Nio co-founder predicts big gains in sales, battery swap stations

Supply chain issues and COVID-19 restrictions in China slowed Nio's rapid growth in 2022, but even during an off year the Chinese EV startup's global sales jumped by more than a third. This year's target is much tougher: The Tesla rival aims to increase its volume by more than 60 percent to over 200,000, said Lihong Qin, who is one of Nio's co-founders along with William Li. Qin, who is the company's president while Li is CEO, has an even more ambitious goal when it comes to increasing Nio's network of battery swap stations in Europe and China. He shared Nio's plans for Europe, the United States and China in an interview with Automotive News Europe Managing Editor Douglas A. Bolduc late last month prior to the opening of the automaker's first dealership in Frankfurt.

Nio's vehicle deliveries rose 34 percent to 122,486 in 2022. Will you have another 30 percent increase in 2023 or will that number be even higher?

Since we delivered the first car in 2018, we had doubled or nearly doubled our sales every year, but in 2022 we did not achieve this. That was because of supply chain issues and COVID-19 restrictions in China that cost us some volume last year. But for this year, I think we can nearly double that number, hopefully getting to more than 200,000 globally. But this won't be easy because a lot of the challenges are still there.

What are the main challenges?

Supply chain issues continue because the car industry is shifting to electrified powertrains. That has had a big impact on the price of raw materials used for the battery packs. For example, at this time last year the price for lithium carbonate was $50,000 per metric ton, but last September it rose to $600,000 a ton. The price has since dropped, but it's still around $300,000 a ton. Another challenge is getting enough chips. Cars have become much more technologically advanced. We use more than 1,000 chips per car. And there are dozens of different chips that we need that are sourced from countries around the world. These challenges will have an ongoing impact, but I think the industry as a whole will adapt. It will just take some time.

Nio sold 1,742 cars in Europe last year, according to figures from Dataforce. What is the 2023 goal and do you have further goals for the next five years?

We are not making volume a top priority in Europe. We just recently opened our fourth Nio House in Europe in Frankfurt [joining locations in Berlin, Germany, Oslo, Norway and Rotterdam, the Netherlands]. Before that, we had no presence there. Nio has a business model that emphasizes a very high standard of service for the entire buying and ownership journey. It will take us time to get this ready and widely available. Another very important piece of our infrastructure is our power swap stations [where Nio owners can get a fully charged battery]. This is a new concept and a new kind of building, so we have to work through several layers of bureaucracy to get  them approved. Since the second half of last year, we have opened 13 power swap stations in five different countries in Europe. And I want to build more. That's my highest priority, even higher than opening new Nio Houses, because we know that the range anxiety is still the major obstacle to EV acceptance.

So, do you expect to increase European sales or keep them the same?

It could be more than last year. That would be natural. But I don't want to give a prediction because the volume is not our top priority at the moment.

What is the plan when it comes to power swap stations in Europe?

I want to open another 100 in Europe.

This year?

Yes. As I mentioned, it is a top priority. I realize this is highly challenging, therefore I would be satisfied if we opened at least 70 power swap stations, but I still would like to reach 100. We have an equally ambitious goal in China.

What is that?

We want to add another 1,000 this year. We already have 1,327 power swap stations there.

Where will those 70 to 100 stations be located in Europe?

We have two criteria. The first is the overall size of the car parc in the different countries. Therefore, Germany will be the biggest market for us because of its overall size. The second criteria is related to traffic flow. For example, if we want to please our users in Germany, maybe we need to have power swap stations in Austria that are along the main routes to ski areas or popular vacation destinations.

Should they be, for instance, within 100 kilometers of each other?

I wish we could be that precise, but that is not always possible. What I can say is that to open 100 we need to find more than 300 different possible locations.

Why so many?

Because we have to determine whether we can get the electricity we need, the building permits and other approvals from the local governments as well as the workers needed to build the station and whether the labor costs are feasible. This often includes explaining to local authorities what a power swap station is and then they determine whether it is a permanent building, a temporary structure or some other type of facility.

Now that Nio has a template for the stations in China, after you settle on a location, how quickly can you get the station approved by officials, built and opened?

Best case scenario: four to six weeks. That is down from 10 months. In Europe now it takes about a year to complete this process. But I think that once we have an established procedure and a consensus with the local officials on how they classify a power swap station it should reduce the time to three to four months.

Does Nio plan to cut prices in Europe and China as Tesla has?

No, we don't plan to do that. For us it's about the total cost of ownership for the whole lifespan of the car. For example, we will offer free battery swaps in Europe to Nio customers until at least the end of this year. Even though the price for electricity is very high, we are not changing this offer because we want to keep the customers' costs stable.

Nio's 2022 loss was about $2 billion. What is the outlook for this year? Will you have a similar loss or will it be much less? When does the company expect to reach break-even and when does it expect to make a profit?

It's very hard to predict. If you look at our 2022 annual report, you can see most of the losses came from new businesses that are just getting started. Meanwhile, the core Nio car business was very healthy despite the volatility of the supply chain and chip prices last year. Also, I see the EV industry as a very promising child. If you believe the child has a bright future, you invest in her education and you do not ask her to start earning money at this early stage. That being said, I respect that some investors really want to see a quick win. But I think that we are doing the right things in this big and the promising industry at its very early stage. Tesla is another a great example of this.

How so?

Tesla was founded in 2003 but it didn't achieve a full-year profit until 2020. Now it's one of the most valuable car companies in the world. That is admirable. There are other examples like this in emerging industries. This shows that what is crucial is that your qualifications as a company allow you to have success in the long run.

Is Tesla an example of what you hope Nio achieves in the future?

Yes, but I don't think we will need as many years as Tesla did to become profitable.

Revenue rose 36 percent to $7.14 billion; will that level of growth continue in 2023?

This year our car model mix will be different. We launched the ET5 in China late last September, so it didn't have much of an impact in 2022, but it will play a big role in 2023. Since the model mix has changed, that means the average selling price also could change in a positive way.

What sales level is needed to make production in Europe feasible?

While I can't give an exact number, I think the range would be 50,000 to 100,000 units a year, but it could be even higher. At that level it would make economic sense to start local production. But we would have to calculate that cost against what it costs to ship cars to Europe as well as any tariffs. Right now, overseas transportation is very expensive. The price of a standard container for cars rose by a factor of eight to 10 last year, for example. Therefore, local production is always something we consider. It's just a matter of when and how. We feel confident because we are already manufacturing components for our power swap stations in Europe.

Where?

In Hungary, east of Budapest. We are doing this because to send the pieces needed for a power swap station from China requires us to use a so-called flat-rack container. They are five to eight times more expensive than a standard container. Therefore, initially, we are sending the materials from China and assembling power swap station components locally ahead of us increasing our local sourcing and manufacturing here. This is a good example of our openness to produce in Europe.

What are your plans for the United States?

We have a dedicated team there. It's not very big yet. They are there to understand, analyze and plan how to enter the U.S. market. But we don't have a concrete starting time. We need to get a better understanding of the overall market because the U.S., in terms of legislation and rules, is very different from China, while Europe is more similar. That means if we want to develop a European version of a car, the costs will not be that high as if we wanted to develop a U.S. version. Some fundamental parts of the car have to be changed, so it's a bigger job. This is just one example of the differences. But we take entering the U.S. market very seriously. We think there is a big opportunity there in the future despite the challenges.

Were you at all encouraged by the Inflation Reduction Act, which seemed to be pulling a lot of investment toward development of EVs in the U.S. market?

It depends on which part of the value chain you want to invest. For example, we have had an R&D presence in the U.S. for more than seven years. There have been some ups and downs [the team was reduced to more than 300 from about 600 engineers when Nio hit its first financial troubles in 2019], but overall, it has been a very pleasant experience for us. I also think our R&D presence in the U.S. will increase. But manufacturing as well as sales and service are separate topics that we need to address one by one.

What kind of work is your R&D team doing in the U.S.?

They focus on autonomous driving technologies. The team has won awards for its work and has established itself as a positive and influential player in Silicon Valley. The team is helping us keep the same pace on the technological side as some of the most advanced companies in the world.

Software problems have delayed multiple models at traditional automakers. What has Nio done to avoid problems and delays?

The move to smart cars is a new challenge for the car industry. That is why we decided that the ultimate product for the foreseeable future would be the smart electric vehicle. The long-established OEMs are very good at making vehicles, but for EVs the best representative today is probably Tesla. And we are also doing well because we have our own competence around EV development and the manufacture of e-motors. And when it comes to making cars smarter, this isn't an evolution, it's a revolution, because it's a completely new species. Since we are a startup, we don't have any legacy to maintain, so we can move faster than most of the others. Nio might be the only company in the world that is currently managing several generations of smart platforms.

Could you elaborate?

Our first cars used Nio Technology 1.0. Our new cars use NT 2.0 and by late 2024 or early 2025 we will launch our third-generation smart platform. That means we are maintaining one generation, selling one generation and developing yet another generation. That is three generations of smart platforms. That is huge. Especially when you consider that, unlike a smart phone, which people use for as little as two to three years, a car will need to be able to be updated for 15 years. That's a new challenge. For example, you have to build up a stock of chips so you can continue to update those cars and fix problems that arise. Very few people in this industry realize how complicated this is. That is why more than half of our R&D personnel focus on software and smart technology. It's very important.