Skip to main content

EV startup NIO abandons plan to make its own cars

EV startup NIO abandons plan to make its own cars


The company won’t build a factory in Shanghai after all, and is off to a slow start in 2019.

Share this story

Photo by James Bareham / The Verge

Chinese EV startup NIO no longer plans to make its own cars, the company announced Tuesday. Plans to build a factory in Shanghai — where Tesla is currently constructing the third Gigafactory — have been scuttled, and NIO will instead continue using its current contract manufacturer, state-owned automaker JAC Motors.

It’s a stark change in direction for the young company, which started making its first car, the ES8 SUV, for the Chinese market last year. NIO also just went public on the New York Stock Exchange in September 2018.

The company announced the news in a stock exchange filing, where it shared its full financial results for 2018. NIO generated $720 million in revenue last year, but ultimately lost $1.4 billion, which is about double the company’s losses in 2017.

NIO lost $1.4 billion in its first year of production

NIO’s Shanghai factory wasn’t supposed to open until at least 2020, and so the company tapped JAC Motors to build the ES8 (and its next car, the ES6) so that it could get cars on the road in the meantime. In one sense, that paid off, as NIO is one of the only high-profile EV startups to follow Tesla in putting cars on the road. NIO says JAC Motors made 12,775 ES8s in 2018, and that 11,348 were delivered, beating the EV startup’s own targets for the first year of production.

But NIO paid a price in order to have JAC Motors make its cars. NIO disclosed in financial filings last year that JAC Motors receives a fee for every vehicle that comes off the line. The EV startup also has to compensate JAC Motors for any operating losses during the first three years of the deal. NIO had already paid JAC Motors about $14.5 million when the EV startup went public in September, well before production ramped up. The company did not include an updated number in Tuesday’s filing. It’s not clear if the terms of the deal with JAC Motors have been renegotiated.

NIO chief financial officer Louis Hsieh said on a call with investors Tuesday that joint manufacturing efforts like this are “endorsed and perceived as an innovative manufacturing model in China,” especially by the government, which is currently pushing for consolidation. NIO also said the joint manufacturing plant run by JAC Motors will be capable of handling the “capacity and flexibility” the startup needs to support its plans for the next few years, and Hsieh said the move will allow NIO to take the money it planned to spend on its factory and focus it on the current manufacturing efforts.

At least one analyst who follows NIO closely wasn’t convinced. NIO “doesn’t sell enough cars to warrant [captial expenditure] expansion,” Chinese automotive industry analyst Junheng Li said in an email to The Verge. Li recently wrote a note to investors slamming NIO’s early efforts, while calling it a good opportunity for traders who want to short the stock. “This is not a real company. It’s experimental at best,” she said.

In the short term, NIO is warning its new public investors that it could be in for some rough waters. While the startup exceeded its production and delivery goals for 2018, NIO experienced a “greater than anticipated slowdown” of deliveries in the first two months of 2019. The company also announced that it will stop issuing monthly production and delivery numbers, and instead will update investors every quarter moving forward.

NIO has to pay JAC Motors for every car it makes, and also cover the state-owned automaker’s losses

The Chinese startup attributed the slowdown to three things. One is that the company accelerated its deliveries at the end of 2018 in order to get ahead of EV subsidy reductions in China in 2019. The second, NIO says, is that January and February are typically slow months for car sales (an argument Tesla CEO Elon Musk recently used to explain slow Model 3 sales at the start of the year), especially because of Chinese New Year celebrations.

The third reason NIO offered for the slowdown, though, is something very much out of the company’s hands. Last year, car sales in China dropped for the first time in nearly 30 years. And the ongoing trade war with the United States has further hampered the country’s economy.

This “current slowdown of macro-economic conditions in China, particularly in the automotive sector,” affected early 2019 deliveries, NIO says. The startup also admitted that this slowdown might not let up.

“We also expect deliveries in the second quarter 2019 to reflect continued weakness as we await the results of the 2019 EV subsidy policy in China and improvement in the macro-economic conditions,” NIO says.

Dozens of EV startups have risen in Tesla’s wake over the last few years, and almost all of them set out with ambitions to build their own gleaming factories. Many of them have run into problems. Faraday Future abandoned a plan to build a $1 billion factory in the Nevada desert, and ultimately settled for an existing facility in California before recently running into dire financial trouble. Lucid Motors spent more than a year looking for a big financing round to help get its own factory built in Arizona before Saudi Arabia came along with more than $1 billion. Even Tesla, the most successful EV startup to date, has a long history with “production hell.”

Update March 5th, 7:30PM ET: Added information from NIO’s investor call, and comment from analyst Junheng Li.