Thursday, 2022 December 8

NIO arrives in Europe: will its subscription model and battery-swapping concept disrupt EV market?

In front of more than 3000 journalists and partners, as well as thousands of online audiences from all over the world, NIO has officially revealed its European ambition in Berlin. On 7th October, William Li, CEO and founder of the 7-year-old premium electric carmaker from China, announced the brand’s official launch in four Europe markets: Germany, the Netherlands, Sweden and Denmark.

Three full-electric NIO models were introduced: the mid-size sedan ET5, the flagship sedan ET7 as well as the mid-large SUV EL7. None of these are new models, and the previous SUV model NIO ES8 has already been seen on the Norwegian roads since 2021. Also, the company itself already established its European subsidiary back in 2015 in Munich and is sponsor of the Formula-E team under the same name since the 14-15 season. So the brand name is not entirely unheard before in Europe. What’s really new this time and surprised everyone is the pricing strategy: instead of a fixed vehicle price, NIO has launched a subscription model in the four above-mentioned countries. With a monthly payment starting from 999 EUR, the car owner will get a full-package including the vehicle, the battery, insurance coverage, service & reparation, winter-tires, vehicle delivery, NIO’s signature energy solution “Battery as a Service” as well as access to the NIO Community and NIO Houses. All models will only be available directly from NIO’s website and mobile App, without any car dealers or leasing companies in between.

“Our vision is to become one of the top four names in Europe.” said William Li in an interview with KrEurope the day after the launch event.

Chinese EV players aiming Europe

The entry of a Chinese car brand into the European market seems both ambitious and challenging. In fact, the Chinese automotive industry was fundamentally shaped by European carmakers, since Volkswagen introduced the first modern serial automotive production to China in 1984. The European automotive industry has been long deemed as mentor for domestic carmakers, and has enjoyed considerable profit from the Chinese market over the last three decades.

The trend is now, however, quickly shifting. While European brands are still holding ground in the luxury segments, Chinese companies are quickly overtaking in sales of mid-to-low end categories, as well as in the electric car market. Moreover, successful Chinese automotive players are expanding to Europe, the home market of their mentors. As of 2022, China accounts for more than half of all electric vehicles sold globally, according to Nickel Institute. Major Chinese EV players can be roughly categorized into three groups:

  1. Domestic brands from classical manufacturers such as Shanghai Automotive (SAIC), Beijing Automotive (BAIC), Great Wall Motor, Geely, BYD, etc.;
  2. European brands acquired or partially owned by Chinese carmakers, for example MG (owned by SAIC), Smart (50/50 owned by Mercedes-Benz Group and Geely), Polestar and Lynk & Co under Volvo Group (owned by Geely);
  3. Domestic startups, or the so-called “EV new forces”, led by NIO, Xpeng and Li Auto.

Despite raising billions of dollars from investors all over the world including big-techs like Alibaba and Tencent, names in the last group are yet unfamiliar to European car-buyers, but NIO seems now determined to change it all. Positioned as a premium EV brand, the Shanghai-headquartered company targets potential buyers of luxurious cars, who may still be driving a petrol version of Porsche, BMW or Audi, but in the near future may make a different choice in favor of sustainability, technology innovation and user experiences.

NIO House in Oslo, Norway

The first test ground of NIO in Europe was Norway, announced in May 2021 as the brand’s first step into the global market. 4 months later, the first NIO House outside of China opened in Oslo. By October 2022, the Chinese EV maker had sold almost 800 premium SUVs in the Nordic country. Interestingly enough, Norway has also played a key role in NIO’s IPO in 2018, when the sovereign pension fund managed by Norges Bank subscribed to a large chunk of NIO shares and holds on the position till today. Nevertheless, “Norway is a very unique EV market”, according to William Li. “We want our local teams in different countries to focus on local demand, and provide localized services to NIO users in different markets”.

After initial success in Norway, Germany became the obvious next stop. Early 2021, NIO appointed Ralph Kranz, an ex-Volvo-manager, as its General Manager Germany. Kranz is responsible for the German market and will lead the development of the company’s European sales structures. During the official launch event, he was the one to present the pricing models together with William Li on the stage. Names of other country heads were revealed: Ruben Keuter, General Manager Netherlands, Mattias Lundgren, General Manager Sweden. The current Head of Norway, Marius Hayler, will also lead NIO’s Denmark operations.

“Flexibility is the new premium”

The new slogan announced at the launching event implies that most European users can not simply buy or lease a NIO car. Interested buyers must visit the NIO website or download the NIO App, from there one can make vehicle configuration and choose a subscription plan that fits best. Duration of the subscription starts from 1 month with the flexible plan, up to 60 months with the fixed plan. The subscription fee varies depending on the plan. For example, a 36-months flexible plan with the flagship electric sedan ET7 with standard 75 kWh battery will cost 1,199 Euro a month.

Delivery of the flagship model ET7 starts from 16th October 2022 in Germany and the Netherlands, one month later for Sweden and Denmark. The SUV model EL7 is expected to be available at the end of January 2023, while the compact sedan ET5 will be available in Europe by the end of March next year.

NIO subscription prices in Germany, Netherlands, Sweden and Denmark

A “full ownership” of a NIO is still possible in Norway. The same ET7 will cost 678,900 NOK which is roughly 65,000 Euro. The retail price of a 75 kWh version ET7 in China is currently at some 458,000 CNY, or some 66,000 Euro. It’s not a cheap car. “Our unified global pricing strategy remains the same,” said William Li.

What NIO owners – or subscribers in these four European countries – will get is beyond the car itself. The most unique selling-point of the NIO brand is its worry-free user experience. A portion of value-add services included in the subscription fee:

  • Door-to-door delivery and pickup of the vehicle
  • Full insurance coverage and reparation
  • Full maintenance (servicing, change and storage of winter tires, replacement vehicle during maintenance, etc.)
  • Various charging solutions, including NIO’s signature Battery as a Service concept
  • Administration (e.g. vehicle registration, annual inspection)
  • Return care (coverage of small cosmetic damages)
  • Access to NIO Community & NIO House.

NIO will be the sole customer interface with its subscribers, without any third party car dealers, insurance brokers or service partners. In the words of William Li, this strategy will “significantly reduce the complexity of car ownership”, saving time and money for the users, and ultimately creating value beyond the vehicle itself.

From another perspective, the subscription model could also be seen as a rational business move of the 2015-founded carmaker. Till end of September 2022, NIO has cumulatively delivered 249.504 vehicles globally, which is less than what Tesla delivers in one single quarter. Manufacturing capacity remains another issue for EV newcomers like NIO, amid the global supply chain hiccups and rising material costs. With a limited delivery capacity, a well-operated car fleet could generate more profit per vehicle than a classical car sales model, said William Li. “It is easy to switch from subscription to one-off purchase model, but not vice versa. We choose to try the difficult path first, which will challenge our fleet operation skills. But if our users really want to have the buy-off option, we can always consider it in the future.”

The subscription model is very similar to the full-service-leasing package in European automotive markets. What could make the offer of NIO really appealing for consumers, would be the brand’s signature Battery as a Service (BaaS) charging solution, as well as its unique user ecosystem.

“Battery as a Service”

Current battery capacity of all NIO models opting 75 kWh and 100 kWh, with a roadmap to 150 kWh in near future. The power batteries are mainly manufactured by the industrial giant CATL, who also supplies Tesla, Xpeng and Li Auto. Despite improvements in capacity and efficiency over the past years, battery charging still remains the eternal pain point of all EV owners. To address the issue, NIO has in 2020 announced its battery leasing strategy, or “Battery as a Service”, as well as its first Power Swap Station (PSS) in China. Users subscribed to the BaaS plan will enjoy a considerable discount on the vehicle purchase price, while paying a monthly service fee in return for free battery maintenance and a certain number of free battery swapping. Effectively, NIO was separating the battery – the most expensive component of an EV – from the vehicle by leasing it to the car owner. The move was seen as both controversial and revolutionary at that time. To-date, there are already more than 1,100 NIO Power Swap Stations operating in over 60 Chinese cities, along with over 5,000 charging poles. Now, NIO plans to roll out this successful energy concept to Europe.

NIO ES8 SUV at Power Swap Station

Power Swap Stations play the central role in the NIO BaaS concept. The company has invested billions of dollars in EV infrastructure R&D, and currently holds more than 1,400 related patents. These stations are standardized vehicle servicing and energy storage facilities, connected to the power grid. Through the chassis of each NIO vehicle, power battery can be fully automatically swapped at the station within just 5 minutes, without the need for the driver to step out of the vehicle. A quick vehicle check and software update could be performed at the same time. Fast-charging infrastructure, branded as NIO Power Charger, will also be available at the swap station, just in case of a long queuing time.

Power Swap Stations will be typically found near the highway exits and in major cities. By now there are four such stations in Norway and Germany ready for operation. NIO plans to build more than 20 Power Swap Stations by the end of this year and increase the number to 120 in 2023. Overall, the company’s ambitious goal is to reach 4,000 stations globally by 2025, with one fourth of them in Europe. As part of the plan, NIO opened its first overseas NIO Power Plant in Hungary in September, manufacturing battery swapping stations as well as other power products for the European market.

Perception of European users towards power swap might be ambiguous at the moment, but NIO is confident that the trust in this new technology will be soon established. Just like what has been already demonstrated in China, where approximately 40,000 swaps are being operated by NIO on a daily basis, according to Mr. Fei Shen, SVP of NIO Power. In September 2022, the cumulative swaps at NIO Power Swap Stations in China surpassed the 12 million mark, and has been proven to be efficient.

NIO ET7 at Power Swap Station in Germany

The bottleneck is of course the limited number of swap stations at the moment. Before more Power Swap Stations are built, traditional plug-in chargers will remain the main energy solution for most NIO subscribers in Europe. The company also offers wall-mounted home chargers ranging from 7 kW to 20 kW in capacity. How the detailed pricing structure of the NIO BaaS solution will look like in Europe, for example how many free battery swaps will be included in the monthly subscription plan, remains yet unclear.

The source of electricity used in the charging ecosystem plays an important role in the EV company’s vision. Although the complete shift from grid energy to green one is not possible yet, NIO has been actively deploying various strategies to increase the usage of green energy sources, while reducing its own carbon footprints. The Power Swap Station and BaaS concept is at the center of the Chinese EV-maker’s sustainability strategy. William Li believes that the battery swapping concept will not only reduce material waste, maximize battery usage and efficiency, but also contribute to the load optimizing of the modern electricity grid with an increasing percentage from renewable sources.

Smart EVs packed with L2, 5G and AI

The NIO models are equipped with a full set of sensors and cameras under its Aquila sensor architect, including a tower-setup at the front: two 8-MP main-cameras and the Innovusion 1550 nm LiDAR unit in the middle, plus two 8-MP rear-cameras on both sides which can serve as backup vision in case of main front-camera failure. Altogether, a NIO ET7 carries 33 cameras, 1 LiDAR unit, 5 mmWave radar units and 12 supersonic sensors, generating 8 GB of data per second. The brain of the system is 4 Orin processors from Nvidia, operating on the Snapdragon platform of Qualcomm. A 5G-V2X module is also integrated into the system.

Advanced autonomous driving features will be carefully rolled-out in compliance with local regulations of each country. In China, all L2 features of NIO performed well on the street, including comprehensive features like auto-pilot, auto parking, driving assistance, etc. It is understood that the company will take an extremely careful approach in the European market, though.

Nomi board AI robot on NIO ET7

Another highlight is the cute board AI robot Nomi, whose name derived from “know-me”. Through Nomi, the NIO vehicle is able to interact with the driver by using the latest AI technologies in the simplest and fastest way. The rounded companion was designed as a real friend, who provides all needed assistance on the way. By now Nomi already speaks English, German, and Norwegian. Support for Danish, Swedish, and Dutch languages will be added soon. NIO is setting up a new team in Berlin for further software development, localization and innovation.

Beyond the car: NIO Community, NIO House & more

The ambition of NIO is far beyond making premium electric cars. William Li, a serial entrepreneur and veteran of brand strategy and community building. He was the key person behind several tech unicorns including BitAuto – one of the largest car portals in China which was acquired by Tencent later – and Mobike – the once world leader in the bike-sharing market which was bought by MeiTuan – just to name a few. As a result, NIO also carries the strong DNA of a Chinese internet company.

William Li, CEO & Founder of NIO

From the birth of the brand, NIO has being emphasizing on building a full ecosystem, in order to achieve a sustained organic user growth and strong brand loyalty. The NIO Community app, as the ecosystem’s digital incarnation, is an active network which connects NIO employees, users as well as EV enthusiasts. All comments, complaints, and suggestions submitted by the community will be carefully analyzed and internally forwarded, which allows NIO to tackle issues directly and develop solutions along the way. Being ranked among the world’s top billionaires, William can often be spotted in offline community events and online chatrooms, interacting directly with NIO users. By now, the NIO Community has more than 2 million registered users, with an average daily active user count of over 400,000. This is double of the actual NIO car owner number and beats apps backed by any other carmakers in China, including Tesla. Active NIO Community members will be rewarded with NIO Points, which can be exchanged for vehicle and battery benefits, or lifestyle merchants. By successfully referring a new vehicle buyer, one will also be handsomely rewarded with points.

Another centerpiece of the ecosystem is the NIO House. Located in hotspots of metropolitans, NIO House is far from your traditional car showroom and service center. The stylish place displays not only the latest NIO models, but also a wide range of lifestyle items in collaboration with top designers and artists world-wide. It serves as local hubs delivering the EV brand’s message on low-carbon lifestyle, technology innovation and premium user experience. NIO subscribers will have access to exclusive floors at the NIO House, enjoying community events, a cup of coffee or a focused working space in the city center. At the moment, there are 30+ full-scale NIO Houses in China, plus about 300 smaller NIO Spaces operated by the company’s partners.

Inside NIO House Oslo, Norway

The second European NIO House will open its door on Kurfürstendamm in Berlin by the end of this year. Further NIO houses in Hamburg, Frankfurt, Düsseldorf, Amsterdam, Rotterdam, Copenhagen, Stockholm and Gothenburg will be ready in 2023.

The question remains: how far could the Chinese EV maker go in Europe, the home base of Mercedes-Benz, Volkswagen, and Ferrari? The young unicorn went public in 2018 and was immediately in deep financial trouble one year after. After rounds of restructuring, job slashing and budget cutting, NIO struggled out of the crisis and came back as the leading force in the Chinese EV market. Today, the company has a market cap of 23 billion USD, about half of BMW and one-third of Porsche. “European carmakers are definitely our mentors,” William Li told us at the airport. “They have a much deeper understanding of the user mentality and much more experienced in terms of sales, service, and supply chain.” When asked if he is worried about competition and recent counter measures from other European premium brands, William laughed: “I know what you are talking about. It’s better than nobody’s paying attention to us, right? It will be more fun this way.”

(This article is written by Emon Wang and Daria Rybalka with photo courtesy of NIO.)

KrEurope Market Watch
KrEurope Market Watch
KrEurope Market Watch covers the latest in technology trends, business news as well as capital market moves between China and Europe.
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