Neo’s affordable cars carry luxury goods

William Li, founder and chief executive officer (CEO) of Chinese electric vehicle maker Nio Inc., unveils Nio’s ET7 sedan at a product launch event in Chengdu, Sichuan province, China on January 9, 2021. REUTERS/Yilei Sun

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HONG KONG, Aug 25 (Reuters) – China’s premium electric car maker Neo is taking an unusual route. Founder and CEO William Lee hoped that Nio’s attractive services would capture market share for a loss-making company with cheap products. But the strategy also increases the risk of prolonging the path to profit.

Lee built his $32 billion brand by going the extra mile to wow customers. Nio buyers enjoy amenities including access to private clubhouses, and can opt in to services such as battery-leasing and battery-swapping, which reduce charging time from around 30 minutes to three minutes.

When the Neo first went on sale five years ago, a little luxury helped convince consumers to try new technology from an unknown brand. Today, its services set the Neo apart in an increasingly crowded field of automakers. That will be even more important from September when the Neo launches a new, cheaper model priced at around 300,000 yuan, about $44,000, to compete with Tesla’s ( TSLA.O ) popular Model 3.

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Affordable models would ideally allow Nio to increase volume and approach profitability, but exceptional after-sales services drive up costs and undermine economies of scale. In the quarter ended March, while vehicle revenue rose 25%, the company’s operating loss jumped 640% to $345 million from a year earlier. Management partly attributed the increased costs to battery-swapping. Nio is committed though. It is currently implementing a plan to add thousands of new features over four years, and similar services will be available to buyers when it introduces a mass-market brand in 2024, Lee said in June without elaborating.

Neo isn’t the only car company investing in infrastructure and services to encourage electric car adoption. Everyone from pioneers Tesla and Xpeng ( 9868.HK ​​) to venerable Volkswagen ( VOWG_p.DE ) own or operate charging stations. However, as extreme as Neo is, it even goes so far as to send mobile charging vans that meet motorcyclists on the road.

May be wary of Li Xtra as it goes down the market. Neo could also continue to offer battery lease options or loans, reducing car buyers’ upfront payments by about a fifth, without involving regular battery swapping and infrastructure investments. Alternatively, it could raise prices, but that could interfere with its drive for more accessible and affordable models. More general customers will bring richer challenges.

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Contextual news

Chinese electric car manufacturer Neo will hold its annual general meeting on August 25.

Neo’s new mass-market brand, expected to launch in 2024, will have models priced from 200,000 to 300,000 yuan, about $29,000 to $44,000, founder and chief executive William Lee said in a June 9 conference call. “Will support battery swapping”, Lee added, without elaborating. Battery swapping is a service where drivers can exchange car batteries for freshly charged Powerpacks instead of charging the battery via a plug.

Separately, Nio expects to deliver the first of its new ET5 models in September, the company said in a press release in January. The vehicle with battery will cost 328,000 yuan, or 258,000 yuan for customers opting for Neo’s “battery-as-a-service” subscription, it added.

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Edited by Thomas Shum

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias.

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