Howes: China's NIO symbolizes new pressures in the global EV game
Here’s one more headache Tesla Inc. doesn’t need: a Chinese maker of luxury electric vehicles debuted last week on the New York Stock Exchange, more evidence that competition in the space is only intensifying.
NIO Inc., based in Shanghai, is one of 40 or more electric-car startups spawned by China in just the past three years, says ZoZo Go LLC, an affiliate of the Dunne Automotive Group Ltd. headquartered in Hong Kong. And it's on the muscle — building and shipping 3,000 vehicles in the quarter of its initial public offering.
“None of them make money, nor is there promise of profits in the near term,” ZoZo Go writes in the latest installment of its “The Chinese are Coming” series. “No, these are long-term plays that exist solely because the Chinese government is mandating the formation of a powerful, fully integrated EV industry.”
Tesla doesn’t make money selling its trendy cars, either, but until recently it occupied the luxe EV segment virtually alone. That’s coming to an end, as global automakers from Jaguar to Germany’s Big Three of Audi, BMW and Mercedes-Benz — and would-be Chinese rivals — answer the demands of Chinese regulators with entries of their own.
That's one reason President Donald Trump's escalating trade war with China is so unsettling to the global auto industry: it threatens to undermine longer-term strategies and disrupt supply chains designed to answer regulatory demands for electric cars in the world's largest market. Through the first eight months of this year, ZoZo Go reports, Chinese consumers "bought a record 600,000" EVs, an 88 percent increase over last year.
"The potential is huge," NIO CFO Louis T. Hsieh told CNN Tech. "China is 65 percent of the global EV market." Central government policies are poised to essentially ban the sale of vehicles powered by internal combustion engines in 25 of the country's largest cities — unambiguous incentive for an entire industry to board the EV bandwagon.
"Demand for EVs is sizzling at a time when China's light vehicle demand has been trending negative for the past three months," ZoZo Go says, adding that American consumers are not likely to see Chinese EVs on U.S. roads until at least 2021. "Government EV incentives and quotas are working" in China.
Meantime, expect Chinese EV makers to try to do what Tesla didn't, especially with the troubled launch of its hyped Model 3 compact: fix design flaws, manufacturing defects and engineering mistakes before shipping to finicky American customers wary of buying a Chinese luxury EV.
In its second quarter as a publicly traded company, NIO plans to ship another 7,000 vehicles, Hsieh added: "Tesla didn't hit 7,000 vehicles until over three years after their IPO. So we're off to a good start. It's a matter of execution and quality of manufacturing."
Yes, it is, as Tesla has proven, repeatedly. Even as the California automaker misses production deadlines, struggles with logistics "hell," loses more executive talent, parries parallel investigations by the Securities and Exchange Commission and the Justice Department and wonders what founder Elon Musk will tweet next, companies like NIO are aiming squarely at the American luxury EV buyers attracted to technological execution and sharp design.
Its global software development hub is in the heart of Silicon Valley, part of its North American headquarters in San Jose, Calif. Its design hub is in Munich, where a staff of roughly 100 shape models that could credibly sit in a BMW showroom. And its performance center is based in London, bolstering its Formula E racing chops.
Bottom line: NIO looks more like a contender angling to leverage the industry expertise it needs instead of thumbing its metaphorical nose at experience (like Elon Musk's Tesla) in the mistaken belief that it go it alone. A century of accumulated know-how, from Detroit and Tokyo to Stuttgart and Wolfsburg, says otherwise.
It is, of course, very early days — for the money-losing NIO, barely into its second week as a public company, and for competitive advantage in the EV race. China is the undisputed No. 1 market for the technology, thanks to government decree, but the world's No. 2 market, the United States — not so much.
Barring government mandates from Washington, or long-term spikes in oil prices, American indifference to EVs is likely to prove stubbornly durable. But with China unilaterally creating demand for electric vehicles, the global competition among automakers will only intensify.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM