Chinese electric vehicle maker Nio scraps Shanghai factory plan after losses double to US$1.4 billion

Jane Zhang
Chinese electric vehicle maker Nio scraps Shanghai factory plan after losses double to US$1.4 billion

Chinese electric vehicle start-up Nio cancelled a plan to build its second factory in Shanghai after reporting a full year 92 per cent year-on-year increase in net losses to US$1.4 billion.

The US-listed Nio has partnered with Chinese state-owned carmaker JAC Motors to produce its ES8 electric model since 2016. The company said on Tuesday that the decision would allow Nio to focus on the joint manufacturing model in the long term, which was in line with the government’s new policy issued last year to encourage entities doing research, development and design on EVs to work in cooperation with other carmakers.

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The company also said its existing NIO/JAC plant had the capacity to support its growth for the next two to three years.

Nio had planned to set up its own factory and signed framework agreements with the Shanghai government and other relevant parties in 2017. The Nio move comes after its rival Tesla announced plans to build its first overseas “gigafactory” in Shanghai, which will begin producing the US company’s Model 3 electric vehicles by the end of 2019.

The decision to terminate the factory plan was also linked to underwhelming sales, according to David Zhang, an independent automotive consultant.

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“A lot of market uncertainties are now involved, with the price cut from Tesla and NIO’s own sales projection,” said Zhang, pointing out that Nio sold just over 10,000 units in the past year, well below the market consensus of 100,000 needed to achieve economies of scale.

The five-year-old company listed on the New York Stock Exchange last December. In 2018, Nio delivered 11,348 ES8s and in December launched its second production model, the ES6, a five-seater electric SUV, Nio founder and chief executive officer William Li said in a company statement.

The decision on the factory also comes after the Chinese government raised the bar for electric car production in a move to foster a more competitive industry in the world’s largest car market. Under the latest guidelines issued by the country’s top economic planner, any new all-electric passenger car project must achieve a minimum output capacity of 100,000 units a year.

“We expect a greater than anticipated sequential decrease in deliveries in the first quarter 2019, partially due to accelerated deliveries made at the end of last year in anticipation of EV subsidy reductions in China in 2019,” said Louis T. Hsieh, NIO’s chief financial officer, in a company statement.

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