What was that about "no price war?"
Back in April Nio (NIO) CEO William Li declared that the Shanghai-based electric vehicle maker he co-founded would not be joining any price war.
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Rival Tesla (TSLA) had cut its prices on some its models and some people figured that Nio would follow suit. But Li wasn't having it.
“For us, we will certainly not join the price war,” Li said, claiming Nio’s products and services are worth the price, CNBC reported.
Li said at the time that his company would focus on improving its customer services — such as adding battery swapping and charging stations. The swapping technology claims to change out batteries in minutes so that drivers don’t have to wait for charging.
But things change, as they say, and on June 12, Nio announced that it would cut prices for its cars by the equivalent of $4,200 effective immediately, and ending free battery swaps for new buyers.
The company is facing mounting pressure over earnings losses and lukewarm sales, which slid in April and May as the price war intensified and overall demand weakened.
Cap Ex Delayed
"The adjustments had been discussed internally for quite a while and we took advice and suggestions from some users," Li said on the company's social media app, referring to the price cuts and the new policy on battery swapping, Reuters reported.
"It is the best timing to publish it ... but we can't make everyone happy," he added.
Nio had been offering the swapping services for free at least four times each month to existing owners. Tesla has said that “battery swapping is riddled with problems and not suitable for widescale use.”
Last week, Nio reported first-quarter revenue that missed expectations. Revenue increased 7.7% from the year ago period, but nosedived 33.5% from the fourth quarter of 2022.
Lio said during the company’s first-quarter earning’s call that Nio would delay its capital expenditure and some research and development projects. The delay is, in part, an effort to address the impact on cash flow from fewer car deliveries.
"At the same time, in terms of our global market expansion, we believe it's more important to -- to focus on the markets that we have already entered," Li said, according to a transcript of the call.
Wall Street Responds to Earnings
Several Wall Street analysts downgraded Nio or cut their price target.
Nomura and CMB International Global Markets downgraded from buy ratings to neutral and hold ratings, respectively. Nomura cut their price target on the stock to $7.50 from $25.80, while CMBIS cut their price target to $8.00 from $21.
CMB International said it believed Nio’s decision “to cut non-core projects is too slow.”
Nio, the firm said, also “faces a dilemma between brand positioning and profitability, as it has started to cut service benefits, which could dent its brand image and, thus, sales more severely than expected," according to Investing.com.
China is the world’s largest auto market, as well as the world’s largest electric vehicle market, with 60% of global electric car sales taking place there in 2022, according to the International Energy Association.
More than half of all electric cars on the road worldwide are in China, the association said, while Europe and the United States are the second and third largest markets.
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