Nio Cuts Prices for Its Cars. What to Expect?

The main reasons behind joining the price reduction trend and canceling the free battery swap benefit in the future may be because first, the continuous deterioration of sales volume is expected to affect further NIO's profitability; second, NIO may be planning for the potential cash flow of battery swap stations, which the company has already invested a tremendous amount of money.

1. NIO's Sales.

Since February this year, NIO's sales volume has been continuously declining, from 12,000 units per month slashed to 6,000 units. From NIO's sales guidance for Q2 2023, the company expects to deliver between 23,000 and 25,000 cars in the second quarter, which means that the overall sales volume of June is still hovering around 10,000 units, so the overall sales volume in the second quarter is worse than that in the first quarter. Therefore, boosting sales has become the first priority for the company.

2. The Battery Swap Stations

So far, NIO has established 1,468 battery swap stations, with an average of more than 45,000 daily battery swaps. More than half of the users use battery swaps to supplement their energy needs. Calculated based on NIO's 100 kWh battery package, the average charging cost during daytime is about ￥130-￥150 RMB. Previously, NIO owners with the benefit could enjoy four free battery swaps per month, while the cost of a single battery swap was ￥180 RMB (later changed to a fee based on the capacity of the battery swap and the corresponding electricity price and service fee). Compared with the price range of ￥90-￥180 RMB for charging, the battery swapping mode is more expensive but still acceptable.

Nio's decision to "cut non-core projects is too slow," analysts at China Merchants Bank International said in a note Monday. "It now 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.”

To offset the four free battery swap services per month with￥30,000 RMB may have a short-term impact on single-car revenue and profitability. However, for NIO's battery swap business, if car sales rebound, it may have a positive impact on the future cash flow of the battery swap stations. Just like Tesla's FSD paid service, only when Tesla's product sales reach a certain scale will such services attached to the product have profitable value.

Source: NIO, CNBC