China’s Nio (9866. HK) plans to trim its workforce by about a tenth as it moves to improve efficiency and reduce costs in the face of growing competition, the electric vehicle maker said on Friday. In a letter to staff, Chief Executive William Li wrote that “duplicate” and “inefficient” roles will be eliminated while project investment not expected to contribute to profitability within the next three years will be deferred. Nio is one of several Chinese EV upstarts racing to challenge global auto giants such as Tesla in the market for battery-powered cars that can drive themselves and have long range between charges.
Like many other EV makers, Nio believes it can gain an advantage by offering a new business model that allows consumers to rent rather than buy the battery in their car, thus reducing up-front costs. The company, listed on the NYSE, counts technology investor Tencent among its investors. A spokesman for the Chinese tech giant did not respond to requests for comment.
Despite high initial sales, Nio’s prospects have dimmed as consumer demand for EVs has weakened in the world’s biggest auto market. Sales of pure EVs in China dropped by more than 30% this year through June, compared with last year, as people opted for more economical plug-in hybrids, which can run on gasoline and offer a range between charges similar to traditional vehicles.
The slowdown has prompted global carmakers to seek a leg up in China by investing in local factories and forming supplier alliances. In addition to Nio, Ford, and Nissan have announced plans to set up plants in the country, while Volkswagen and Toyota are working on joint projects with local companies.
Nio says it has kept its short-term losses in check by reducing operating expenses and relying on a cost-effective production plant built with JAC Motors (0705. HK). It also hopes to boost revenue by selling services that would appear antithetical to car ownership, such as ride-sharing apps like Didi Chuxing, in which it has a stake and is backed by China’s tech giants.
Like other Chinese EV makers, Nio has set its sights on the US, where it expects the government to impose quotas on automakers that could boost the number of cars they sell. Sport-utility vehicle builder Great Wall Motors and battery maker BYD are already active in the country. At the same time, Nio has a foot in Europe with offices in London and Munich, as well as a sales office in San Jose. But unlike Tesla, which has poured money into a factory that could produce 1 million vehicles per year, Nio is building its assembly plant in China, with an annual capacity of 160,000 units. That will allow it to compete more effectively with established rivals in the US.