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Elon Musk's China nemesis survived once, but he has a fight ahead

Elon Musk's China nemesis survived once, but he has a fight ahead

BY BLOOMBERG NEWS

\ A / illiaiii Li is being mobbed. At a I / gala dinner in Shanghai, the \ I \ I founder of Chinese electric car 1 / 、/ maker Nio Inc can barely move V V forward in the buffet queue be­ fore being stopped for another selfie, hand­ shake or hug. Swapping his usual attire of jeans andT-shiit for a tailored grey suit and blue dress shirt, the tall 46-yeai-old happily A - obliges with a smile. Li manages to spoon a small amount of fried rice and vegetables onto his plate, but he's not here for the food. Over the next three hours, he poses for hundreds more photos, chatting with customers of the auto maker he started just over six years ago and has built into a way of life — at least for the people who buy his cars - with clubhouses, a round-the-clock battery recharging service and even cloth­ ing, food and exercise equipment, all decked out in Nio's geometric logo. As Li works the room, a video backdrop shows six performers, each wearing a different-coloured Nio hoodie, singing a self-composed song dedicated to the company. "Meeting with Nio, we want to be Li having a selfie taken with a fan at a gala dinner in Shanghai better selves," the not-so-catchy ditty goes. While other billionaire executives may cringe at spending their down time glad-hand­ business, but with Nio, Li has sought to create ing customers, for Li this is core. Nio's business Powering Ahead a brand beyond the vehicles,an approach he model relies on creating a sense of allegiance China's electric-vehicle sales are forecast to top 6 million by 2025 describes as “the pursuit of being a user-en­ among buyers, who then persuade friends ■ Battery electric ■ Plug-in hybrid terprise'^ The most visible manifestation of and family to spread the word about its cars. 8M that was the Nio House,an elite drop-in centre Dubbed "Rippling Mode”, the strategy invokes for the company's customers — even offer­ the ever-widening circles caused by throwing ing ai t and music classes for their children a single stone into a pond,he sa旳The scene 6 —and located on prime real estate in some in Shanghai was just what he was aiming of China's biggest cities. It was coupled with

for — a passionate customer base with the 4 extravagant marketing events.The car maker loyalty of Apple Inc fans, and a dash of Elon holds annual Nio Days, and at the first in 2017 Musk cult-of-personality thrown in. paid for flights and luxury hotels for everyone It is an approach that has turned Nio into who ordered a vehicle a year before production Musk's most visible nemesis in a country that started. R&B star Bruno Mars headlined the seems to be minting Tesla adversaries every 2018 event. When its public charging faciEties other day. While other electric vehicle (EV) are overwhelmed, Nio has a fleet of cars that companies may pump out more cars aimed can take portable battery chargers to users at the mass market, Nio is targeting the pre­ wherever they're parked. Source： BloombergNEF Bloomberg mium buyers that Musk — who established Such largesse, along with a major recall his first Gigafactory outside the US on the after some cars caught fire just as China shift­ outskirts of Shanghai in 2019 — needs to re­ ed subsidies from EV purchases to support alise his ambitions for global growth and of them SU\ft,inthe first quarter at an average battery-powered passenger vehicles jumped the charging network, saw Nio rack up US$5 long-term profitability; China is ground zero price of US$68,000 (RM279,479) while Tesla 10% to 1.11 million last year, despite the hit billion of losses in its first four years of exist­ in the transition away from gas guzzlers to shipped around 1^000 of its Model Y SUV in from the pandemic-one that will challenge ence (Tesla took about 15 years to reach that alternative-energy cars,with the government China,which starts at around US$53,000. Nio's both Nio and Tesla,and set the stage for global particular milestone). By the second quarter intent on dominating a new automotive era share of the overall China market for high­ control over the future of cars. of 2019, the company was losing around US$5 that has triggered an onslaught of investment er-end cars is second only to Tesla, according After years watching from the sidelines, milEon a day. over the past six months and that even the to Kang Jun, an analyst at consultancy LMC the auto-making giants are doubling down “It was our darkest time,“ said Li. A team US is now embracing. Automotive, and it has set a “benchmark” for on EVs, with Volkswagen AG launching an met nightly to comb through expenses, from The biggest car market on the planet, Chi­ the wider EV space, "particularly in product eight-car range from its platform designed salaries to tiie cost of Nio Houses. "It was easy na is already the world's largest for EW. Sales and service innovation". for battery electric cars in China,Toyota Mo­ to calculate how much we could earn from will reach two million this year and surge to Tesla has also faced a raft of setbacks of tor Corp unveiling a new EV platform and selling cars, but we had to mind everything 6.2 million vehicles by 2025, when they will late in China,w hich accounted for more than premium car makers such as BMW AG aim­ to sustain a normal operation/ he said. "Every account for a quarter of all passenger car sales 20% of all revenue last year. Increased scrutiny ing for one-quarter of all Chinese sales to be dollar counted." in the country, according to BloombergNEE from local regulators has been accompanied electric.At the same time, Big Tech is eyeing By October 2019, it looked like the gig was Urbane, early adopters in China's biggest by a rising backlash againstTesla and its cars, the sector, lured by the technological possibil­ up.A fter posting a worse-than- expected quar­ cities have been at the heart of that transition, culminating in one owner climbing on top of ities. Chinese search-engine titan Baidu Inc, terly loss, Nio's shares plunged to a record low and are prime targets for both Nio and Tesla. a Model 3 at the recent Shanghai Auto Sho\% smartphone maker Xiaomi Coip and network of US$1.32.At its nad%the car maker had lost Nio's premium ES6 SUV competes head to claiming the company had failed to address giant Huawei Technologies Co have pledged more than 70% of its market capitalisation — head with the sporty Model Y thatTesla started issues with her vehicle's brakes.The protest, almost US$19 billion to the EV and autonomous about US$5 billion in value — from its New making in China last year.lt is a tussle that is which went viral in China,unleashed a wave driving space since the start of the year alone. York initial public offering a year earlier. front and centre for Li, who in an interview of complaints aboutTesla's customer service, Smaller companies like Nio—vrfiich is list­ Even a US$200 miDion cash injection from with Bloomberg talked about how the eldest the very thing Li — who regularly replies to ed with compatriots Xpe喀 Inc and Li Auto Inc a sale of convertible notes to Li and an affil­ of his two sons, a first grader, wants to follow queries from Nio owners on the company's in New Vbrk,putting them on the radar screen iate of Chinese tech giant Tencent Holdings in his footsteps. app and has taken weekend trips across China of US investors — will face greater pressure Ltd - an early investor in both Nio and Tesla “One da^he told me that he would study to meet customers—has used to differentiate as multinationals enter the fray, said Zhang —wasn't enough to shore up the company's hard and work hard, helping dad beat Tesla Nio in the cutthroat EV landscape. Xiang, an auto-industry researcher at North seemingly insatiable need for cash. when he grows up," said Li. "It's going to be China University of Technology in Beijing. The setbaclcs kept coming. Nio couldn't af­ too late, I said." Battle Royale brewing "It is by no means atime they can rest easy;" ford the hnal payment on an imported stamp­ These days, that prospect is looking less But Tesla isn't the only foe he has to worry Nio has already had one near-death ing presser, a large machine used to shape a like wishful thinking. about. A Battle Royale is brewing in China's experience. car's panels.Worse, it had to sell the presser at Nio delivered more than 20,000 vehicles,all new energy car market — where retail sales of Car making is typically a capital-intensive a discount to Tesla, which promptly installed The Edge Section: World Ad Value: RM 34,732 14-Jun-2021 Size : 1,872cm2 PR Value: RM 104,197

Elon Musk's China nemesis survived once, but he has a fight ahead (cont)

it in its new Shanghai plant, built with loans greatest success, howevei; with the three listed and support facilitated by the government. companies he founded in the past 20 years all Soon after, a deal for as much as RMBIO bil­ *10 related to cars. His first,a vehicle-pricing por­

lion (RM6.4 billion) in funding from a Bei­ . tal called BitAuto Holdings Ltd, was acquired jing local govetnment-backed firm fell apart. last year byYiche Holding Ltd for US$2.8 bil­ Analysts started to openly speculate that Nio lion, propelling his personal fortune to US$7 may be delisted or taken over. The situation billion. That was followed by online auto-fi­ got so dire that in late 2019, He Xiaopeng,the nance platform Yixin Group Ltd, which listed engineer founder of Guangzhou-based Xpeng, in Hong Kong in late 2017. itself in a tenuous position with just RMB3 Then came Nio. In an internal presentation billion cash proposed a merger of the two in 2016, Li recalled looking out the window of struggling electric car makers, according to his apartment at Beijing1s smoggy skies before an interview He gave to Chinese state media. the birth of his first son, and decided some­ Li rejected the offer. thing needed to be done to tackle the country's “Nio was already in the intensive care un让, chronic pollution. He started Nio in late 2014 while Xpeng was waiting outside/' Li recalled. with funding from a group of well-known UA merger would have buried both of us.” investors, including Li Auto founder Li Xiang (Xpeng went on to be the third Chinese EV and Richard Liu, the founder of e-commerce start-up to list in the US, raising US$1.5 bil­ portal JD.com. Xiaomi's Lei Jun was also an lion in August2020,The surge of investment early backer. in the space has seen its shares more than Ihe 100,000th vehicle manufactured by Nio rolls off the production line When he is not dining with super fans, double,even accounting fora recent dip,and Li's workday calendar is packed. On a recent the company is now setting up a third Chinese Tuesday at the company's corporate headquar­ production base to meet demand.) ters —which remain in the slick tinancial Then came the lifeline that showed the The Great Race capital of Shanghai — he spent the morning lengths China will go to maintain its ambi­ Nio's premium price point puts it behind mass-market producers on sales locked in executive committee meetings. In tion of creating a world-leading EV industry: the afternoon, there were more back-to-back In early 2020, the municipal government ■ 0YD ■ Great Wall ■ SAIC-GM-Wuling ■ Tesla ■ Nio meetings with the company's battery partner, 60K in Hefei — the capital of Li's home province designers and clients from Europe. In a first, ofAnhui,about 600 miles southeast of Beijing Nio recently announced plans to start selling —came knocking. Despite the onset of the cars in EV hotbed Norway. coronavirus pandemic, which initially para­ But while the company is on much firmer lysed car sales, a deal was struck in which the ground than 18 months ago,questions remain. Hefei government would lead an injection of “Auto manufacturing has big economies RMB10 billion into Nio, more than the com­ of scale, and at less than 100,000 units a year, pany's entire revenue for 2019. Nio hasn't yet reached the production volume Coming just months after Nio said it to realise all of those efficiencies," said Robert wouldn't have enough money to continue Cowell, an equity analyst at Shanghai-based operating for another year unless it got more 86Research. Apr Jun Jul Aug Oct Nov Dec Jan Mar funds, the agreement essentially provided the Cost issues linger,with the price of raw ma­ 2020 2021 company with a state-backed security blanket. terials used in batteries—the most expensive That can be a key advantage in China, where Source: CAIN Bloomberg part of an EV；including lithium-ion compound the government is the biggest player in almost —soaring in recent months. Like most glob­ every industry and has a hand in everything al auto makers, Nio has been hit by a world­ from manufacturing permits to access to cap­ wide shortage of the chips used increasingly ital. It could also provide a decisive edge over lyst Robin Zhu/'put speculation around Nio's billion in revenue from non-vehicle sales last in modem cars, leading to the suspension of Tesla, which seems to have lost the favour funding issues to bed, at least in the foresee­ yeagaccording to the company's annual report. production in Hefei for five days at end-March. it enjoyed early on with Beijing, as tensions able future”, he said. "To enter the car industry and survive And despite the intensifying competition in with Washington continue to simmer under Li, though, also credits his loyal customer isn't easy," said Jochen Goller, BMW's China an industry defined by technological advances President Joe Biden's administration. base. uWe sold over 8,000 cars in the fourth CEO. "Some others have disappeared. I have and consumers drawn to the next shiny thing, For Nio, the quid pro quo was supporting quarter of 2019, which was pivotal to our sur­ met with William Li a couple of times and I Nio isn't planning on unveiling any new mod­ local industry.The company abandoned plans vival,w he said, tfThat*s why I always say that have to say I am impressed by what he has els until late this year or early 2022. to build a factory in Shanghai in early 2019, our customers saved us. Even ifw e sold 500 or achieved. Nio is also creating awareness of While Tesla is the main competitor in view, and instead — unlike Tesla and most tradi­ 1,000 fewer vehicles,that could have triggered battery cars, and having the right brands in it is the rivals to come that Li sees as the big­ tional automobile makers — it pays a govern­ a total collapse." the segment is helping the market.” gest threat. "'The final game won't start until ment-owned manufecturer in Hefei called Ji- Still, the experience was chastening. Nio The Hefei deal also came around the same the tech giants are in,', he said. anghuai Automobile Group Co (JAC) to make cut about a quarter of its workforce, slowed time as investors cottoned on to the EV rev­ In March,Xiaomi unveiled plans to invest its cars. The deal was extended last month its efforts in autonomous driving, delayed olution, putting a rocket under Nio's shares. about US$10 billion in manufacturing EVs, for another three years,with JAC agreeing to wage payments for managers and spun off They surged more than 1,110% last year, best­ while Huawei has collaborated on at least two double monthly capacity to 20,000 vehicles. some non-core businesses. While the roll­ ing even the rally that propelled Tesla into cars and is developing autonomous driving “When William Li brought his proposal to out of the costly Nio Houses was suspended the S&P 500.The stock has given up some of technologies. Lurking in the background is us, most people thought it was a fantasy that a for more than a year, the strategy of putting those gains since as enthusiasm has eased, the biggest tech giant of all— Apple - which Chinese car maker planned to build first-rate Ni。ownership at the centre of an owner's but with a market value of US$70 billion, Nio has long harboured ambitions to make its intelligent electric vehicles/, said former JAC lifestyle and creating an aura of exclusivity is still bigger than Ford Motor Co. own self-driving car. chairman An Jin. "I may be the person with wasn't forsaken, with more modest Nio Spac­ “I trust companies like Apple for their deter­ the best knowledge of how Nio came along, es rolled out. Usually around 100 to 200 sqm Humble beginnings mination, software development, intelligence with all the challenges and difficulties. In its (1,100 to 2,150 sq ft), Nio Spaces are located in It is a long way from Li's relatively humble capability and user connection. It's going to hardest time, William even devoted his own cheaper locales and also sometimes in small­ beginnings. Raised by his grandparents in a be a different competition from traditional money to solving the problem-ThaVs how he er cities.They cost about RMB1 million to set small village in the hills ofA nhui, known for car companies," said Li. fought for his dreams." up, much less expensive than the more salu­ farming and — more recently — the automo­ But like Musk and other EV evangelists, At an April 7 ceremony to mark the pro­ brious Nio Houses. bile industry Li calls himself one of China's Li is looking at the long game, "I'm very op­ duction of Nio's 100,000th vehicle, Li said he It seems to have worked — for now. Nio "first generation of *left-behind' children" timistic," he said. "By 2030,90% of the newly would work with the Hefei government to has yet to turn a profit but its sales have risen because both his parents moved to the neigh­ launched cars will be electric, or even 95%：' establish an intelligent-vehicle production steadily since — topping US$1 billion for the bouring province of Jiangsu to pursue better For the Nio fans gathered in Shanghai that base, including an R&D facility. Construction first time in the three months to Dec 31,2020. work. There was no electricity in the village Sunday evening, that future is already here. started later that month, and the industrial The company narrowed its net loss in the first until he was in his teens. With the event drawing to a close, owners park is expected to eventually house manu­ quarter of2021 to RMB451 million, dcwn from While majoring in sociology at Peking Uni， pose fora large group photo with Li at its cen­ facturing workshops, along with other players RMB1.69 billion a year earlier and RMB1.39 versiWone of China's top colleges, Li started tre, everyone flashing thumbs up.As the lights in the EV supply chain. billion in the fourth quarter of2020. Even the his first business — leasing internet servers dim,he slips out of the hall and into the night, The Hefei pact,described as a government businesses that underpin Nio's lifestyle brand and helping clients register domain names. wherehisdriver—in a white Nio ES8 —waits bailout by Sanford C Bernstein^ senior ana- are making money, contributing to RMB1.1 The auto industry is where he has enjoyed his to take him home. — Bloomberg □