Electric Car Start-Ups Have A Tough Road Ahead

Once a beacon of light among electric car start-ups, Nio is now facing collapse as losses continue to accumulate the share price plummets.

The promise of unprecedented growth in the electric car market has fallen flat. As an example, China’s Nio, an automobile manufacturer headquartered in Shanghai that specializes in designing and developing electric autonomous vehicles, has registered significant losses since hitting the New York Stock Exchange last September.

Once a beacon of light among electric car start-ups, Nio is now facing collapse as losses continue to accumulate and its share price plummets. Last month the group turned to chief executive William Li and one of its primary shareholders, Tencent, for a $200m influx of cash to keep the company from going under. Still, the company will need more money in order to recapitalize and keep going.

Other electric vehicle start-ups are facing similar hurdles in an effort to compete with Volkswagen and Toyota. “You have to be really brave to try and come into [the] automotive [sector],” said Volkswagen chief executive Herbert Diess.

Countless electric car start-ups have debuted over the past few years as a result of the relatively low costs of developing and manufacturing battery-powered vehicles, which consist of a battery and chassis as opposed to the numerous moving parts in the internal combustion engine.

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China has seen the greatest number of start-ups in recent years, thanks to government subsidies and cut-rate financing, followed by the US, Europe and Japan. “Before Tesla, there was I would say an unwritten rule, but I think it was probably a written rule, that you couldn’t start a new car company and succeed,” said Peter Rawlinson, the founder and chief executive of electric start-up Lucid Motors in California. “It was impossible.”

Despite Tesla's success, the EV market has grown increasingly competitive. Brands often underestimate the costs of meeting consumer and distribution demands. “Probably the biggest challenge is . . . the investment is so big,” said Mr Diess.

Nio has also faced setbacks as a result of overspending. Last December, at a company event called Nio Day, the group hired multi-platinum artist Bruno Mars to provide entertainment. “Nio have been spending beyond their means for years and their losses have been largely due to unnecessary expenses,” said a senior executive at another Chinese electric car start-up.

The group has also grappled with the burdens of scale manufacturing. “A key challenge for the likes of Nio and Byton [another start-up] will be convincing consumers that these new brands are legit,” said Michael Dunne, a former General Motors executive who runs Chinese automotive consultancy ZoZo Go. “Nio’s disappointing sales reflect not a failure of product but an inability to persuade consumers that a Nio should be considered alongside an Audi or a Tesla.”

Robin Zhu, an analyst at Bernstein, said: “Ultimately, our biggest problem with Nio is the lack of traction its vehicles have generated among Chinese consumers to date. Nio’s volumes have not been enough to support anything close to profitability for the company, even at the gross profit line.”

Most established manufacturers can afford to experiment with electric cars since they have a fleet of combustion engine vehicles that enable them to balance their losses. BMW, which is developing hybrid options on most of its models, has debuted an X7 model that will compete with the Range Rover in order to increase the limited profits that cheaper EVs deliver.

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“We need to compensate with those cars for the smaller electric vehicles,” Harald Krüger, former BMW chief executive over the summer, said earlier in the year.

Still, the battle continues. “We know the enormity of this task,” Rawlinson said. “I’ve been there and done it, and a lot of my team have. But we are under no illusion that this is a marathon.”

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