"When it comes to simply lowering car prices, it seems a bit lacking in technological sophistication."
At a communication meeting in early March, when asked if NIO would lower prices, the company's co-founder and CEO, Qin Lihong, told me this. Prior to this, electric vehicle companies such as BYD, Xiaopeng, Jinkang, and Qiantu had already released direct price reduction plans one after another. However, NIO only introduced "terminal discounts" for existing inventory of the 2023 model, but the specific discount amount was not publicly disclosed, appearing to be somewhat ambiguous.
A few days later, on March 14th, NIO announced a new Battery as a Service (BaaS) battery rental service policy. Among them, prices for two types of batteries within the NIO system were adjusted downward. For existing car owners, the company also provided vouchers that could be used to offset the purchase price when buying a new car. In summary, NIO is guiding more users to use the BaaS program by adjusting battery rental service fees. This way, when users get their cars, the price can be significantly reduced by 70,000 or 128,000 CNY, effectively reducing the price.
Compared to the straightforward promotions offered by other car manufacturers, all of NIO's several "official price reductions" since its inception have been conducted under various guises. Just after this adjustment in battery rental service fees, a friend of mine sent me a private message jokingly saying:
"It seems like NIO is scheming again!"
NIO, why so confusing again?
According to NIO's latest adjustment to its Battery as a Service (BaaS) program: If a user completes a full 5-year term and enjoys the buy-four-get-one-free offer, they would have paid 48 months' worth of battery rental over the 5 years. Subtracting the 10 months' payment from the first year, there are a total of 38 months' worth of rental that can be used to offset the battery buyout cost, which are 17,840 CNY and 31,160 CNY for the standard and long-range batteries respectively.
When this user decides to buy out the battery after 5 years, their total cost would be 87,104 CNY or 150,984 CNY, equivalent to an annualized interest rate of 4.88% or 3.59% for a 5-year term. In comparison, NIO's current 0 down payment finance offers a 3-year annualized interest rate of 2.99%.
Calculating these costs and interests really took me a while with the calculator. Seeing this, many readers might ask a question:
Why can't NIO just lower the price directly?
For NIO, not lowering prices is a "bottom line" that must be adhered to from top to bottom. In multiple communications, both Li Bin and Qin Lihong have expressed to the author:
"A stable pricing system is an essential element for a luxury brand."
From the perspective of traditional luxury brand operational strategies, this statement does have some validity. For example, looking at the car price list from the 1990s below, the BMW 740i was priced as high as 940,000 RMB at that time. And more than twenty years later today, the listed price for this model is still as high as 1,069,000 RMB.
Similarly, while the Mercedes S320 was priced at 1.02 million RMB at that time, the current entry-level S-Class, the S400L, has a suggested retail price of 922,600 RMB. For NIO, positioning itself as a competitor to Mercedes and BMW, it's evident that luxury brands serve as a benchmark for their own learning.
On the other hand, as highlighted, the BMW 5 Series, benefiting from localization, has seen a significant price drop. As for Jetta and Santana, they have become national cars priced at less than 100,000 RMB.
Beyond these market dynamics, NIO needs to avoid, as much as possible, the "backstabbing" of old customers due to price reductions. As the first company in the automotive industry to propose building a "user enterprise," NIO relies heavily on the "ripple effect" of old users bringing in new ones during the sales process, thus placing significant emphasis on user reputation. Clearly, there's no operation more damaging to old users' sentiments than reducing prices officially.
So, compared to other brands that loudly announce price cuts or indirectly lower prices by releasing new models with discounted features, NIO often has to resort to more subtle tactics at the dealership level, including insurance subsidies, free upgrades, and showroom discounts, to manage their pricing strategies. The advantage is that these activities usually require visiting the store to learn about them, which doesn't affect the mood of existing car owners much. However, the downside is that the visibility of these activities is limited, only encouraging hesitant customers to make a purchase, while failing to attract users who haven't visited the store.
Taking all these dimensions into consideration, NIO must achieve two goals in the price war simultaneously: on one hand, substantially lowering prices to make the product more competitive. On the other hand, the means must be as "elegant" as possible to avoid giving existing car owners the feeling of being exploited.
For example, when reducing the price by 30,000 CNY, they cut off the right to free battery swaps. This time, in order to compensate existing users as much as possible, they are targeting BaaS.
However, the problem is that although NIO's approach may seem like a win-win, it inevitably requires more explanation costs.
Levelling up becomes the key to NIO's success
Before the release of the new version of the BaaS policy, NIO specifically arranged a signing ceremony with CATL. Both parties announced that they would promote the research and innovation of long-life batteries based on the demand for battery swapping scenarios. According to information released by NIO, they have now established a full lifecycle health operation system for batteries, ensuring that after 12 years of use, the power battery still maintains 80% health.
In contrast, other domestic new energy vehicle companies set the warranty period for power batteries at 8 years. In fact, the reason why the service fee for BaaS can be reduced this time is also because NIO's achievements in extending the lifespan of power batteries have been recognized by all parties and have ultimately resulted in unanimous agreement.
In other words, the lifespan of battery assets has been extended, the amortization period of assets has been further prolonged, and naturally, the battery rental fee can be reduced.
Based on this achievement, the user value of NIO's "car-battery separation" business model has been enhanced. During the event, Li Bin also revealed that according to the 8-year warranty period for batteries and combined with the sales volume of new energy vehicles in China, by the years 2025 to 2032, nearly 20 million new energy vehicles nationwide will reach the end of their warranty period. By then, the driving experience of these users will be greatly affected. By that time, if users want to replace the battery to achieve "equal life of car and battery," they will need to pay a high cost.
Due to the chemical nature of batteries rather than mechanical properties, and the different usage environments, driving distances, and charging habits of individuals, the battery status of each vehicle is unique. Especially with frequent fast charging, it's more likely to shorten the battery's lifespan. In fact, for plug-in hybrid and electric vehicles that undergo more frequent charge and discharge cycles, battery degradation is even greater.
Ultimately, when owners decide to replace their vehicles, this chaotic situation makes used car dealers reluctant to purchase new energy vehicles because there's a lack of standards and technical means for battery testing. This may not be very apparent in the current stage of the new energy vehicle market, which is primarily replacing conventional vehicles, but it could become a key obstacle affecting new car sales when the current wave of new energy vehicles faces renewal and upgrading.
In response to this, NIO's approach of separating the vehicle and battery costs essentially shifts the burden of battery degradation costs. However, many people may not yet understand or perceive this "well-intentioned effort."
NIO needs to survive desperately until battery swapping becomes a "consensus" for it to be considered successful. And the premise of survival is that it needs to provide mainstream-priced car products to the market to cover as wide a range of users as possible.
From this perspective, NIO's just-announced second brand, "LeDao," is crucial for the company's success or failure in the next stage.
Renderings of the LeDao car
According to information disclosed by NIO, the LeDao brand will focus on the family market, with a primary goal of pursuing sales volume. The first car product is positioned to compete with the Tesla Model Y and is set to be unveiled in early May this year.
According to Li Bin, the brand currently only plans three models, with the second one scheduled for release in 2025.
For NIO, which has consistently pursued a high-end strategy in the past, how to effectively tell the story of LeDao to mainstream consumers who are more concerned about value for money is clearly a new challenge.
