month. The company delivered 1,124 ES8 vehicles in April 2019, fewer than expected. NIO said the reduction was mainly affected by the Chinese government's announcement in late March that subsidies were on the decline, the Spring Festival holiday, China's macroeconomic development and Sino-U.S. trade frictions. The company will release the full contents of NIO's earnings for the first quarter of 2019 tonight. On the morning of May 29, Beijing time, NIO's chairman Li Bin and President QIN Lihong will join the media to answer questions in the earnings report. NIO will receive USD 1.45 billion Despite the continued losses, NIO reported good news in its earnings report. In May 2019, NIO signed a framework agreement with Beijing Yi Zhuang International Investment and Development co., LTD (亦庄国际投资发展有限公司), an investment company headquartered in Beijing economic and technological development zone. The agreement said that NIO will set up a new entity "NIO China" in Beijing economic and technological development zone, and inject specific businesses and assets into "NIO China". Yi Zhuang will invest CNY 10 billion (USD 1.447 billion) in "NIO China" in cash through its designated investment company or other joint investors, in order to acquire the non-controlling shareholders' equity in "NIO China". In addition, Yi Zhuang will also assist in the construction of "NIO China" or introduce a third party to jointly build NIO China advanced manufacturing base to produce the company's second-generation models.  NIO Starts ES6's Mass Delivery Next Month On the same day as the earnings report released, NIO's second large-scale production model ES6 officially rolled off the production line On May 28. The ES6 will be the first commemorative edition and will be delivered to customers in late June. In terms of ES6, Li Bin announced that orders for this model have exceeded 12,000 units, of which 5,000 have been received after the Automobile Shanghai. According to the NIO's arrangement, ES6 and ES8 will be Co-produced in the JAC-NIO Hefei factory. "We have three main jobs: selling cars well, improving operational efficiency, and develop new products," Li said. New Product Development In April 2019, the Company showcased a preview version of the ET7, its high-performance premium electric sedan, at the Shanghai Auto Show. Recently, the Company made the decision to design and develop the ET series with the future NIO NP2 platform, our next generation product platform featuring Level 4 autonomous driving capabilities, and will provide an update on the launch timeline of the ET series in the future. Meanwhile, the Company plans to leverage the platform technologies from the ES8 and ES6 to create a new model design and expects to launch the third vehicle model in 2020. In its outlook for the second quarter of 2019, NIO expects: 1. The company expects to deliver 2,800 to 3,200 units of ES8 and ES6, about 29.8 percent to 19.8 percent less than the first quarter. 2. The total revenue of the company is expected to be CNY 1.13 billion ( USD 169 million) to CNY 1.29 billion ( USD 193 million), down about 30.5 percent to 20.7 percent compared with the first quarter.

Analysis EO
May 7, 2019
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Analysis EO
May 7, 2019

Who Will be the First One to Suffer from Mr. Trump, NIO or Tesla?

According to CNN, the top US trade negotiator said Monday that the Trump administration will be moving forward on President Donald Trump's threat to escalate tariffs on USD 200 billion of Chinese goods effective Friday. Trump tweeted that he would raise import taxes on USD 200 billion worth in Chinese products to 25 per cent from 10 per cent as of Friday. That's on top of a 25 per cent duty on another USD 50 billion worth of Chinese imports. Beijing had imposed penalties on USD 110 billion worth of American goods. If Trump sticks to his decision, the U.S. carmaker Tesla, which have built a factory in Shanghai, China and have many employees, will be seriously affected. Because the core computer of Tesla's Chinese-made Model 3, known as the 'Brain', was rejected for exclusion from Donald Trump's 25% tariffs. Tesla's Layout in China Tesla and other Chinese-made products, including aerospace parts and biotechnology equipment, have been denied tariff exemptions because they are seen as strategically important for the made in China 2025 program, according to the filing of the United States trade representative office. The 3.0 Autopilot electronic control unit (ECU) will bear the full tariffs. In addition, the tariff exemption separately applied by Tesla for the Model3 central control screen manufactured in China is still in progress. Tesla did not immediately respond to a request for comment. According to Reuters, Tesla has filed a complaint with the office of the United States trade representative (USTR) since first applying for a tariff break in 2018. Tesla told U.S. officials at the time: “increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact to profitability.” Moreover, Tesla claims it cannot find capable manufacturers anywhere outside China. They told the U.S. trade representative's office: "If another supplier is chosen, the project will be delayed for 18 months due to cleanroom setup, production line validation and staff training." Tesla claimed that: "For a product as safety critical to consumers, and critical to the essence of Tesla, we turned to industry experts who could achieve this quality and complexity in addition to the deadlines, which was not possible outside of China." China is the world's biggest NEV market as well as Tesla's biggest market outside the United States. On June 16, 2018, the tariff commission of the State Council announced that the first batch of goods imported from the United States, including American-made automobiles, with a 25% tariff increase will be worth about USD 34 billion from July 6. That means most U.S.-made cars declared after that date will be subject to the 25 per cent surcharge. Subsequently, Tesla, which has always been the world's unified selling price, had no choice but to increase the price in China. The price of Model S and Model X generally increased by more than CNY 100,000, with the highest price rising by more than CNY 250,000. The cheapest Model S costs CNY 850,000, this has put a squeeze on Tesla's sales. The biggest advantage of Tesla in building a factory in Shanghai is that it avoids high import tariffs and has lifted the restriction on foreign shares in new energy vehicles. It is really good news for the company, which has always insisted on building a factory solely by itself. For now, it looks like Tesla will be caught in the crossfire for years to come unless it changes its production base. Because industry commentators say tariffs will remain in place regardless of the outcome of the U.S.-China trade talks. Again, this is not a short-term bargaining chip, but a long-term economic attack. Trade frictions with China could make the Model 3 more expensive globally. In addition to the possibility that the Chinese government could impose high tariffs on American cars, Trump's tax could make it difficult for Tesla to obtain supplies of core components. NIO Known As the Tesla of China Tesla sells about 20,000 vehicles a year in China, less than 10% of its global sales. About 70 per cent of its revenue comes from the U.S., but it wants to reduce its dependence on the U.S. and boost sales in China. Tesla now ships cars from the U.S. to China, putting it at a cost disadvantage there. Trade friction has prompted Beijing to impose additional tariffs on American-made cars. Tesla's revenue in China fell by 13 per cent in 2018 from a year earlier. The company hopes the Model Y, a popular compact SUV, will change that. But the rise of local electric car start-ups in China poses a threat. The most prominent example is NIO, known as the Tesla of China. The company launched its first car three years after its founding and went public on the New York stock exchange last September. NIO has brought together the world's automotive and technology leaders across our offices in San Jose, Munich, London, Shanghai, and eight other locations. NIO has been called "the Tesla of China" because its strategy to attract customers to the electric car market is similar to Tesla in many ways. The company currently sells two high-performance SUVs, the ES6 and ES8, which both have advanced (not yet operational) autonomous systems and in-car driving systems. However, these are all Tesla features currently enjoyed by Tesla drivers. Last year, NIO hit its goal of delivering 10,000 vehicles, all of them customized. Because of China's manufacturing capacity, LI Bin, the CEO of the company expects to ramp up production quickly in the next few years, and he eventually hopes to have NIO cars on the road in the United States. The company already has offices in San Jose, California, and employs more than 700 people in its global software development centre. But NIO's development in the United States has not always been smooth. A few days ago, statistics from a filing with California's Employment Development Department show that Chinese EV startup NIO has laid off 70 employees across two Silicon Valley offices, one of which is now closed. NIO's layoffs are mainly due to the high operating costs in the United States and aim to improve management efficiency. At the end of 2018, the company had 640 employees in its San Jose office alone and about 10,000 employees worldwide, according to NIO's financial documents. The cuts are small relative to its total number of employees, but they're a sign that the company's early momentum is cooling. These Companies' plans to Enter the U.S. Market May Fail In the long run, trade frictions may benefit some new energy automobile enterprises and force the technological innovation of China's own brands. For example, make a major technological breakthrough in the new energy battery, and reduce costs. But the strategic pace at which some Chinese brands want to enter the U.S. market could be affected. According to statistics, the trade war may lead to a greater impact on the business of enterprises, including BYD, NIO, JAC, and CHJ, and other car companies that operate sharing services abroad, as well as some low-speed electric car companies. In early 2018, NIO CFO XIE Dongying told CNBC that the company has announced its next steps to investors and said the first 10,000 ES8 all-electric cars have sold out. XIE also highlighted NIO's plans to enter the U.S. market by 2020. On March 10, 2016, NIO unveiled its North American strategy and the first concept car EVE at the global technology trends conference (SXSW) in Austin, Texas. The company said it would launch driverless electric cars for American consumers by 2020. In October 2016, it obtained a test license for a driverless car issued by the California government. In addition, some other Chinese electric vehicle manufacturers have plans to enter the U.S. market, usually starting with the establishment of R&D centres in the U.S. XPeng Motors debuted its first product, the G3, at CES in January 2018. Its self-driving road test permit is obtained in California, U.S., in September 2018. Another Chinese start-up, WM Motor, also has an AI research institute in silicon valley. In December 2017, WM officially displayed its brand LOGO in times square, New York, and announced that its first mass production model will be officially unveiled on December 11. SHEN Hui, Founder of WM Motor, said in an interview that the company has a team studying IPO proposals in the United States and China, but did not give a possible time frame. On January 12, 2019 (U.S. west time), WM Motor launched "Project W" in Silicon Valley. The plan is to evolve WM into a data-driven smart hardware company. On October 11, 2017, CHJ, a Smart Electric Vehicle startup, signed a letter of intent with SCOOT Networks, a timeshare rental operator in the United States. The two sides will launch a pilot project of Shared travel service based on CHJ SEV (Smart Electric Vehicle) in San Francisco, the United States. About China-U.S. Trade Friction The trade friction between the U.S. and China was one of the biggest stories of 2018. The conflict concerns not only the two countries but the entire global economy. President Donald Trump blamed China for the U.S. trade deficit and signed an executive memorandum on March 22 imposing tariffs on up to USD 60 billion worth of Chinese imports. A few weeks later, the White House released a list of 1,300 Chinese goods that could be subject to a 25 per cent tariffs. The list worth USD 50 billion and specifically targeted Chinese high-tech industries. For the automotive sector, the biggest impact of the U.S. tax list will be on sensors and navigation devices for autonomous driving, and motors and batteries for new energy vehicles. Sensors and navigation devices are the key technologies that will enable autonomous driving in the future. However, these areas are dominated by American manufacturers, so China exports less to the U.S. Motors and batteries are the core of new energy vehicles. At present, domestic battery products of CATL are exported to BMW, Volkswagen, Mercedes and other car companies, accounting for a small proportion of exports to the United States. Compared with an annual sales base of over 20 million vehicles in the Chinese market, the changes in the Chinese and American automobile import markets will not have much impact on the overall automobile market. Therefore, the impact of Sino-us trade friction on the auto industry will not be large for the time being. However, in the long run, when the industry enters the white-hot competition stage and China fails to master the core technologies, the tariff list may hinder China from mastering the core technologies of low carbon, information and intelligence of automobiles. For the domestic automobile industry, it is necessary to master core technologies such as intelligent driving, motor and battery as soon as possible.

Analysis EO
Apr 25, 2019
Analysis EO
Apr 25, 2019

Tesla's Continuous Losses Does Not Make NIO Its Opponent

Tesla said on April 25 that it lost USD 702 million in Q1 2019, a sharp reversal from the profits it made in the second half of last year. The loss, equivalent to USD 4.10 per share, was far greater than the USD 1.81 per share that Wall Street analysts, surveyed by FactSet, had forecast. The quarter’s revenue of USD 4.54 billion fell well short of expectations. Previously, Tesla usually didn't report Q1 earnings until early May of each year. In the first quarter of 2019, Tesla ended two consecutive quarters of profit, lost USD 702 million. When Tesla reported its 2018 annual report earlier this year, Wall Street analysts predicted a loss of USD 2.5 million in Q1 2019. " Musk's reliance on 'luck' has made it virtually unprofitable to sell the long-endurance Model 3 in Europe and China and the medium-range Model 3 in the U.S., raising questions about the company's profitability in selling the long-promised USD 35,000 vehicle,"  an analyst said. Tesla is Trying to Restore Investor Confidence On the evening of April 22, Tesla held Autonomy Day at its California headquarters. The company unveiled fully autonomous driving 3.0 hardware and its self-developed autonomous driving dedicated chip to investors and global users live. Elon Musk called it ' the best chip in the world, objectively.' Its a 260 square millimetre piece of silicon, with 6 billion transistors, the company claims offers 21 times the performance of the Nvidia chips it was using before. Musk said that after a software update, which activates a feature called Navigate on Autopilot, all future Tesla vehicles will have self-driving functions. While many tech companies and traditional automakers are researching autonomous driving, Tesla is different in that it relies on radar and cameras around the car, not LIDAR sensors. Musk believes that vendors that rely on LIDAR are 'doomed to fail,' and he predicts others will abandon LIDAR. The chip is called a 'fully autonomous computer' or FSD (Full Self-Driving) computer chip, is a high-performance, proprietary chip (made at a Samsung plant in Texas) that takes full account of autonomy and security. According to Tesla, FSD's neural network can process 2,100 frames of images per second, has 144TOPS High Rate, and consumes only 250 watts per mile. However, Musk's ambitions go far beyond fully autonomous driving. On the day of the event, he announced the 'RoboTaxi' initiative and said that one million Tesla vehicles with fully autonomous hardware will be on the road next year. FSD Chip's Five Features According to iHoushi, The FSD chip has five remarkable features.  1) It adapts to the redundancy requirement of automatic driving. In the AV system, the redundancy of the system means that if one of the modules fails or is damaged, the software can detect and mark it in time to isolate the failure module, while the other module has an independent power supply and storage system and can continue to undertake the corresponding work uninfluenced. 2) Higher Performance. A general-purpose CPU can't match the performance of a dedicated GPU, which lags far behind the performance of a computing chip designed for neural networks. Pete Bannon says that when they analyzed a lot of the data and found that a lot of the AV computing was a particular kind of mathematics, they tried to adapt the chip design to that, and the result was a huge improvement in chip performance. Coupled with high-speed RAM and storage, AV computing in any of the most complex scenarios is stress-free. 3) Chip Clock Synchronization Function. FSD chips are designed with an emphasis on clock synchronization to ensure that both modules are processing the same batch of data at the same time point. If the clocks on the two modules are out of sync with each other, or with other external systems, the consequences could be catastrophic, since the primary problem with autonomous driving technology is time accuracy and minimizing delays and response times based on that. 4) Chip Data Encryption and Security. Data security is also a highlight of FSD chip design. The chip encrypts instructions and data and also reviews data to prevent malicious intrusion by external hackers. For AV system, human life is the most important, and external invasion is absolutely not allowed. FSD chip strictly monitors the input and output data, aiming to find any suspicious data, such as forged video input data (deceiving the car that there is a pedestrian in front of it). And maliciously tampered output instructions (if the vehicle does detect a pedestrian in front of it, the maliciously tampered output instructions may prevent the vehicle from taking appropriate response measures). 5) The Chip is Compatible With Existing Tesla Models. The biggest benefit for owners of the new custom FSD chip is that it is compatible with existing Tesla models. Tesla said owners who had previously purchased a "fully autonomous driving package" would receive a free hardware update in the coming months. However, Tesla shares fell after the news (down about 4%), down about 30% from December and about 9% from a year ago. On the second day (April 24, Beijing time), Tesla announced a new version of Model S and Model X, which not only have new transmission system, wheel bearing, tire, suspension and other hardware and components but also have improved range and charging efficiency. The new Model S and Model X will have an EPA range of 370 miles and 325 miles, respectively, the company said, with production starting this week at the Fremont, calif., plant. The good news announced two days before the earnings report, has led to speculation that Tesla is trying to boost investor confidence further. China Will Be The Focus of Tesla's Expansion Plan Tesla is the global leader in electric vehicle manufacturing industry, but it is still suffering from losses. But in terms of a single Model, the Tesla Model 3 is now the top-selling electric car in the United States. While it leads the second-placed Chevrolet Volt by less than 10,000 units, the Volt has been on the market for nearly 9 years, and the Model 3, which was only delivered in 2017, which is only 3 years. On January 7, 2019, Tesla Shanghai super factory officially started construction, the company announced that the factory is expected to achieve mass production by the end of 2019. On March 1st Tesla officially unveiled its cheapest Model 3, the standard Model 3, for USD 35,000. What's more shocking to the old Tesla owners in China is that Tesla has adjusted the selling price of the whole series of its models in China. The price of Model X has dropped by CNY 174,300 to CNY 341,100, the price of Model 3 has dropped by CNY 26,000 to CNY 44,000, and the price of Model S has dropped by CNY 11,400 to CNY 277,500. The Model 3 will be the focus of production at the Shanghai plant. When production starts at the Shanghai plant, the Model 3 will be exempt from the 15% tariff. With the mass production of the Shanghai plant and the adoption of domestic suppliers, the price of the localized Tesla will be greatly reduced compared with the current price, and it will have fierce competition with the new car manufacturers in China. Domestic New EV Manufacturers Are No Match for Tesla It has been 16 years since Tesla was founded in 2003, domestic new car manufacturers only began to appear in large numbers in 2014. And the reason is closely related to the domestic new energy passenger car subsidy policy. So unlike Tesla, which was born into the market, China's new car manufacturers carry the subsidy gene. In addition, it lags behind Tesla in starting, and the 'hematopoietic capacity' and self-built capacity of domestic new car manufacturers are much worse. Take NIO, which is listed in the United States as an example, the net loss of Q3 in 2018 was more than USD 2.8 billion, which increased by 56% compared with that of Q2 in 2018. The NIO with the largest shipment volume in China is still not equipped with the 'self-hematopoietic ability', so the situation of other enterprises can be imagined. As a manufacturing enterprise, technical ability often determines the real strength of the enterprise. We can find the gap between domestic new car manufacturers and Tesla by comparing Tesla and NIO. In terms of battery, Tesla develops batteries in partnership with Panasonic, and NIO buys them from CATL; In terms of chips: Tesla made the chips itself, and NIO bought EYEQ4 from Mobileye. As we all know, technology research and development is very expensive, and car manufacturers have to face the pressure of mass production. Even so, Tesla chose to make its own chips rather than find a supplier, and the fundamental reason must be to master the core technology. The research and development of Artificial Intelligence chips have gradually become a hot topic since 2015. However, in China, only a few companies like Cambricon Technologies (寒武纪) and Horizon Robotics (地平线) have launched their own smart chip products adapted to the scene. While Google, Intel, Nvidia and other international giants are developing their own smart chips in different fields of smart chip application, Chinese chip companies are far from their competitors at present. 'Tesla Will Comprehensively Overwhelm Domestic New Car Manufacturers' Although there are a large number of domestic first-class institutional investment endorsements behind the new car manufacturers, Tesla is bound to comprehensively suppress them. Coupled with the decline of subsidies, it is difficult for the new car manufacturers to exceed the expected performance under domestic and foreign troubles. In addition, the fundamental reason why domestic investment institutions invest a lot in new automobile manufacturing enterprises is that new energy passenger cars are in the ' tuyere period'. Actually, they are laying out the track of new energy vehicles, and the way to participate is to put eggs in multiple baskets. For example, the famous VC Sequoia Capital participated in NIO (蔚来), WM Motor (威马汽车) and LEAP Motor (零跑汽车), etc., betting that a domestic giant will be born on this track. In general, Tesla's eagerness to launch a Chinese offensive is aim to " shoot three birds with one stone". 1) They are eager to change the negative image created by China's market failure in the past 2018 and restore the confidence of the market, investors and potential investors. 2) Its likely to beat China's new carmakers in their infancy -- or at least slow their growth. 3) Cutting prices mean it can help Tesla increase market share. However, no matter how powerful the would-be rivals are, making good vehicles is now the most important thing for domestic new manufacturers.

Analysis EO
Apr 22, 2019
Analysis EO
Apr 22, 2019

NIO Officially Starts Investigation to ES8 Fire During Maintenance

In response to today's incident in Xi 'an where an NIO ES8 vehicle caught fire while being repaired by the authorized service centre, NIO announced that it has opened an investigation into the cause of the fire and will release the investigation results in a timely manner. NIO shares fell sharply on the news before the market opened today. NIO shares were down 26 cents, or 5.43%, at USD 4.53 in premarket trading as of 16:47 Beijing time, according to SINA financial data. In the previous session, NIO shares were trading at USD 4.79, up 4.36% from the previous session. EVs Have Had Many Fire Accidents Coincidentally, on the evening of April 21, one day earlier, a fire broke out in an underground garage of a residential area in Shanghai. The fire was caused by a Tesla Model S parked on the first floor of the underground garage, which spontaneously ignited and quickly ignited the surrounding vehicles. It took about an hour for 15 fire trucks to extinguish the blaze. However, the incident has caused the first floor of the other cars almost all burned, the second floor of the car underground because of the fire spray were all flooded. Fires in new energy vehicles have been a regular occurrence in recent years. In the more than one month period from August to September 2018, there have been as many as 12 fires on electric vehicles in public. On August 25, 2018, a WM EX5 electric vehicle suddenly caught fire and spontaneously ignited at the WM Motor research institute in Chengdu. It is not just new car manufacturers,  BYD, an old EV manufacturer, has also burned cars. In August of that year, a BYD song SUV with a petrol-electric hybrid also burst into flames at Shanghai Hongqiao railway station. In addition, BAIC BJEV, NISSAN, and other brand products have had similar accidents. Why EV Battery Fires and The Consequences So Serious? Although the brand is different, the cause of the fire is very similar, the most common of which is a short circuit inside the battery. When the positive and negative terminals of the battery are short connected, the instantaneous current exceeds 5A and generates a lot of heat, which can make the short junction reach a high temperature and cause the battery to catch fire. External collision and lineaging will lead to no diaphragm on the cell, diaphragm damage, protection plate instability, cell internal diaphragm paper instability, and then lead to short circuit. Traffic accidents are also an important cause of spontaneous combustion of batteries. However, most of the power batteries on the market fail to pass the acupuncture test. In fact, related experts have been calling for a long time, and the acupuncture test has not become a mandatory standard for the whole industry because it is too difficult and exceeds the level of technological development, which can be said to be one of the biggest safety risks of electric vehicles at present. Why do new energy cars always burn and burn so hard? For example, the Model S has a battery capacity of 85kWh. The battery pack consists of 16 batteries in series, and each battery pack consists of 444 lithium batteries and 74 batteries in parallel. As a result, the vehicle's power battery pack consists of 7,104 lithium batteries, with an average capacity of 12Wh per lithium battery. That translates to 43 kilojoules, or about 100 grams of TNT, stored in 16 cubic centimetres of space. If the battery shortens, the resulting energy release can be scary enough to set a car on fire. As Tesla pursues energy density with ternary lithium battery, its electrolyte will produce carbon monoxide, toluene, hydrogen sulfide and other toxic and combustible gases after combustion. In addition, oxygen will be generated during the reaction process to fuel the combustion, which makes the fire of electric cars often erupt in a flash and the fire expands rapidly. However, because of the generation of oxygen, it is difficult to use the traditional fire extinguishing methods such as isolating air, spraying carbon dioxide and dry powder, and firefighters can only use a lot of water to cool down the fire. So electric cars often catch fire because the rescue is not timely, causing irreparable damage.

Analysis EO
Apr 4, 2019
Analysis EO
Apr 4, 2019

New Auto Manufacturing Enterprises Feel Blue as Subsidy Declines

NIO is an electric-car startup founded in 2014 and is listed on the NYSE since September 2018. However, last month was a rough month for the investors of NIO; its shares lost nearly half of their value within a month falling from USD 9.57 to USD 5.10. There are a couple of factors behind the free-fall. First, NIO's stocks have sharply dropped after it got reported on March 5 since its fourth-quarter earnings were below Wall Street's expectations. In these days, investors are increasingly concerned about Beijing's decision to cut subsidies for the EV industry. NIO has often been compared to Tesla during the nascent stage of it. Recently, however, it is hard for one to compare NIO with Tesla. On the one hand, China is in the midst of a cyclical slump in auto sales; for the first time in several years. With the subsidy cuts, it will be tougher for small companies, such as NIO. NIO's administration for first-quarter deliveries wasn't excellent, but the company stated that it did better than it expected. NIO is planning to deliver 3500-3800 vehicles in the first quarter of this year, and the actual number of delivery is around 3989; and, NIO has delivered 1373 vehicles in March. Maybe it means something, but not enough to be wildly optimistic about NIO's near-term sales prospects. After launching the incentives to encourage the development of the EV industry in 2010, Beijing had begun paring the subsidies since 2017.  Companies are facing a decline in orders and struggling to cover the gap. The resulting loss of profits has forced many companies to rethink their strategies; some EV makers seem destined to be eliminated as this support ends in 2020. What's more, some fraud cases arose surrounding the subsidies in 2016 and 2017, and Beijing has begun to close the spigot since 2017. China's EV makers are struggling to break their dependence on government incentives. BYD has announced a massive decline in net profit in 2018 as the company spends heavily to keep prices attractive. Diminishing subsidies for new-energy vehicles have put pressure on the earnings, BYD said. Net profit fell by 31.6% to CNY 2.78 billion ($414 million), even as revenues surged by 22.8% to over 130 billion yuan. Electric-car unit sales roughly doubled to nearly 248,000. Last year, BYD's operating profit margin shrank to 3.3% from a peak of 5.8%. Why big cuts? Part of the reason is domestic Chinese politics; China's subsidies, which depends on how many units have automakers sold. Beijing doesn't want local and regional governments to give advantages to local automakers using protectionist policies. The government wants to ensure that up-and-coming manufacturers of electric vehicles and plug-in hybrids aren't just relying on subsidies as well. "Five Chinese automakers, led by BYD, controlled a majority of the green passenger car market, " said the China Passenger Car Association. The trend has spurred many automakers to revise their plans. In March, BYD halted its business at a Guangzhou electric bus factory because of the facility had entered the off-season. It is suspected that the closure stems from the decline in bus orders. NIO was cancelling plans for the Shanghai manufacturing plant, as well.  The Chinese government began requiring both domestic and overseas-based automakers to produce a number of new-energy vehicles, equivalent to 10% of their total production and import volume.  Domestic automakers still hold the lead, but overseas players are preparing an offensive as Beijing's support approaches its end. In April 2018, China said it would roll back restrictions on investments by foreign automakers into the domestic new-energy car ventures. Next month, U.S. electric vehicle maker Tesla moved ahead with plans for a wholly owned Shanghai electric vehicle factory under a local branch. In this process, the new forces of car making bear the greatest pressure on the whole market. Of course, the introduction of new policies and the reduction of subsidies are within the expectations, and auto companies must have countermeasures. The new 13% VAT rate came into effect on April 1, after some carmakers began to cut official guidance prices ahead of schedule. It seems that this price cut started with Tesla and some multinationals cutting their guidance prices, too. Several price cuts of Tesla can be understood as benefit improvement brought by tariff reduction and scale reduction. What's more, it is a free advertisement for Model 3 and Model Y. Auto enterprises usually have two promotion methods; traditional one always maintain the original price, the new one always guarantees the price after the subsidies subtracted. It is rare for multinational automobile enterprises and independent brands to reduce prices at the same time, which is to follow the policy adjustment, but also to cope with the cold winter of the automobile market and a more intense market. Price is an important weapon when branding is not enough to change the market. With the decline of subsidy policy and direct competition from traditional automobile companies, the new automobile manufacturers will face a life or death situation in 2019. If the USD 200,000 Model 3 arrives in China, the scene may be even more nervous. By 2020, subsidies may be negligible, but the "double integral" policy, popularized charging piles and faster-charging speed are all expected to bring sustainable development power for new energy vehicles. Both the design, manufacture and sales of the new models need to be more forward-looking to cope with the rapidly changing market. Of course, the key to the success of EV will be the range and autonomous driving in the future.

Analysis EO
Apr 1, 2019
Analysis EO
Apr 1, 2019

Reducing the Deposit of ES6 May Not be Enough for NIO to Attract More Customers

On April 1, 2019, NIO announced that the deposit payment channel of its SUV model ES6 is officially launched on its mobile application. The company has adjusted the deposit amount for ES8 and ES6 models officially, from the original CNY 45,000 to CNY 20,000 respectively. The amount of intention money has also been reduced from CNY 5,000 to CNY 2,000 for both ES6 and ES8. Meanwhile, NIO also announced that it would upgrade its financial products from today on. A series of time-limited financial products including zero-interest installment loans, low-down payment and low-interest installment loans, as well as a variety of flexible loan schemes,  were launched for users who have already paid the deposit in April. How it works? According to NIO's delivery schedule, the initial limited edition 70 kWh battery version will be delivered first, in June. The performance version will be delivered from August, while the standard version will not be delivered until October. However, the earliest delivery time in Beijing and Shanghai is later than the other regions. Because some cities need to complete the local registration procedures before the delivery. The ES6's initial commemorative edition is limited to 6,000 units, any number of a limited edition can be chosen between 0001-6000 after paying the deposit. Users can engrave the number of limited edition on the badge on the B column. The limitation will not affect the pick-up order; the number can be selected or changed at will before the order is settled, but cannot be changed after the order is locked. Users need to upgrade the NIO APP to the latest version (V 3.5.0), and then click the order details in “Car Love" page to pay for the order. Several payment methods can be used.  Besides, there are many versions of ES6 models and the launch time of each model is different.  Therefore, the corresponding order locking and production scheduling time are different too. The first batch locking time of ES6 models is as follows: >The initial commemorative edition: the production will be arranged on May 20 if the users pay the deposit before 24:00 on May 19. >Performance version: the production will be arranged on June 20 if the users pay the deposit before 24:00 on June 19. >Standard version: the production will be arranged on August 20if the users pay the deposit before 24:00 on August 19. >The user can modify the configuration or model before the order is locked; Production will be arranged after the order is locked, and the order configuration cannot be changed. Acceptance of the New Depositing Model: Will it Work? ES6 -high-performance, long-endurance, smart electric SUV- is the most promising product NIO. As the second model of the company, ES6 is even affordable than ES8, and its range has also improved. NIO had previously planned to deliver the standard ES6 in December 2019, but now the delivery date is two months ahead of schedule. According to EqualOcean, NIO has chosen to reduce ES6's deposit price rather than publishing the factory supplement based on two reasons:First, the company is short of money. The second reason is, NIO wants to test the acceptance of the pricing model. The company will follow other automakers to publish the preferential policy immediately to stimulate order growth if the results are less than expected. Founded in November 2014, NIO is a pioneer in China’s premium EV market, and it has operated R&D centres in Beijing, San Jose, Munich and London. The company was listed on the New York Stock Exchange last September. However, the company accumulated a loss of CNY 9.6 billion in 2018.  As for the gradual decline of state and local subsidies, NIO has not launched any corresponding preferential policies yet. However, NIO's competitors, BYD (比亚迪), GAC NE (广汽新能源),ROEWE(上汽荣威) and other EV manufacturers in China, have already launched their own preferential policies. According to the new subsidy policy in 2019, the subsidy for NIO ES6 and ES8 will decrease by CNY 65,000 and CNY 53,100 respectively. The maximum subsidy for ES6 is only CNY 27,000, which will be an ordeal for NIO's potential users. This is because the actual price paid by users was about CNY 50,000 higher than the price when the new car was released. William Li, founder, chairman and chief executive officer of NIO, said in the report that NIO will focus on the market penetration for its ES6 and ES8 variant products and services in 2019. Indeed, the automotive industry is always evolving, but there’s still only one thing that truly matters— performance, Whether you can get government subsidies or not, making good cars is the real competitiveness of an enterprise.

Analysis EO
Mar 18, 2019
Analysis EO
Mar 18, 2019

Performance Evaluation of NIO ES8: Smart EV Idea Too Idealistic For Now

Vehicle capability is evolving more and more as a key decisive factor for marketability and competitiveness of passenger cars. Currently, car manufacturers evaluate vehicle capability with subjective assessments such as having their experienced test drivers fill out evaluation sheets, which are somehow not objective. EO AUTO recently made a video about NIO ES8’s performance testing this month. However, we didn't get to test all of NIO ES8's features. On the upside, we discovered that the ES8 has respectable driving dynamics and blistering acceleration. But it is not perfect. ES8 Impressive Just On Paper? ES8 is NIO’s first mass-market vehicle. The host of the EO AUTO test video said that there were many minor problems in the car during the test drive. Obviously, the Drive Range is the first and most serious problem to be discovered. EV batteries are significant in determining both EV prices and costs since electric vehicles have a significantly shorter range compared to conventional vehicles with the internal combustion engine. NIO claims that the ES8 can be charged at a maximum of 90 kW and that a full charge takes one hour on a DC fast charger. For those who can charge at home, NIO will install an AC charging station for free. Using this charger, the ES8 takes 10 hours for a full charge (at 7 kW). After EO AUTO testing, the fully charged ES8 had only 300km range instead of the 355km claimed by the company. In this respect, it leaves something to be desired. Even though NIO offers a concierge service through their app for 10,800 RMB ($1,690 US) per year or 980 RMB ($150 US) per month. Someone will pick up and charge your vehicle, or swap the batteries. NIO says they will also deploy a fleet of 1,200 "mobile battery" charging vans by 2020, for vehicles that need a quick charge. However, it is still important to inform the driver of an electric vehicle as accurately as possible about the actual range (300km) and how to reduce energy consumption and thus improve range.  Similar to Tesla, every standard ES8 comes with an NIO Pilot hardware (eight cameras, five radars, and 12 ultrasonic sensors) and active safety features such as an automatic emergency brake and blind spot warning. As NIO's CEO LI Bin (李斌) introduced on a press, NIO Pilot has additional features including the Traffic Jam Pilot, Highway Pilot, auto lane change, summoning, and automatic parking. However, EO AUTO found that most featured functions of NIO Pilot that had not been on during the filming. NOMI Mate is an AI companion equipped with speech recognition systems on top of the dash. The system links to the cloud and functions similar to Siri. However, speech recognition is still lacking. For example, when one person said "Hey NOMI, 我要回家! (I want to go home)" NOMI processed it as "我要吃瓜! (I want to eat a melon)" The staff involved in this testing had an embarrassing situation that the car can’t connect to the 4G network, thus limiting the “maps” function which is inconvenient as it helps you get around in your daily life. Additionally, the door handle didn’t work once. 5G is the next evolution of mobile network technology. The automotive adoption of 5G may not arrive immediately, but it will surely make a huge difference in the way people drive and how autonomous vehicles operate when it’s released. The ES8 is also capable of battery swapping, which takes three minutes to complete. NIO says they will operate 1,100 battery swapping stations in China by 2020, with a minimum density of one station per 3-kilometer (1.9-mile) radius in major cities. The stations are the same, take up three parking spaces, and can be installed outdoors or within a parking structure. But if the car can’t connect to a network, battery swapping will be finished by manual operation, not automation at all. About NIO And Its ES8 NIO is a Chinese electric-carmaker. It is a well-funded EV startup based in China with expertise from all over the world, including Europe and California. It filed an IPO to list its American depositary shares on the New York Stock Exchange. Backed by Tencent, the technology giant, NIO is one of the several startups in China with ambitions to compete with Tesla. The ES8 is NIO's first mass-market vehicle, and it certainly looks impressive on paper. It seats seven adults. Powered by dual 240 kW (322 HP) motors, it goes from 0 to 100 km/h (62 mph) in 4.4 seconds. Mobileye's EyeQ4 chip powers a suite of NIO Pilot's autonomous features. It seems NIO is making a serious effort to build consumer confidence in the brand. But auto inventory hits a new high amid sluggish demand. China's automotive market had seen eight months of continuous decline in a row by February. Over the past year, it saw the first annual fall in sales since 1990, according to the China Association of Automobile Manufacturers. The vehicle itself is just one part of the consumers' experiences, and that the charging infrastructure, the array of services offered, the customer experience, and the provision of well-maintained facilities are equally important to maintain sales. EqualOcean will be following the ES8 closely and will provide updates on the long-term ownership experience of arguably the most important new EV in China. We look forward to seeing how NIO Pilot handles China’s busy roads and whether charging infrastructure and battery swapping work in practice.

Analysis EO
Mar 17, 2019
Analysis EO
Mar 17, 2019

Talk with NIO: We Maintain Price Stability and Overall Efficiency Strategy

NIO (蔚来), China's answer to Tesla, is more than just a car manufacturer and focuses on user experience, especially when it comes to providing a holistic car ownership experience and providing services beyond the car.  The company’s approach is to start from the user’s point of view and sustain its price stability. We had an interview with NIO's co-founder and president, Mr. QIN Lihong (秦力洪), several days before NIO published its Q4 2018 Earnings. Mr. QIN shared insights about China's auto industry and the company. Auto Market Trends China's passenger car sales plunged for the seventh time in Jan 2019 since the market began to contract in Jun 2018, falling 17.7% year-on-year. The slowdown forced automakers and dealerships to resort to incentives and reductions to lure customers. On March 1, Tesla reduced prices of eight models in China, including Model S, Model X and Model 3 from CNY 113,000 (USD 16,808.75) to CNY 341,100 (USD 50,738.63). NIO  claims that it has no plan to lower prices for its cars, according to its founder LI Bin (William Li, 李斌). QIN confirmed this in the interview. Trends in new consumption, new energy, and intelligence provide valuable opportunities for the auto industry, especially in China. Revenues from manufacturing and selling vehicles will only be marginally higher than they are today, and profits from car sales will shrink slightly. However, revenues from mobility services are projected to soar to almost EUR 1.2 trillion—with profits reaching as much as EUR 220 billion by 2030, according to Accenture. Thus, traditional automakers are urging car manufacturing to transition to mobility services: Toyota intended to plan and provide new mobility services in 2017 in anticipation of a mobile society. Additionally, BMW and Daimler created a joint venture company to jump into the online ride-hailing and car sharing industry last year. Hangzhou-based Geely has its own car strategic chauffeur ride-hailing brand CaoCao Zhuanche and state-owned SAIC Motor Corp has an electric vehicle rental service company called EvCard. Manufacturers aim to shape the mobility of the future and to be able to offer their customers unique experiences by moving towards new energy and smart vehicles. New consumption trends, on the other hand, has changed traditional sales channels and marketing. The frequency of car sales transactions is relatively low, especially compared to fast-moving consumer goods such as food and airlines. Adding more contact points with consumers is critical for NIO, according to QIN. Consumer preferences have changed as well: they prefer daily, fragmented information rather than a press release. We've talked about the company's unique way to connect to customers which fulfilled consumer demands before (see more in this article). The company has determined that it is important to not only improve manufacturing efficiency and ramp up production capacity but also respond to changing consumer preferences. Therefore, fast but efficient marketing and flexibility are crucial in this once-in-a-century revolutionary period in the automobile industry. "Elon Musk announced that Tesla would close most stores and shift to online-only sales. We don't think it would be 100% of offline stores, but it echoed that the whole auto marketing and selling circumstance has brought a profound innovation in the industry, " said QIN. Subscription model & Iteration ES8 production, a seven-seater high-performance premium electric SUV, reached 12,775 for 2018, 11,348 of which were delivered in 2018, according to NIO’s Q4 2018 Earnings Report. NIO developed an innovative sales model compared to incumbent automobile manufacturers. Prospective users can make reservations with refundable deposits or non-refundable deposits through NIO’s mobile application, which fosters a dynamic and interactive online community. NIO began deliveries of the ES8 in June and launched its latest production model, the ES6, a five-seater high-performance long-range premium electric SUV, in December 2018. Its six-seater ES8 is available for order last December and expected to deliver in late March 2019. NIO also announced the pre-subsidy price of the six-seater NIO ES8 variant which starts at 456,000 RMB (USD 67,855.08). NIO’s six-seater ES8 and second model ES6 is ready to for delivery this month and in June of 2019, respectively. SUN Fangyuan (孙方圆), the PR director of NIO claimed the six-seater ES8 is a variant model of the original seven-seater ES8, which will inevitably bring up total costs. Additionally, the final price of the six-seater ES8 is based on the company's survey on consumer needs. It seems that the company does not expect more market share in the new ES8 compared to the previous model, according to iyiou.com. QIN said that the company has an internal Order-to-Delivery management system to administrate the whole reservation and delivery process. For now, seven-seater ES8 has moved into a regular production stage and the company has been continuously receiving orders. ES6 is the world’s first electric SUV with PM Motor (Permanent Magnet) and IM (Induction Motor). With an optical new 84-kWh LC battery pack, ES6 can give a long range of up to 510km (NEDC), a better parameter compared to ES8. In addition to the limited Premier edition, NIO says that the ES6 is offered in Standard and Performance Versions with starting prices of CNY 358,000 and CNY 398,000, which is the equivalent of USD 52,000 and USD 58,000 respectively. Since NIO does not have dealers and it opens direct selling stores, NIO has full control on price. “NIO will guarantee the price stability, at least for a very long time,” said QIN, implied that NIO will not cut down ES8 price after ES6 coming out. “I think the price and value of performance cars, the ES8 and ES6, are already the best in the market. That's why Tesla has been aggressively lowering their price because of its market share losses to NIO. And so I think there's no reason for us to lower our price,” said NIO’s CFO Tung-Jung Hsieh on the company's Q4 2018 Earnings Call. The ES8 supports upgrading to the latest 84-kWh battery system (now is 70-kWh packs). The specific upgrade plan in Q2 2019, with 84-kWh battery will be made available for the ES8 in Q3 2019. NIO is now upgrading the central control unit of ES8 for its users, only charging for the component costs and leaving alone installation or logistics fees. To conclude, NIO will keep the price of former models stable after new models launch. The company also will be in charge of current model upgrades. Range Anxiety & Electricity Power Coverage “Providing a charging experience beyond refueling” is a mission of NIO that LI Bin has put forward. QIN claimed that it is happening for ES8 owners in some areas of China thanks to NIO’s efforts. NIO has a range of solutions to make range anxiety a non-issue, including the battery swap stations and the NIO Power van, a service vehicle with two 70-kWh battery packs in the rear that can come to where you are and recharge your car for you, either in an emergency or as a courtesy. This service is powered by the popular NIO app and its “One Click For Power” option, which LI stated the serviced had been used over 28,000 times while he was on stage during NIO Day 2018. “Some ES8 owners are even relying on our One Click For Power service rather than their home charging stations, ” said QIN. On NIO Day 2018, LI Bin claimed that 95% of customers driving their ES8 to commute to offices (range within 60km), 4.6% of them go for intercity road trips (range within 500km), and 0.4% are for long distance trips. With that being said, NIO divides their charging service into two parts: first, personal stations and One Click Service for Power for daily usage; second, the highway power swap station network and One Click Service will serve for long-distance travel. China is accelerating its public charging stations coverage as well. There are 285,000 public charging stations as of September 2018, according to data collected by China Charging Alliance. While that number is rising, the efficiency of charging is lagging behind. If the station is charging several vehicles, it takes longer to be fully charged. It is a technology problem which is not caused by technology itself but the market volume. Only a limited number of drivers will drive EVs for a long-distance trip.  NIO decided to do its own swap station network, bidding on the day that it is convenient to drive EV for road trips. “We accelerated our efforts to expand our highway power swap station network, covering both the G2 and G4 expressways as well as the majority of the G15 Expressway,” said Tung-Jung Hsieh on the Q4 Earnings Call. Things are the same when it comes to charging trucks. NIO owned 100 charging trucks last year, which increased to more than 500 units for now, according to QIN. NIO had no choice but to send a charging truck from Beijing to accompany a driver who wished to drive from Guangzhou to Xinjiang, where there was no charging truck. It changed this year. NIO is ready to serve customers who want to drive through the Beijing-Xinjiang expressway (G7) into a no man’s land this year as long as the customer call NIO two days before the travel. We see the huge growth in terms of NIO’s long term investment that increased 214.7% to USD 21.57 million in 2018 compared to 2017. It is hard to say when these investments can be turned into profits. Branch operations and swap stations located in certain areas cannot earn net profits. However, national coverage of battery swap stations and charging trucks are essential for NIO, banks, and telecom companies. They have to consider overall efficiency and ignore local losses, according to QIN. Traditional automakers have to give 15% of their total revenues to dealers, according to Qin. Data from the National Bureau of Statistics shows that total volume of car sales in 2018 is CNY 3.8 trillion (USD 565 billion), which means dealers earned USD 84.75 billion for providing selling, aftersales and other services in China last year. NIO gave its answer towards the new market trends with NIO House and the NIO APP. To prevent and respond to range anxiety in both short-distance and long-distance, NIO is providing a wide range of power services with NIO Power. The company currently has 13 NIO Houses in 11 cities and 16 pop-up NIO Houses, according to the Q4 Earnings Call. Size matters in the auto industry. Economies of scale makes it easier for automakers to earn profits from offering an ample range of products and gain strong bargaining power with suppliers. NIO’s heavy investment in its sales and services did somehow affect its short-term financial report. However, it is reasonable to project these factors into long-term success after NIO reaches economies of scale. “Total subsidies for a EV ranged from CNY 67,500 (USD 10,040.96 ) to CNY 75,000 (USD 11,156.63) last year, which decreased around CNY 40,000 (USD 5,950.20) in 2019. Decreases only account for around 10% of the average  NIO vehicle price, however, 30% for other entry-level brands and models, ” said QIN. China’s EV market has already entered into a post-subsidy era. NIO claimed that it has foreseen the day when the brand was established and it realized that EV players cannot survive by only relying on marketing strategies or subsidies. NIO taps into the premium segment thus the company can receive a limited effect from decreasing subsidies.

Analysis EO
Mar 6, 2019
Analysis EO
Mar 6, 2019

NIO Caught Investors by Surprise with Increased Losses

March 5, 2019/EqualOcean/- NIO (蔚来), the Chinese luxury electrical vehicle brand, has published its Q4 2018 Earnings today. The company has registered USD 499.7 million of total revenues, surpassing its original expectation between USD 418.5 million to USD 436 million. However, the company has caught many investors by surprise with its wider-than-expected operation loss and net loss in Q4 2018. The company also reported a slowdown on delivery amount in Jan and Feb 2019. Headline Results NIO has impressed us with its first earnings report published last November. The company generated net revenues since it has started deliver ES8 SUV last June. The latest quarterly results stand out obviously: the company generated CNY 3,435.6 million (USD 499.7 million) in Q4 2018, representing an increase of 133.8% from Q3 2018. Total revenues were CNY 4,951.2 million (USD 720.1 million) for the full year 2018. With that, the company generated a positive 3.7% gross profit in the reported quarter for the first time, representing an increase of 137% from Q3 2018. The company’s loss from operations increased by 22.7% to USD 501.3 million compared to the third quarter of 2018. The company also reported USD 49 cents for both basic and diluted net loss per ADS attributable to ordinary shareholders. We have seen a continuous increasing trend of net loss to ordinary shareholders until Q3 2018, which decrease for the first time by 64% (QoQ) and 26.4% (YoY). Adjusted basic and diluted net loss per ADS (non-GAAP) were both RMB 3.2 (USD 0.47), declining by 69.1% compared to Q3 2018. NIO generated USD 720.117 million in 2018 but ultimately USD 1.3 billion losses, which increased 93.71% compared to 2017.  All about Production Capacity “We remain confident that our Q4 deliveries will be in the range of 6700 to 7000 vehicles,”according to NIO Chief Financial Officer Louis Hsieh on Q3 2018 Earnings Call. The company made it indeed but somehow could not maintain the uptrend in delivery in the beginning of 2019. Deliveries of the ES8 in January and February 2019 were 1,805 and 811 vehicles respectively, drastically declining from that of December 2018. NIO claimed that it was caused by accelerated deliveries made at the end of last year in anticipation of EV subsidy reductions in China in 2019, the seasonal slowdowns surrounding the January 1st and Chinese New Year holidays, as well as the current slowdown of macro-economic conditions in China, particularly in the automotive sector. Total passenger vehicle sales in January was 2.02 million units, falling 17.7% year-on-year, the biggest drop since the market began to contract in Jun 2018 (see more in this article). The company also expects a weakness delivery in Q2 2019 also because of macroeconomics and subsidies policy reasons but anticipates, more ES6 backlog orders to increase in May, when NIO will hold an ES6 show at NIO House. NIO has a five-year agreement with JAC (also known as Anhui Jianghuai Automobile Co.). JAC will produce cars for NIO and NIO shall pay JAC for each vehicle produced on a per-vehicle basis monthly for the first three years. NIO is also obligated to compensate JAC for any operating losses.  "Cost of sales with respect to vehicle sales also includes compensation to JAC for actual losses incurred at the Hefei manufacturing plant where the ES8 is manufactured," NIO said in its prospectus. NIO has the NIO/JAC plant in Hefei, which remains as NIO’s long term manufacturing plan, according to the company. JAC Motors made 12,775 ES8s in 2018, and 11,348 of which were delivered last year, beating the EV startup's own targets for the first year of production, according to the company. NIO signed framework agreements and memorandums with the government and related entities in Jia Ding, Shanghai in 2017, however, NIO has agreed to terminate the plan recently, which addresses some concerns on the company's sustainable production capability, even gross profit margins were positive in Q4 2018. It seems that NIO's Shanghai factory wasn' t supposed to open until at least 2020.  The company continued to invest in its existing factories and offline stores last year. The value of the property, plants and equipment in 2018 was increasing by 154% amounting to CNY 4.85 billion (USD 705.862 million) compared to 2017. More than Service Customers with the intention to buy an ES8 have two-three cars averagely, half of which have possessed new energy vehicles and one-quarter of them have a Tesla, according to a survey conducted by Auto Home. LI Bin (William LI, 李斌) once claimed that the company will never give up any chance to serve its customers. NIO is in charge of the whole after-sale including battery release, charging, and maintenance while traditional carmakers usually contract with dealerships or third-parties for such services. The company has 295 power trucks covering 21 cities, swap stations within 16 cities at the end of September 2018 and 76% of users who can install the home chargers, according to its Q3 2018 Earnings Call. Users are interacting with the company in different ways with that of traditional manufacturers. NIO APP has 700,000 registered users and 199,461 DAU (Daily Active Users), according to data released on 2018 NIO Day. Insiders commented that it was an impressive number for buying a car which is a big purchasing with low frequency, according to an article shared by iyiou.com. NIO App’s main functions are to provide sales consulting for potential clients and owners usage instructions for owners. Community, information and car models selling are derivative functions. It’s a comprehensive APP that has service, community, media and shopping functions. NIO App is like a combination of WeChat, Toutiao, and Taobao. It’s not a type of marketing tool, a derivative of its offline service or another official site based on smartphones but a membership system that connects NIO's whole service system. As the company claims in its prospectus, “We believe our online and offline integrated community which is developing from our NIO Houses and mobile application will retain user engagement and cultivate loyalty to our brand. ” All these signals lead us to a conclusion: there is a large number of people using the NIO App, current car owners can contact with Nio officers conveniently from a single touch and potential customers can know more about ES8, ES6, and NIO when they are going through the randomly published posts. 

Analysis EO
Jan 10, 2019
Analysis EO
Jan 10, 2019

Take a Breath Amid the EV Frenzy, Think, and Further March Ahead

Automobile manufacturing is one of the typical industries that businesses yearn for scale advantage to succeed. An army of automobile brands emerged in the early 20th century in the United States. At a certain point, interestingly, each state has its own automobile brand; after approximately 100 years of blood-shedding battles, only three behemoths survived and ended up settling in Detroit, the global automobile manufacturing center. While the Far East witnessed the mushrooming of EV brands in recent years. Some of the wealthy Chinese regard the personal vehicle as a symbol of their social status. The "mobile sofa" with four wheels is considered to be many Chinese mother-in-laws' second "spiritual home" and the basic requirement for a Chinese young man hoping to marry their daughters.      Global sales of renewable energy vehicles from January to June in 2018 reached 720,000 units, an increase of 32% comparing to the figure in the same time period last year. Sales volume of renewable energy vehicles in China reached 350,000 units, registered a year-on-year increase rate of 60%. In 2017, the global sales of renewable energy vehicles exceeded 3.4 million units. The cumulative sales of renewable energy vehicles in China is roughly 1.8 million, accounting for 52.9% of the global figure. Although the volume seems very impressive, the future for Chinese EVs does not look so pinky after all. Wildly multiplication in quantity only represents the beginning of the development in most industries, while quality improvement will become the ice breaker when a stagnation is reached during development; also, high quality is the determining factor of whether a company would succeed in the long term, when one is struggling in the fierce battles with its competitors. Vehicle bodies and batteries are oversupplied currently, which warns investors to identify the applicable and truly advanced technologies from the other newly emerged, mediocre ones when invest to avoid potential loss.  The car builders, on the other hand, should be in car users' shoes and think for them in terms of safety, comfort, convenience and so on; Also, accelerate R&D in core technologies, including battery energy storage solutions and battery performance, and amelioration in intelligence.  HIS Market forecasted nearly 76 million vehicles with some level of autonomy sold by 2035. What powers the flourishing phenomenon of autonomous vehicles in the future reside now in the tiny size, but crucial in roles, various intelligent parts formed together to enable the high performance of an autonomous vehicle. Acceleration in intelligence is no doubt going to increment the competitiveness of the enterprises in the future battle between EV brands home and abroad. Right now, ADAS (Advanced driver-assistance systems) subsystems often work independently of each other. In this instance, a holistic ADAS approach where all sensors across the automobile form a connected collective, to make smarter decisions through cooperation. In terms of self-driving technology. NIO, WM Motors, Xiaopeng Motor, and BYTON all already have the capabilities of carrying L2 self-driving systems in their EVs; today in CES, NVIDIA launched an L2+ ADAS, while Mobileye claimed it will cooperate with Great Wall Motors (长城汽车) to jointly develop L3 level ADAS, and help to install Mobileye engineered ADAS (below L3) to some batches of their EVs in 3 to 5 years' time. Nevertheless, most other EV brands in China are still hovering about without the related technology at all. Google's Waymo has already been testing its Level 5 self-driving system vigorously. Smaller enterprises like May Mobility and Drive.ai are experimenting small-scale but revenue-generating shuttle services, Audi also launched its L3 self-driving EV A8 L e-tron Quattro in Quarter 3 in 2018 ; Other automobile giants like Ford, GM, Toyota, and Volvo are investing heavily on R&D and testing as well in EVs of L3 to L4, predicted to be able to launch their models by approximately 2020. Arguably, in terms of Self-driving technology, the west is the front runner for now. Some Chinese manufacturers then emphasize that they should learn from the western car makers and it seems like if anyone could reach their level first would be the winner in the battle. In fact, the mindset, however, is inappropriate, if not wrong. Of course, Chinese manufacturers should first aim at catching up with their western counterparts, but they should clearly know their end goal in this game. It's to build a car using clean energy, therefore, benefit the environment and hence the human's respiratory system; Also, restrain the usage of fossil fuel, which has already draining extremely rapidly because of excessive human activities, so that the earth may still have chances in surviving from global warming and what it caused – extreme weathers and more frequent natural accidents. This car is, at the same time, brings comfort, convenience, maybe privileged experience and high-level satisfaction in in-vehicle entertainment and security. If a car really does all these, it is undeniably a profit gainer. This is how every EV brand in China and abroad should think of along the way of their R&D, testing, and production. Chinese EV manufacturers probably need to take a breath in this EV frenzy and think a bit prior to marching. Reaching operating break-even point is not the aim; Go to IPO is not the end. There's a Chinese saying goes "A wise man reviews his own behaviors three times a day". Aim high and continuously examine what is being lacked, where does the company stand, and how far ahead does it need to march. Have the big picture in mind, and also keep feet steadily on the ground. More to read: China's EV Is Booming, Auto-Pilot, and Connected Car Still In Infancy                            A Booming market, A Decreasing Cost, and A Strong Enemy

Analysis EO
Jan 9, 2019
Analysis EO
Jan 9, 2019

A Booming market, A Decreasing Cost, and A Strong Enemy

Despite the strong performance of EVs (Electric Vehicles), China's EV makers see some threatens and enemies looming. China’s electric car sales were more than 141,790 in November 2018, up 59% (YoY). The whole 2018 year sales will surpass one million units if we extrapolate sales peak at 155,000 units in December. One million is the number that electric car sold globally in 2017. The 2018 electric car market share rose to 3.8% share in China, for November is 6.3%, which is around 3% in other main markets, for instance, 3.2% in Europe, and ~2.5% (October figure) in the US. Envision Energy (远景能源), a Shanghai-based company, claimed that it will produce batteries for USD 100 per kilowatt hour by 2020, predicting the price will drop to USD 50 only five years later and end the reign of the internal-combustion engine at Stanford University's Global Energy Forum. Lei predicted that fossil-fuel cars will disappear "overnight" when EVs become cheaper. A BCG report shows that thanks to the Chinese government’s incentives, the consumer’s TCO (total cost of ownership) for BEVs(battery electric vehicle) reached a five-year payback in 2015. Somehow manufacturers in this EV supply chain has managed a way to reduce the costs and boost sales of EVs. This signs all told us that it seems that EV is going to slay the gasoline car. But don’t forget, China is cutting its subsidies gradually. China planned to cut subsidies by 20% in 2017 and 40% by 2019-2020, eliminating them altogether after 2021 so that the industry does not grow dependent on subsidies. September 2017, MIIT (Ministry of Industry and Information Technology) released so-called cap-and-trade policy, saying that automakers must obtain a new-energy vehicle score -- which is linked to the production of various types of zero- and low-emission vehicles -- of at least 10% starting in 2019, rising to 12% in 2020, reported by Bloomberg. Under the stricter policies, the EV automakers in China are facing a counterpart Tesla rushing into China local market by setting up a factory in Shanghai, which will start production in China of its Model 3 and a planned crossover by the end of the year. Tesla broke ground for the factory on Jan 7. China announced that it will cut tariffs on cars imported from the United States to 15% from the current 40% on Dec 15, 2018, a gesture increasing imported car sales in China. SHEN Hui (沈晖), founder of WM Motor (威马汽车), did not take this event as a threat, saying that with Tesla marching into Chinese car-selling market, EV manufacturers are more likely to win over customers from diesel car manufacturers. More than 400 EV startups have emerged in the past few years. It is estimated that left unchecked, these companies, along with existing automakers, will increase annual EV production capacity in China to 20 million in 2020. That’s 10 times the government’s target of 2 million a year, reported by Automotive News China. 2019 will be the rush hour for these startups. Let’s catch up some updates about China’s leading EV startups. Dec 12, 2018, Xpeng Motors (小鹏汽车), the four-year-old company started deliveries of its first commercial model SUV G3, marking the company the third EV maker to deliver production vehicles in China, after WM Motor and NIO. Dec 18, 2018, WM Motor implied that the company may fail to deliver on the 10,000 vehicles promises, a break-even point which most EV startups needs to sell, mainly due to complications in subsidy policies and deliveries. Dec 15, 2018, Nio (蔚来汽车) launched the ES6 and announced that the company has delivered 9,726 models of ES8 in 22 cities in China. The company’s the world's first ever battery swap network on G4 Expressway received some questions.

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