Some buyers would naturally be concerned about the residual value of a new brand, and a monthly subscription option allows customers to try out the cars, according to Edison Yu's team.
Nio held a launch event in Berlin, Germany, earlier this month to introduce the ET7, EL7 and ET5 models to European consumers, and the initial plan to offer only a subscription service has sparked widespread debate.
Deutsche Bank analyst Edison Yu's team was on-site at the event and provided their take in a research note sent to investors today.
The team believes that the lease option offered by Nio is sensible and expects the company to offer an outright purchase option at some point.
Nio plans to offer two options: fixed leases with terms of 12-60 months, where consumers can choose any number of months and pay a constant monthly price, and flexible subscriptions with terms below 12 months and dynamic pricing.
Nio aims to create a better user experience through its vertically integrated ecosystem, with all services included in the monthly fee, such as insurance, maintenance, winter tires, courtesy car and battery replacement. Subscribers also have access to Nio House facilities and events.
"Our initial impression is that Nio's fixed leasing pricing (1-3 years) can be a bit more expensive compared to similar BBA models depending on model/trim (e.g., ET5 ranges from 999-1,058 Euro per month). Part of this can be attributed to Nio offering more white glove services and battery swapping," Yu's team said.
However, pricing appears to be in-line or lower on the flexible monthly subscription packages, at least compared to the higher-end models on the Sixt, the team said.
Leasing is prevalent in Europe, and B2B fleet sales of high-end cars are common, Yu's team said, adding that they also suspect some buyers would naturally be worried about the residual value of a new brand, so they will avoid buying outright.
"The monthly subscription option could be more of a tool for customers to try out the car for short period of time," the team said.
Unlike China, many European markets are heavily weighted toward car leasing and B2B fleet transactions, with companies leasing on behalf of their employees, a combined total of up to 60 percent, the team noted.
Nio believes that, broadly speaking, 80 percent of European users would at least consider a subscription, and that the high-end segment it targets has at least 50-60 percent exposure to some form of leasing, making it the preferred choice for many customers.
Operationally, Yu's team expects that Nio will not carry a large number of leases on its balance sheet, and therefore would anticipate a similar strategy to the BaaS business in China, with financing provided by a third party.
Notably, after the subscription model generated a lot of buzz, William Li, founder, chairman and CEO of Nio, admitted that the company underestimated the enthusiasm of local consumers to buy Nio cars and said the company was open to the buy option.
Yu's team expects a direct buy option to be offered at some point, but that the price may be relatively high.
"BYD is selling the Tang and Han at 72k euro in Europe, suggesting Nio could actually price pretty high," the team wrote.
In addition, Yu's team mentioned that Nio management confirmed that the company will enter the UK with the ET5 and another model next year. Other countries slated for next year include Austria, Belgium, Luxembourg and Switzerland.
Nio also sees France, Italy and Spain as large markets that are structurally more weighted toward smaller cars and will leverage its lower-end brand starting in 2024, the team said.
In an exchange with Chinese media following Nio's European launch event, Li had said that the company's sub-brand, codenamed ALPS, would also enter the European market.
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