Electric cars are expensive to buy, but that doesn’t stop automakers from losing thousands on each one they sell. And while most startups find themselves scrounging for cash to cover their losses and stay afloat, Nio instead turns to the Chinese government.
Earlier this week, it was reported the Rivian loses $33,000 on every truck that rolls off its factory floor. A few days later, it announced a bond sale to try and raise an additional $1.5 billion to plow into its reserves. On the other side of the world, Chinese automaker Nio is on a similar losing streak.
Now, a report from the New York Times has found the secret to the company’s longevity in spite of its mounting losses: Chinese government subsidies. According to a new report from the outlet, companies like Nio are being kept afloat by government backing that “allows them to withstand such losses and keep growing.” As the Times reports:
It has invested so extensively in robots that one of its factories employs just 30 technicians to make 300,000 electric car motors a year. Nio offers $350 augmented reality glasses for each seat in its cars, and has introduced a cellphone that interacts with the car’s self-driving system.
And none of it is profitable — far from it. Nio lost $835 million from April through June, or $35,000 for each car it sold.
To counter these sky-high losses, Nio has so far been handed an injection of $1 billion from the Chinese government when it nearly ran out of cash in 2020. Around the same time, a state-controlled bank plowed a further $1.6 billion into the company. That same year, Nio began deliveries of its all-electric EC6 and announced that it had doubled deliveries while on the brink of collapse.
And this level of government support has other automakers and countries worried, as they simply can’t compete. This pushed the European Union to launch a probe into Chinese automakers operating in the bloc and automakers across Europe and the U.S. are scrambling to catch up with China’s tech.
However, it is far from the case that every EV maker in China is only still in business because of its government backing. In fact, automaker BYD tripled its profit to $1.5 billion in the first half of this year, and according to the latest sales figures has overtaken Tesla as the best-selling EV maker out there.
The Times explains that its success has come because “BYD makes its own batteries and is a highly efficient manufacturer.” But these companies need to expand out of China if they hope to succeed long term. The Times explains:
The overall car market in China has been shrinking since 2017, as sales of gasoline-powered cars have plummeted faster than electric car sales have risen. Ride-hailing services have become ubiquitous while high-speed rail lines and subways have knit the country tightly together.
So with the Chinese government plowing millions into an industry serving a shrinking sector, can it expect to see a return on its investment? Probably, but that will all depend on how overseas buyers take to EVs assembled in the country.
