In China, an Electrical Automobile Maker Loses Cash however Thinks Massive

HEFEI, China – Walk through the sprawling auto factory in central China and the wealth that flows into the country’s electric car industry quickly becomes apparent.

Rows of bright orange robots 15 feet tall – 307 of them, mostly from Sweden – buzz with activity. They glue lightweight aluminum panels to vehicle frames with aerospace-grade adhesives. In an industry where speed can mean cost efficiency, the assembly line moves at half the speed of many other lines.

Even by the standards of the global auto industry at $ 1.6 trillion, such an operation is not cheap. In fact, the factory’s Chinese operator, a company called Nio, is losing thousands of dollars for every car it makes. State corporations raised a combined $ 2.7 billion last year to bail them out.

But Nio or Chinese companies like it could be the future of the global auto industry. General Motors and other big names are increasingly betting that the next generation of drives will run on batteries without a drop of gasoline or diesel. If so, China has invested so much money in industry that it could easily step on the accelerator.

An era of high-quality family electric cars that cost $ 25,000 or less is upon us, said William Li, chairman and general manager of Nio, and Chinese automakers can provide them.

“I don’t think it’s difficult,” said Mr. Li. “It’s not a big deal.”

Investors see promise in Nio even though it has a factory that only sold about 7,200 cars last month and never made a profit. Its market capitalization of $ 82 billion, exceeds that of GM and Ford. New York-traded stocks have increased nearly 30-fold over the past year.

It is far from becoming China’s leading electric car maker. In fact, the two top-selling electric car brands in China have American ties: Tesla, the maker of amusement rides with price tags that can easily run into the six-figure range, and a joint venture between GM and two Chinese state-owned companies that makes $ 5,000 worth of microcars .

But Nio has the advantage of being able to leverage China’s large and well-funded supply chain for electric vehicles. While President Biden ponders how much the United States should invest in electric cars, China already has 14 years of sustained government investment in the sector. China has been using regulations for more than a decade to force multinational corporations to transfer their best electrical technologies to joint ventures with Chinese manufacturers to enter its vast market.

China produces 70 to 80 percent of the world’s battery chemicals, battery anodes, and battery cells. Similarly, China controls most of the world’s production of high-strength magnets for electric motors, as well as the assembly of those magnets into motors.

“China controls the cards in the battery supply chain,” said Vivas Kumar, a former Tesla manager for battery materials.

Nio is able to cost-effectively order parts from China’s diverse electronics manufacturers and auto parts suppliers. In November, the company bought out its minority partners and took full ownership of XPT, a company that designs and assembles battery packs and electric motors for Nio and other automakers.

Nio has only 120 engineers who manage its assembly plant in Hefei, the capital of Anhui Province in central China. Then Nio pays JAC, a state-controlled automaker also based in Hefei, to send 2,300 skilled assembly line workers to run the factory.

The approach has drawbacks. When demand spiked last summer after China largely got the coronavirus under control, Nio found that some suppliers weren’t prepared to ramp up production quickly. The buyers suffered months of delays in delivering the cars.

“We have a very small inventory close to zero,” said Victor Gu, general manager of the Nio factory. “It’s a big challenge for the factory because you need a quick turnaround.”

Under its brand, Nio also offers expensive customer incentives such as its Nio stores. Essentially clubhouses for owners of the cars, they offer cafes, libraries and even free daycare. They are moving into expensive properties in 19 Chinese cities, including one at the foot of East Asia’s tallest building, the 128-story Shanghai Tower.

For a while, Nio also offered an extravagant perk: charging any Nio car for free for a customer’s life, as long as the customer continues to buy Nio cars and take them to one of the company’s 183 battery swap stations. While a customer is having a coffee, a technician swaps an empty battery for a fully charged one.

“It only takes about five minutes and it costs nothing,” said Neo Fan, a 38-year-old Shanghai commercial banker who paid $ 83,000 for his Nio ES8 minivan and is entitled to free top-ups for the rest of his life.

Extravagance and the pandemic have brought Nio’s finances to their knees. The company lost $ 11,000 for every car sold from July through September.

Government companies have come forward to help. State-owned companies in Hefei joined a national state-owned mutual fund last spring and paid $ 1 billion in cash to acquire a 24 percent stake in the company. On July 10, the state-owned China Construction Bank led a consortium of banks that granted Nio US $ 1.6 billion in loans.

Nio chairman Mr. Li defended his company, portraying it as a start-up, noting that it took Tesla many years before it managed to generate a fourth consecutive quarter of profits last summer. “We are very happy for Tesla, but this only happened after 17 years,” he said in an interview last fall.

While at some point Mr. Li envisions electric cars for $ 25,000 each, Nio’s cars are now just as expensive as Tesla’s. Nio’s entry-level sedan, the ET7, has a starting price of $ 58,500 with a 70-kilowatt-hour battery that can travel the car 310 miles. Nio is planning a new ET7 model with a much better battery late next year that will double that range.

The company is keen to make its cars lighter to improve range. Nio estimates that replacing steel with expensive aluminum will save £ 700 on every car. Nio uses part of the weight saving to add other devices, e.g. B. two electric motors in each car instead of one. This ensures better vehicle handling, but also increases complexity and costs.

With Nio, buyers can customize their cars, including six types of wheels, eleven colors, and so many other options that the factory can drive a month without two identical cars. This forces workers to constantly change their routines.

Mr. Gu, the factory’s general manager, said his operations were designed to run at only 20 cars an hour. Many automatic assembly lines run twice as fast.

Nio has had little trouble finding money lately. Additional shares were sold in New York in December, raising $ 2.6 billion. That’s enough money to build a number of factories – and Nio is already planning to expand production significantly.

Government support for electric cars is still vital, and Nio officially appears to be in good shape.

A breaking news came in September when a former senior Communist Party official Li Yuanchao unexpectedly visited Nio’s display at the Beijing Motor Show. Mr. Li was replaced as China’s Vice President in 2018, but remains prominent.

“It was my first time to speak to him,” said Mr. Li, Nio’s chairman, afterwards. “He actually made a lot of suggestions about battery technology, how to replace batteries.”

Claire Fu, Liu Yi, and Coral Yang contributed to the research.

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