NIO plans to conquer Europe with high-end clubhouses and by renting (not selling) its electric vehicles

Business & Technology

NIO has entered four European countries with luxury clubhouses for customers, battery-swap stations, and an unusual retail model of renting, instead of selling. But can the new brand succeed with prices on the level of Porsche and Mercedes-Benz?

Illustration for The China Project by Alex Santafé

In the evening of October 7, Chinese electric vehicle (EV) manufacturer NIO 蔚来 held a press conference in Berlin to announce its entry into Germany, Holland, Denmark, and Sweden. At the event, the company launched three models for the European market: the ET5 and ET7 sedans, and the EL7 SUV. (The latter model is known as the ES7 in China, but the name was changed for use in Europe after Audi filed a lawsuit against NIO in June 2022, still ongoing, on the grounds that the names of the NIO ES6 and ES8 models are too similar to the Audi S6 and S8 models.)

NIO has decided on a high-risk strategy to enter the large European car market. Other Chinese brands like Geely 吉利, Great Wall Motor 长城汽车, and Chery 奇瑞汽车 have attempted to enter Europe after first gaining experience in developing countries with low cost products, while BYD recently entered Europe after operating successfully in several Asian markets. But NIO has made the jump directly from China into the heart of Europe.

Back in November 2016, NIO held its first foreign press conference in London, when the company announced its English brand name “NIO,” a new logo, and launched its first “electric supercar,” the EP9. In May 2021, NIO entered the Norwegian market, and opened two battery swap stations, and in September 2022, NIO officially started operations at its new 10,000-square-meter (107,639-square-foot) plant in Biatorbagy, 20 kilometers (12.4 miles) west of Budapest, Hungary, from where the company will supply battery-swap stations to Europe. By the end of 2022, NIO plans to have installed 20 battery-swap stations in Europe, which will increase to 120 by the end of 2023. The company plans to operate a total of 1,000 such facilities outside China, mostly in Europe, by 2025.

The king’s speech

At the Berlin event, NIO founder William Li (李斌 Lǐ Bīn) delivered a speech in English lasting 10 minutes during which he explained NIO’s business model for Europe, which essentially comes down to “renting not selling.” Li spoke English at the event, which was noted by Chinese online commentators. Some described his level of English as “better than that of [Xiaomi 小米 founder] Léi Jūn 雷军.”

In his speech, Li described his original vision for NIO, introduced the company’s major products, and then discussed the NIO community and NIO Houses that will be established across Europe. These are described by the company as “open, welcoming spaces for our users and community to express, share, and experience memorable moments together,” or as Li put it, a place where “you can have a cup of coffee or a special local drink, participate in meaningful activities, appreciate art, work, relax, have meetings, and celebrate.” NIO currently has 83 of these venues, including one in Oslo, Norway, and plans to build such facilities in several European cities, including Hamburg, Frankfurt, Düsseldorf, Amsterdam, Rotterdam, and Copenhagen.

In essence, NIO’s strategy in Europe is high risk and asset heavy, and this is making a big impact on the company’s bottom line: In the second quarter of 2022, NIO reported a net loss of 2.75 billion yuan ($411.7 million), an increase of 369% from the second quarter of 2021.

“Renting not selling”

Li and NIO’s general manager for Germany, Ralph Kranz, who was the fifth and last speaker at the Berlin event, also discussed the company’s business model for the four European markets, which is different from the approach the company took in Norway. So far, NIO’s sales record in Norway has not been encouraging: In 2021, NIO sold only 200 units in Europe, which was less than XPeng’s 小鹏 474 units, BYD‘s 比亚迪 1,247 units, and SAIC Motor’s 上海汽车集团 MG brand (based in the U.K.) with 14,228 units. In May 2022, NIO announced that its delivery volume in Norway had surpassed 500 units, but as of August this year, none of NIO’s models was on the list of the top 20 EV brands in Norway.

After a long period of consideration, as Li Bin put it, NIO opted for a subscription-only retail model for the four new European markets, i.e., customers cannot buy NIO models, but only rent them, which has elicited a lot of negative feedback on social media in both China and Europe. According to Li, currently only about 20% of car users in Germany, Holland, Denmark, and Sweden are willing to buy a car, while 80% prefer to rent, and the main customers in these countries are still corporate clients. NIO will provide customers in these countries with short-term as well as long-term (1260 months) rental options.

Although NIO’s monthly subscription service (a minimum of 999 euros/$972 per month for the long-term subscription model) includes insurance, pickup and delivery services, maintenance, tire replacements, and participation in the NIO Houses, some prospective European clients have reviewed NIO’s subscription costs and found them to be comparable with those of Porsche and Mercedes-Benz, which may be too expensive for a new and relatively unknown brand.

The takeaway

Li Bin and NIO have jumped straight into Europe with a high-end (and high-culture) subscription-only model to test the waters and build the NIO brand, potentially as a precursor to opening up direct sales channels in the future. Although you cannot yet buy a NIO car in these European markets, you can — as Li Bin and NIO envisage it — experience the full NIO ecosystem and “community” of battery swaps, maintenance, NIO Houses, and other services.

It’s a high-risk and high-cost strategy, but it remains to be seen if it will be a high reward strategy as well for NIO. This will take time, but all the while NIO will continue to bleed cash.