BEIJING (Reuters) - China’s loss-making Tesla wannabe Nio Inc will expand its sales network with smaller showrooms, slash its workforce and spin off some business units, company executives said on Wednesday, in a move to control massive cash burn amid slowing electric vehicle sales in the world’s largest auto market.
In an unusual move, Nio canceled a scheduled earnings conference call on Tuesday. But it rescheduled the call on Wednesday after the company’s shares touched a record low of $1.97. The company, is the most prominent among dozens of Chinese electric vehicle startups hoping to emulate Tesla, reported a second-quarter loss of $478.6 million, 25.2% more than its first-quarter loss, after the recall of 4,803 vehicles in June.
Nio’s revenues fell 8% to 1.41 billion yuan ($198.40 million) from 1.54 billion yuan in the preceding quarter. Nio sold 3,140 ES8 cars, down from 3,989 in the first quarter. It sold just 413 of its cheaper ES6 model.
William Li, founder and chief executive of the young Shanghai-based electric vehicle maker, blamed the company’s disappointing performance on a reduction in EV subsidies and incentives, as well as slumping luxury vehicle demand amid U.S. and China trade tensions. Nick Wang, Nio Group’s head of finance, said the company’s gross margins “will still be negative for the rest of the year.”
In May, Nio signed a pact with a government-backed fund for an investment of about $1.5 billion.
Nio also announced a $200 million private placement of convertible notes, split equally between early investor Tencent Holdings and founder Li.
Nio had $503.4 million in cash on the balance sheet as of June 30.
To cope with cash burn, Nio is expanding its sales network with smaller showrooms called Nio Spaces, according to Tung-June Hsieh, Nio’s chief financial officer.
“Nio Spaces, which are normally less than 200 square meters, will allow us to quickly, cost-effectively and meaningfully increase the number of sale points in the market,” Hsieh said. “By the end of 2019, we aim to have established around 200 Nio Spaces in over 100 cities across China.”
Nio will also encourage more regionally driven promotion, introduce a vehicle subscription program and push sales to corporate users and fleet operators.
After reducing headcount to around 7,800 by the end of the third quarter from over 9,900 in January, Nio plans further headcount reduction by the end of this year through both restructuring and spinning off some business units, Hsieh said.
Nationally, sales of new energy vehicles, including EVs, contracted for the second month in a row in August, according to the China Association of Automobile Manufacturers.
Nio led a pack of EV startups and became the first to get internationally listed. It counts Tencent and investor Hillhouse Capital Management among its shareholders and raised $1 billion last year in an initial public offering that valued it at $6.4 billion.
However, bankers said Chinese EV makers face increasingly tough funding efforts while jostling for attention in a crowded sector.
Reporting by Yilei Sun in Beijing