Why Is Nio Struggling?

Nio, one of China’s biggest EV startups, is confronting difficult times, though the primary reasons for its plight are less than obvious. Automotive startups have a low survival rate, but Nio was presumed to be the next big thing in vehicular electrification. It looked poised to become one of the few EV companies that would survive in Asia, likely serving as China’s response to Tesla, and even had a successful Formula E racing team to showcase its engineering might.

We sad had because Nio sold that team this year. It also needed to recall 4,800 vehicles after reports of three catching fire, endured a sizable sales drop, witnessed its share price plummet, announced plans to layoff 10 percent of its workforce, and just lost one of its co-founders.

While few automakers are truly thriving right now, Nio’s issues seem more serious than the status quo. Yet the root causes may still be the same. Global demand is down but, as the world’s largest market, China is causing the most headaches. It’s still pushing expensive new energy vehicles and stringent emission mandates and cut government subsidies at the same time its economy started tanking. For Nio, that meant car deliveries halved in the last quarter — losing it $390 million.

The company informed the Financial Times that it would be forced to cut 1,000 positions worldwide this year (about 10 percent of its workforce) as a result. Nio previously announced it had exercised 70 employees across two Silicon Valley offices, one of which ended up closing, in May. Among those disappearing this year is company founder and former executive vice-president Jack Cheng, who left his post on Wednesday. The official reason from the manufacturer? At 61 years of age, he was too old.

From the Financial Times:

Nio said Mr Cheng had been responsible for vehicle development, supply chain management, and manufacturing. “We thank him for his long-term hard work and dedication,” it added.

Mr Cheng’s exit follows a series of high-level departures from Nio. Li Zhang, the company’s former head of software, and Angelika Sodian, who headed Nio’s operations in Britain left the company in June. US chief executive Padmasree Warrior left at the end of last year.

Nio raised $3.9bn in venture-capital funding in addition to its IPO, but has been forced to cut staff and sell assets this year due to continued losses, which amounted to $390m in the most recent quarter.

With trade conflicts unlikely to subside for some time and China’s emission requirements leaving consumers and factories about 1 percent of its EV startups survive, we all just thought Nio would be one of them.

Has the company been mismanaged, dumping too much cash into side projects (like customer clubhouses and a branded clothing line), or is this simply a case of China being caught overplaying its hand in the midst of a trade war? Perhaps it’s the emissions issue. We know that the government’s aggressive push to promote new energy cars has spooked buyers and burgeoning ride-hailing services have made ownership less popular in cities where consumers have the most spending money.

Odds are good that it’s all of the above, at least to some degree. Unfortunately, that gives Nio more to contend with as it attempts to correct its course — some of which it may have to leave to the Chinese government.

[Images: Nio]