NIO will begin locking in orders for the ET7 on January 20, 2022, and deliveries will begin on March 28.
Editor's note: This is a guest post from Rafi Khan, an NIO investor, and does not represent the views of CnEVPost.
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Over past 120 years, global supremacy in the auto world has resided in the U.S., Japan & Germany.
In 2021 TSLA displayed the capability to challenge world order in broader appeal EVs potentially even threatening the long term existence of many debt-laden legacy ICE OEMs.
Global supremacy in the 10 million premium luxury segment has been the domain for Mercedes Benz, BMW, Audi (“BBA”) for the past 4-5 decades.
Challenges from Lexus, Cadillac, Jaguar, Land Rover were largely set aside.
BBA was considered synonymous with quality, luxury, superior engineering, high performance & reliability.
20 January 2022 may mark dawn of a new era with orders being taken on NIO ET7.
China is largest auto market in the world with 40 percent of BBA sales emanating from the country.
If NIO ET7 can negatively impact Chinese monthly BBA sales of 150,000 by 10 percent, global hegemony of BBA behemoths may see first signs of collapse.
Here are a multitude of reasons why this may happen:
1. Lotteries for ICE vehicle plates – Many major cities in China conduct lotteries simply to get ICE vehicle plates. So in cities like Beijing 3.5 million may apply with only 30,000 being successful resulting in 1 in 100 chance of success.
2. Bid Auctions – Many Chinese cities conduct bid auctions for ICE vehicle plates in addition to limiting number issued. So in Shanghai you may pay an average of RMB 91,000 to win such a bid auction.
3. Vehicle Purchase Tax – To purchase ICE vehicle you need to pay 10 percent tax. There is no tax for EVs.
4. ICE Quota Restrictions – In Beijing only 30,000 of 100,000 new vehicle plate licenses issued will be for ICE vehicles, that is down from 40,000 last year & will go down again next year. Trend is for the major cities to become more & more restrictive on ICE vehicle plate issuance. No doubt if you keep reducing ICE quotas, ICE sales will fall.
5. Driving Restrictions on ICE Vehicles – Over various cities some days plate ending in odd numbers restricted from driving; Some days plates ending in even numbers are drive restricted; Driving restricted by days of week; driving restricted by time of day; driving restricted by area of city (inner city); driving restricted by type of road (freeway); driving restricted if vehicle comes from out of city – Multitude of ever growing restrictions for ICE Vehicles.
6. ICE OEM Production Restriction – All auto companies are mandated to annually produce an increasing percentage of EVs annually or pay a penalty. That has resulted in companies like Volkswagen paying large sums to companies like TSLA to buy EV pollution credits to compensate for their low percentage EV sales. Chinese Govt mandates increasing percentage of EVs produced annually.
7. Govt subsidy for EVs – Only NIO in premium luxury segment (over RMB 300,000), courtesy of battery swap, can expect govt subsidy of approx. RMB 12,000 in 2022 adding to attraction of NIO premium luxury EV Vs BBA ICE & EV vehicles.
8. Dismal BBA EV Products & Sales – TSLA, XPEV, NIO, BYD & LI are all supply chain, capacity strained because of burgeoning demand whilst BBA simply cannot sell EV products they produce.
November 2021 sales of BMW iX3, Mercedes EQC & Audi e-tron were 3174, 548 & 92 totaling 3,814 which was far less than NIO 4,939 sales of ES6 SUV alone. Q4 2021 sales for BMW & MB were down 15.1 percent & 24.6 percent. Q4 MB EV Sales were down a disastrous 27.8 percent. BMW flagship iX3 launched just over one year ago sold 37,939 worldwide in 2021.
- If annual demand was under 40,000 that is a problem
- If annual supply was under 40,000 that is a problem
- If both supply & demand for global behemoth BMW for its flagship offering was under 40,000 – then that is an impending disaster.
9. BBA new product offerings highlight lack of market reality – BMW IX recently showcased at Guangzhou Auto Show in November has starting price of RMB 846,900 double price of ET7 with similar or inferior HP, acceleration & range. Mercedes EQS starts at RMB 1,079,000 with a single motor. NIO disdains from any single motor offerings.
BBA does not seem to understand that simply doubling price with inferior technology products is recipe for marketing disaster which will not work in new EV world. Meaningful competitive products with price/performance attributes are not apparent from BBA and even ET7 copycat versions from Chinese companies that will launch in 2022 do not have NIO's unique BaaS/battery swap/NIO House/brand name/user experience combination & attraction.
10. Premium luxury segment is primarily domain for sedans – Heart of premium luxury segment are sedans. XPEV sales are 80 percent sedans. BBA reputation was built on sales of luxury sedans. TSLA Model 3 sedan is fast moving towards being world's top seller (ICE or EV).
NIO has crushed BBA with 43 percent market share in premium luxury despite having only 3 SUVs & NO sedans. ET7 sedan gives NIO a new dimension & threatens to be lethal dagger to the heart of BBA sales & their hegemony.
11. Replacing leased Audi A6 fleet – Consistent with MIC 2025 new leased Audi A6 will not be acquired reducing BBA ICE sales with ET7 uniquely positioned to be major beneficiary.
12. Beauty of BaaS lower price entry – In contrast to paying bid auction price plus 10 percent VPT, NIO EV buyers can get RMB 70,000 to RMB 128,000 reduction in EV entry price by opting for BaaS purchase by leasing EV battery.
BaaS may typically cost $12,000 to $20,000 less in EV entry price avoiding replacement costs double those amounts (Mercedes EQS battery replacement cost $46,000) eight years later, so no doubt premium luxury NIO BaaS EV will have lower entry price & depreciate at much slower rate than BBA EVs.
13. Beauty of battery swap EV upgradeability/ No charging line waits – You consider yourself to be elite upper middle class in China. You buy premium luxury EV for RMB 500,000 & then 2-3 times a year face potential of long acrimonious wait times at charging piles. Such scenarios have created nationwide furor. This is perfect backdrop to launch of first true premium luxury sedan – NIO ET7 offering battery swap.
Also many of the “elite” like to have the latest & best EV battery specifications. NIO battery swap enables these “elite” to seamlessly upgrade to latest & best EV battery.
14. NIO Life/ NIO Community – A sizeable online mall with exquisite products, dozens of categories and thousands of items in premium/luxury category. Over one million NIO Life items were shipped in 2020 alone.
In contrast, Tesla also offers some items in their app, but only car products including chargers and other products like whistles, the number of products seems to be only dozens.
Attraction of NIO Life is why new users in 2021 were close to one million even though only 90,000 NIO EVs were sold. That additional 900,000 that joined NIO Life but did not buy NIO EVs will be fertile ground to persuade consumers to buy ET7 & not BBA ICE or EV products. NIO community is going through its own S-Curve.
15. NIO House – China has fastest growing upper middle class plus historically highest savings rate amongst its populous. These nouveau rich crave for their new acquired status recognition which makes the 40 NIO Houses, in major cities to which they gain access with NIO EV purchase a highly attractive feature in EV purchase package. Shanghai alone has 5 NIO Houses.
16. NIO Service — Battery boost; tire change; accident help; pick up your EV & give you replacement; breakdown service even a boost to low tire pressure – All services are simply one phone call away for NIO owners. NIO service is unmatched & that is why NIO service is taken up by two-thirds of NIO owners.
17. NIO Blue Point Program – Owners need to sign an agreement with NIO on NIO App to authorize their carbon reduction to NIO and receive corresponding NIO Credits. NIO may be only EV company with such a program.
Ability to daily monitor carbon emissions savings gives NIO owner sense of participation. Do your share to save the world as part of NIO community & ECO system!
18. Appealing Infrastructure – NIO already has close to 800 battery swap stations. Cost of battery swap station may be $240,000 paid for by NIO Power. NIO has approx. 20 percent ownership of NIO Power. So NIO may actually only be paying approx. $50,000 per additional battery swap station.
So even adding 1000 additional battery swap stations in 2022 may only cost NIO $50 million. Cost of perfectly located priceless land for battery swap station from Sinopec, Shell, malls, freeways, cities & states is largely free.
Term of BaaS contract is for life of EV so whilst NIO Power may be able to pay off battery cost in 5-6 years, monthly premium from leased battery may accrue for 30-40 years – for life of EV. Also NIO Power fully pays NIO for EV battery once BaaS contract is signed.
19. Brand Appeal – NIO leads the entire auto world in J.D. Power Quality, Customer Satisfaction ratings. NIO has never heard of before existing owner referrals for new NIO EV purchases. NIO has earned numerous brand value accolades & NIO / ET7 have won many design awards.
Clear indication of brand value & increasing brand value is the average selling price (“ASP”) of NIO EVs is approx. 2xXPEV, 1.5xTSLA, higher than BMW & Audi plus has increased from RMB 413,800 for period Jan to November 2021 to RMB 443,500 for December 2021. In China there seems little doubt that NIO is as equally highly rated as BBA & far more so in EVs.
Combining above 19 factors gives ET7 outstanding chance to make big dent in BBA Chinese monthly ICE & EV sales of 150,000 before attacking BBA on their home turf in Germany later in 2022.
Consequences of above 19 Factors?
- 10 percent plus fall in BBA ICE sales.
- Continued dismal BBA EV sales.
- Rapid move towards June 2022 & later for delivery dates of ET7 from initial March 28th 2022 date.
- Announcement of additional phases & expansion of capacity at NeoPark because if ET7 is super successful, you can be pretty sure that lower priced ET5 numbers will be even bigger.
- Pressure on big auto to consider battery swap as they try find a solution to losing market share to NIO.
- Expansion of NIO vehicle profit margins towards 25 percent.
- Beginning of end of BBA global behemoths hegemony.
Financial world will not have to wait long time to see if all of this is happening – Pretty much we should have a lot of answers revealed with BBA January 2022 Sales & ET7 orders.
Currently William Li / NIO know no more than anyone else as to what will happen from January 20th on ET7 Orders.
All the hoopla, reviews, presentations, awards mean nothing.
Only thing that matters & will matter are Chinese consumers putting up their cash for ET7 orders & in what numbers.
Plus William Li's obsession to continue to provide NIO owners with ultimate user experience.
If this happens plus ET7 orders at the rate of over 10,000 per month.
Then 20th January 2022 will become pivotal day for new period of global supremacy in premium luxury segment with NIO well placed for leadership role.
Not a financial advisor nor auto analyst JMHO DYODD.