The Nio Inc – ADR (NYSE: NIO) share price edged 4.66% higher after unveiling plans to cut the prices of its cars and halt its business expansion amid the challenging economic backdrop that has seen most electric vehicle (EV) manufacturers slash prices to remain competitive.
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The price cuts were started by Elon Musk’s Tesla Inc earlier this year, forcing many other EV firms to follow suit to remain competitive with the industry leader. However, the price cuts have significantly affected each company’s gross margins.
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Nio reported on Friday that its gross margins had shrunk to 1.5% in Q1 2023 compared to 3.9% in Q4 2022 and 14.6% in Q1 2022. The margin erosion means that the EV manufacturer will find it almost impossible to post a profit on its operations in the coming months.
The EV maker cut the prices of its new vehicles by $4,200 immediately and eliminated the battery swap option for new car buyers. The move comes just over a month after Nio said it would not join the price war with Tesla. Most investors appreciated the decision to cut prices as Nio shares edged higher.
The company also announced that it would delay some of its capital expenditure, including research and development projects, due to the uncertain economic environment. The decision comes as Nio moves to protect its cash flows amid lower sales due to its reluctance to slash its electric vehicle prices.
Nio also eliminated some of the service benefits buyers of its cars typically get, which many analysts believe could dent its brand image and negatively affect sales. For example, eliminating the battery swap option for new car buyers is one such move.
The move to cut EV prices comes after Nio reported a significant drop in vehicle deliveries in May, which came in at 6,155 vehicles as opposed to previous months, where the average number of vehicle deliveries was above 10,000 units.
Furthermore, the average monthly delivery figure in Q4 2022 was 13,350 cars. Hence, the May 2023 deliveries are about half the Q4 2022 deliveries.
*This is not investment advice.
Nio share price.
The Nio share price edged 4.66% higher to trade at $8.09, from Friday’s closing price of $7.73.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.