Electric Vehicles = Tesla? Well, think again
Which is the first brand that comes to mind when you think of electric vehicles (EVs)? Tesla would be the obvious answer. FYI, Tesla does not spend anything on this marketing strategy. Still, you thought of Tesla. Why? Well, there is one more brand that is steadily turning heads in the EV market.
We are talking about NIO, a Chinese company that designs and manufactures high-performance premium electric vehicles. It was founded in 2014 by William Li and has received investment from the likes of Tencent and Baidu, propelling it to the top spot in China’s domestic EV industry. Its Chinese name Weilai which means “Blue Sky Coming,” signifies its mission to provide the users with a sense of freedom and joy through its autonomous driving solutions and premium EVs.
China’s EV sales are forecasted to breach the value of 6 million by 2025, and NIO can be a frontrunner to meet this demand.
7 Wonders in NIO’s business model
It is challenging for a start-up like NIO to match the might of well-established OEMs (Original Equipment Manufacturers). Nio has managed to hold its own by continuously emphasizing user experience and feedback to develop product design and upgrades. Let us look at some of the other facets of NIO’s business model which have made it a game-changer.
1. Robust R&D
NIO focuses on innovation to stay ahead of the curve in the EV market that evolves at lightning speed. It has filed for over 300 patent applications in the last five years. These are related to various aspects like communication systems, safety features, lighting, HVAC system, distribution, and electric power conversion.
This creates a patent licensing opportunity for the brand resulting in an innovator status and revenues. With three research centers in China and one each in the US, Germany, and the UK, NIO strives to offer technologically advanced premium EVs to the market.
2. NIO Autonomous Driving (NAD)
NAD is an autonomous driving technology offered by NIO. NIO ET7, a sedan, is the first autonomous driving model launched by the brand in January 2021. NAD consists of NIO Aquila Super Sensing and NIO Adam Super Computing to make autonomous driving a safe experience.
NIO Aquila comprises 33 high-performance sensing units, including components like 8-MP high-resolution cameras, 1 ultralong-range high-resolution LiDAR, 5 mm-wave radars, 12 ultrasonic sensors, and 2 high-precision positioning units, all in sync generating 8-GB data per second. NIO Adam is a supercomputer that deals with all this data to create high-clarity images and enhanced details to make autonomous driving convenient.
3. Battery as a Service (BaaS)
The battery is the heart of an electric vehicle and generally amounts to at least a third of the EV’s cost. In April 2020, China issued a new regulation, which clearly exempts “battery swap model” vehicles from the “300,000 RMB price threshold for getting subsidies” set by the policy.
BaaS is a subscription model or leasing service that aims to reduce costs for consumers. The consumers who opt for this service can save up to 100,000 Yuan by choosing not to own the battery.
Alternatively, they can pay a battery leasing fee of around 1,280 Yuan per month for six consecutive years and then own it. It allows the consumers to tackle the three-pronged challenge of battery degradation, upgradability, and lower resale values.
4. NIO Power
Imagine the anxiety level if your laptop battery drains out in the middle of an important presentation with no means to charge it. A pretty nightmarish experience, right? One of the most critical factors influencing the purchase of an EV is the range for which the vehicle travels on a single charge.
Arranging for a spare laptop may still be feasible, but nobody would like to get stranded in the middle of nowhere with their vehicle out of charge. Range anxiety is indeed real. To give you a perspective, 58% of Americans are worried about running out of power before getting to charge their vehicle.
NIO Power helps in reducing range anxiety by providing customers a range of mobile internet-based power solutions. “One Click for Power,” i.e., a 24/7 on-call valet charging system, is one such option on the NIO app. It provides a pick-up and drop service for recharging an NIO vehicle within the shortest time based on the best option (Power Swap, Mobile, or Charger).
NIO Power provides services for both home and on-road situations. For home, there are Power Home Plus chargers that enable fast-charging of vehicles. For on-road, Power Swap involves battery swapping, Power Charger, and Power Mobile, which is akin to a portable power bank for a vehicle. The Power Mobile facility provides a charging van at the requested place, offering a range of 100kms after charging for 10 minutes.
NIO had 792 Power Chargers across 53 cities in China and 318 Power Mobile vans as of 31st December 2020.
5. Battery Swapping
Technology can be tricky to master, and being first in the market does not guarantee success. Battery swapping was first introduced in 2011 by an Israeli start-up called Better Place, which filed for bankruptcy in May 2013.
Tesla launched its Model S in 2013 with battery swapping enabled, but even they ended the initiative by 2015. The technology was a game-changer, but the implementation was anything but easy. NIO has managed to crack the puzzle by creating a Power Grid.
NIO had 172 Power Swap stations across 74 cities in China, having completed 1.4 million battery swaps as of 31st December 2020. Their Power Swap station 2.0, expected to be launched in the second quarter of 2021, will reduce the battery swapping time to under three minutes, accommodating up to 13 battery packs way above the current number of 5 battery packs.
6. NIO House
- 73% of consumers rank customer experience as a critical factor in establishing brand loyalty.
- 84% of customers will be convinced to buy a product if the recommendation comes from a known person, i.e., word-of-mouth marketing
- 66% of users will spend more on brands to which they are loyal.
Are you wondering why I am throwing all these numbers at you? Am I not supposed to write about strategy? I assure you, just one last statistic.
86% of Fortune 500 companies state that brand communities offer insights into customer preferences.
NIO House is an offline channel that fosters a community of NIO users. It functions as a showroom plus clubhouse for the NIO users, their family, and friends. The NIO House is divided into 7 areas: a café, library, and living room that cater to the varying consumer preferences. Thus, NIO’s business model focuses on creating a brand community that takes care of the customer experience, word-of-mouth marketing, and brand loyalty.
A brand community is a business strategy that pays rich dividends. Think of Harley Davidson or Royal Enfield closer home, or IKEA and its famous meatballs. NIO House, along with NIO Spaces that are like traditional showrooms, contribute to the feeling of a community. NIO Day is an annual event that involves product launches and user interaction with the brand to celebrate the NIO community.
7. NIO Life
NIO’s business model is not only about selling electric cars and associated services. As we have mentioned before, NIO is building a community.
NIO Life is a lifestyle brand catering to various segments like apparel, home and living, travel, and bags. So, what makes it different, you ask? NIO has collaborated with over 100 designers worldwide to reuse and restyle vehicle scrap to create lifestyle and fashion products under the NIO Life label. Over 2.6 million NIO Life items have been sold through online and offline channels since 2016.
NIO’s Ecosystem Strategy
99 percent of all statistics only tell 49 percent of the story.
Ron DeLegge II
Let me try and describe the other 51% of the story, which may help comprehend why NIO is considered a potential world-beater despite selling less than a tenth of Tesla’s total units sold globally in 2020. Neither is NIO a mass producer, nor is it building its brand purely on sales. This may sound a bit absurd as the auto industry is highly capital intensive.
For NIO, the business model is not just about premium EVs. Instead, it is a blend of EVs with charging solutions (NIO Power), subscription services (BaaS), NIO Life, NIO Spaces, and NIO House.
By offering premium and personalized services, NIO focuses on a long-term strategy to drive sales by creating an ecosystem. It considers the lifetime value that a customer provides rather than a one-time purchase. Giants like Alphabet, Microsoft, Apple, and Amazon are proponents of the ecosystem strategy.
All said and done, NIO still drew 93% of its revenues from Vehicle Sales in Q4 FY2020. The ‘Other Sales’ rose a whopping 184.1% to $71.6 million in Q4 FY2020, contributing the remaining 7% to revenues. Despite all this, NIO suffered losses to the tune of $812.9 million in 2020, albeit 53% less than the previous year.
NIO had been on the verge of bankruptcy at the end of 2019 but has staged a remarkable turnaround since then, majorly attributed to the investment by the Hefei government.
The brand has a considerable growth potential even if it manages to dominate only the Chinese market though it has its eyes set on the global market. Robust support from the Chinese government, a substantial market value of $74 billion (more than Ford Motor Co.) as of July 2021, rising awareness about EVs, and a customer-centric strategy are a few of the powerful propellants that stoke this growth.
NIO with its business model of 7 wonders seems all set to drive over the rocky terrain of rising costs of the automotive industry to be a dominant force in the world of EVs.
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