This week’s Shanghai Auto Show should be a time in the spotlight for Chinese automakers, but that spotlight has reflected harshly on shares of Chinese battery-electric vehicle (BEV) maker NIO, which this morning hit an all-time low of $4.56 in trading on the NYSE. “All-time low” is a bit of an overstatement since NIO shares were IPO’d only seven months ago, but that is also an important factor. The 180-day lock-up period for related-party shareholders following NIO‘s IPO expired on March 11th, so the recent spate of selling in the stock hasn’t reflected any overhang in secondary shares, real or imagined. No, NIO shares are plummeting owing to a permanent, and never-to-be forgotten truth: the global auto industry is hyper-competitive.
NIO‘s introduction of its ET Preview concept car at the Shanghai Show was totally overshadowed in terms of press coverage by last night’s presentation from Volkswagen. Instead of narrowly focusing on the introduction of one or two models, VW management chose to present a broader strategic vision for its BEV lineup, focusing–not surprisingly given the locale–on models to be produced (and sold) in China.
It’s a Game of Thrones-like message: Volkswagen is coming. Having followed Volkswagen for 5 years as a sell-side analyst and 27 years in total in some form, I know the deep thought and analysis that goes into strategic changes at the German giant. Those of us who have made the pilgrimage to Wolfsburg (not the most accessible city in Germany) have seen the massive resources of this company in action, and while that size often leads to a criticism of the pace of change at VW, there can be no questioning of VW’s commitment to BEVs.
Volkswagen is utilizing its MEB electric-car architecture to design new BEV models, and that architecture will be used to produce vehicles beginning in 2020 at VW’s newly-built plant near Shanghai in Anting, as well as at a plant run by the FAW-VW joint venture in Foshan. The 14 BEV models VW currently has on sale in China essentially can be considered as placeholders for the MEB lineup. They aren’t selling particularly well in China, just as the e-Golf has thus far made almost zero penetration the U.S. market.
Holders of NIO may be afraid of VW’s commitment to BEVs, and they should be. NIO is only selling one model now, the mid-luxury SUV ES8, with a smaller sister variant, the ES6, due later this year. NIO sold a little more than 1,300 ES8s in China in March, actually slightly ahead of my estimates, but VW can make 600,000 MEB-based units annually starting next year. As if that scale weren’t frightening enough, VW has committed to building 11 million BEVs in China by 2028, half its worldwide commitment of 22 million BEVs produced in that timeframe.
But the question remains, as I raised in the Fintech Zoom column, will anybody buy them? The stock market was spooked by Tesla’s 31% sequential decline in deliveries in the first quarter, and, to this point, Tesla’s Model 3 has still not registered in my Chinese BEV sales channel checks. While I will never stop pointing the spotlight on Musk and his company’s aggressive accounting and ineffective processes, the auto industry is much, much larger than Musk and his counterpart at NIO, William Li.
This Reuters article delineates consumer issues with BEVs in China, where electric cars represent a much larger proportion of sales than in the U.S. Those range anxiety and charging time issues are not going away. They won’t, in my opinion, until the introduction of solid-state BEV batteries, which are at least 10 years away, based on my analysis.
So, for niche players such as Tesla and NIO, the onslaught of new models for VW and others is just a reminder of the invconvenient truth facing global automakers everywhere. Musk’s weird Fremont “production hell” troubles aside, it actually is easier to make a car than to convince a consumer to buy one. Thus, oversupply is always a looming problem, and for the global BEV market–especially in China–that is a clear and present danger for carmakers.
Tags: NIO Stock News