Is Nio a Serious Threat to Tesla in China?

Cars and Drivers

Published: December 30, 2019 11:05 am

Last Updated: January 30, 2020 11:44 am

Since reporting third-quarter results in late October, Tesla Inc. (NASDAQ: TSLA) shares have added 70% and posted new all-time highs. On Monday morning, the company delivered the first 15 Model 3 sedans built at its Shanghai Gigafactory.

Those first cars and others set for delivery over the next several days are all going to company employees. Deliveries to customers are set to begin next month.

Stealing a bit of Tesla’s thunder Monday morning, Chinese electric vehicle maker Nio Ltd. (NYSE: NIO) announced third-quarter results that showed a smaller loss and higher revenues than analysts were expecting. Shares shot higher in morning trading.

Where many of China’s electric car makers are aiming to build less expensive vehicles for the Chinese market (BYD and Xpeng, for example), Nio is following a path similar to the one that Tesla paved in the United States. The company’s first vehicle was a sports car, the EP9, of which Nio sold exactly six at a price tag of around $1.5 million per vehicle. Tesla’s original Roadster, of which 1,000 copies were built, sold for $250,000.

Tesla’s second vehicle, the Model X sport utility vehicle, currently carries a starting price of around $81,000. The Nio ES8, a luxury SUV, is Nio’s second model and has a sticker price beginning at $67,000. The price for each can go much higher.

Now, both are taking aim at the crossover market, with Tesla prepping its Model Y for delivery in China by late 2020 (there is talk of a mid-summer, or even first-quarter, U.S. and Chinese delivery date, but no official word from the company), and Nio is expected to begin selling its ES6 crossover around the middle of 2020. There is even talk that the first Model Y crossovers sold in the United States will be imported from China. Could happen.

The U.S. price for the base version of the Model Y is $48,000 (before tax credits). the Nio ES6 base version (in China) will begin at around $51,000 (before credits). Tesla’s Shanghai Gigafactory will build the Model Y along with Model 3 for the Chinese market.

Tesla’s Chinese-built Model 3 sedans are priced at $50,000 and are eligible for a government subsidy of some $3,500. The Nio ES6 base version would eligible for a subsidy of around $2,700.

One thing that Nio is better at than Tesla is burning through cash. While it took Tesla 15 years to burn through $5 billion, Nio managed to achieve that total in less than five years, according to a September report at Bloomberg. Where Tesla’s shares trade up about 33% for the year to date, Nio’s stock traded down more than 55% at Friday’s closing, and shares jumped more than 44% by mid-morning to $3.50.

As long as Nio is able to convince investors like Tencent Holdings to keep pouring money in and the company continues to grow revenues, it should be able to keep pace with Tesla. If it has an advantage, it will be China’s local and national governments, the invisible thumb on the scale. That won’t be enough to steal Tesla’s high-end market in China, but it should guarantee Nio a large enough piece of the action to reward long-suffering investors.