David vs. Goliath in China: NIO’s powerful slingshot
November 22, 2017
When we were kids, most of us were spellbound by the David & Goliath-saga, where the young hero used an unconventional method – a simple sling and smooth stones – to defeat the giant. When I recently joined a top event from the Chinaforum 巴伐利亚中德经济文化协会 featuring the Automotive industry, I couldn’t deny the analogy. Traditional OEMs reminded me of Goliath. Comet-like startups including Shanghai-based NIO, which is developing smart, electric and autonomous vehicles, are taking David’s role.
Key participants in the discussion were Prof. Dr. Jochem Heizmann, Board Member of #Volkswagen AG as well as President and CEO of Volkswagen Group China and Hui Zhang, Managing Director of #NIO GmbH. For those who don’t know NIO yet: The startup, which expanded to the U.S. two years ago, built the world’s fastest all-electric supercar NIO EP9, manned or unmanned, able to go from 0 to 60 miles per hour in 2.7 seconds.
The event featured the challenges for the German Automotive industry. This is especially true for the rapidly changing Chinese vehicle market – not only the largest in the world (sales of 28 million units in 2016) but also offering the highest number of brands (130). More and more new players – most of them local producers – are entering the field. Globally China is establishing itself not only as the leading market for new-energy vehicles (NEVs), but also for connectivity, autonomous driving and totally new mobility concepts; e.g. ride hailing, luxury mobility on demand or intelligent voice recognition etc. This is also driven by the targeted stimulus of the Chinese government. China’s ‘Automobile Mid and Long Term Development Plan’ defines the development of NEVs and connected cars as an opportunity for the country to capture the market pre-emptively and leapfrog in auto development.
NIO belongs to the herd of 108 Chinese ‘unicorns’ – compared to only 8 in 2014
Apart from the government big Chinese companies and venture capitalists with factor 5 to 6 cash compared to their US counterparts are accelerating the trend. The China Unicorn Ranking 2017 lists all private startups in China valued at US$1 billion or more. Currently 108 Chinese unicorns exist, with a combined net worth of US$445.66 billion, which equals Belgium’s GDP. If Chinese unicorns were an independent nation, they would form the world’s 26th largest economy.
One of these unicorns is NIO. Just recently Internet giant Tencent has led a new funding round worth over US$1 billion. The firm was previously valued at US$2.9 billion when it raised a US$600 million round led by Tencent and Baidu this March. Attacking the market city by city, the company is aiming to sell 1 million vehicles by late 2021/early 2022 in China alone. Compared to this VW is already today a titan: The VW Group delivered 2.9 million vehicles in the Chinese mainland and Hong Kong till end of September 2017. NIO still has to prove its ability to manufacture its cars at scale and cost. To speed up the process – probably also as a smart learning from #Tesla’s delivery bottlenecks – the Chinese company has signed a US$1.5 billion partnership with the established Chinese automaker JAC.
As @HuiZhang, Managing Director of NIO, emphasized during the event: “Right from the beginning it was our overall objective to be a truly global startup with an international, global talent team – also reflecting that the Automotive industry is a global one. High speed combined with flat hierarchies was the name of the game.” It seems only logic that the company was just ranked as #6 on the global #LinkedInTopCompanies startups list.
“We pursued two options re. our design center: one in Italy, one in Germany. We decided for Munich due to several reasons. It is a ‘car city’ with many interesting colleagues from the industry plus it’s highly attractive to pull new talents.” Also the supply chain was factored in. Currently the firm has more than 400 suppliers – 71% of them are international including famous German brands such as #Continental and #Bosch.
Just do it – and this at high speed!
The next giant stride will be the first annual NIO Day event at Beijing Wukesong Arena on December 16, 2017. Approximately 8,000 people (NIO and NIO’s friends) are expected for the official launch of the first production road vehicle from NIO, an electric seven-seater SUV model called the ES8.
Zhang mentioned with cross-reference to NIOs first concept car “It was a clear statement: We want to build a second living space”. Which is a stark contrast to the VW China CEO, who mentioned “A car is always designed to bring you from point A to point B.” Instead of simply selling another brand, NIO is leveraging the ecommerce experience of billionaire @WilliamLi, its chairman and the founder of @Bitauto, an online car financing platform. Hence the focus will be on customer service and apps to distinguish itself.
When Zhang was asked during the event if he would have an advice for the German government he mentioned two:
- “In Germany there is a lack of entrepreneurial culture. Better framework conditions to motivate entrepreneurs would be helpful as well as better policies to make business a lot easier.”
- “There is the Chinese proverb “Failure is the mother of success! (失败是成功之母); i.e. you say “So what! Let’s start again!“. Why aren’t the German founders more encouraged to accept failure and then to build-up another company based on their new knowledge!?”
Coming back to the David & Goliath-saga: It might be true that OEM-Goliaths still dominate the market due to their sheer size, strength and presence. But the greatest strength can sometimes become the greatest weakness, e.g. the inability to maneuver quickly and the sheer bulk which makes it less agile. This is why the Davids in this game – powerful EV-startups like NIO – have a great chance. They are young, smart and nimble. They act full of passion and persistency plus demonstrate the courage to act visionary. While only time will tell if David will defeat Goliath, one thing is clear: they are serious challengers for traditional car makers and force them to take EV’s development seriously; i.e. ensure that all players recognize that environmental pollution needs to be addressed.