Nio, a Chinese electric car company that competes with Tesla, currently has 11,000 employees working on research and development. However, despite its large workforce, Nio only sold 8,000 cars per month from April to June. The company heavily relies on robotics in its factories, with one factory employing just 30 technicians to produce 300,000 electric car motors annually. Nio offers augmented reality glasses for $350 per seat in its cars and has introduced a cellphone that interacts with the car’s self-driving system. Unfortunately, none of Nio’s endeavors have been profitable. In fact, the company reported a loss of $835 million in the second quarter, equating to $35,000 per vehicle sold. Nevertheless, Nio and other Chinese electric car companies benefit from strong government support that allows them to sustain such losses and continue growing. When Nio faced a cash shortage in 2020, a local government injected $1 billion for a 24% stake, and a state-controlled bank led a group of lenders to provide an additional $1.6 billion. Today, Nio represents China’s dominant position in electric vehicle innovation and manufacturing, posing a threat to traditional auto powers in Europe and the US.
On the other hand, the ongoing strike by the United Automobile Workers union against three Detroit carmakers revolves around electric vehicles. The companies argue that they need to invest billions of dollars to retool their operations, while workers aim to protect their jobs from automation and technology while demanding higher pay. European politicians, alarmed by the surge in Chinese exports, have launched an investigation into whether Chinese electric car manufacturers received government subsidies, potentially leading to tariffs. China’s electric vehicle exports to Europe have increased by 851% over the past three years. However, this inquiry is geopolitically complex, as many of Europe’s major companies have ties to the Chinese market, and China is prepared to retaliate.
Nio, which extensively markets its products in Germany and Europe, relies on exports to sustain itself. The key question is whether Nio can generate enough car sales to justify its substantial investments in research and development. While American and European automakers struggle to catch up to Chinese companies, China excels in battery technology and electric motor production. Chinese automakers lead the world in developing new battery chemistries that enable long-range driving at a lower cost. They also excel in creating efficient systems that integrate batteries and motors. Consequently, China has rapidly expanded its electric car component manufacturing capacity, causing electric car prices to fall below those of gasoline-powered cars. Additionally, wages in China tend to be lower than in the US and Europe, providing Chinese automakers with another advantage.
In terms of automation, Chinese car manufacturing has become one of the most automated in the world. American automakers are increasingly relying on Chinese suppliers for industrial robots and automation technology. Paul Gong, head of Asia automotive research for UBS, predicts that Chinese automakers will capture a third of the global car market by the end of the decade, with a significant increase in market share in Europe. Chinese technological advancements have led some European automakers to form partnerships, despite competing with Chinese exporters.
However, not all Chinese electric vehicle companies are experiencing financial losses. BYD, the leading electric car manufacturer in China and globally, tripled its profit to $1.5 billion in the first half of this year. BYD’s success can be attributed to its efficient manufacturing and battery production capabilities. The Chinese market is anticipated to see a significant increase in exports from BYD, as the company has ordered its own fleet of large transoceanic car-carrying ships from Chinese shipyards. Chinese brands are also experiencing surging auto sales in markets worldwide, except for the US, where they have a negligible market share.
The Chinese government continues to support the electric vehicle industry, with Chinese companies constantly working on technological improvements. Nio, for example, recently introduced new car models and augmented reality glasses to increase sales. The company’s average monthly vehicle deliveries increased to 18,477 from July to September. Nio also launched its own brand of cellphone that integrates with the car’s self-driving functions. The ability to replace cellphones more frequently due to technological advancements presents an advantage for the electric car and smartphone industries. Chinese electric carmakers persevere despite initial losses, with Nio’s chairman and CEO stating that investments in technology are necessary for the company’s growth.
