Why Tesla's China rival NIO is optimistic about domestic market growth

NIO Inc. founder William Li said the long-term growth potential of China’s electric-vehicle market remains in place, boding well for his company even as competition from the likes of Tesla Inc. intensifies.

The country’s auto market has started to recover from the depths of the coronavirus pandemic, and the minuscule market share of electric cars means they have a chance to grab sales from gas guzzlers, Li said in an interview on Bloomberg Television.

But he has his work cut out. Electric-car sales have declined for 10 straight months in China and are forecast to drop 14% this year to fewer than 1 million units, according to BloombergNEF. Meanwhile, global electric-car leader Tesla started deliveries from its massive new Shanghai plant around the start of the year.

“We do compete against each other, but in general we are allies," Li said, stressing both are trying to win users from gasoline rivals. “In fact, our sales kept growing since Tesla started production in Shanghai."

NIO predicted Thursday that its deliveries and revenue this quarter will more than double from a year earlier, as well as from the first three months of 2020. The company also reported a narrower first-quarter loss after curbing spending.

In April, the company struck a definitive pact for a 7 billion yuan ($1 billion) investment from entities led by the Hefei municipal government in China, alleviating concerns that it is running out of cash. That funding and potential future financings have put NIO on a solid footing, Li said.

“We are confident to have secured sufficient funding for the company’s development," Li said.

The April fundraising effort paves the way for more Chinese financing for New York-traded NIO, Li said. That could prove helpful as U.S.-China tensions are heating up, with Chinese companies listed in the U.S. facing a threat of being forced out. The company now meets the criteria for a local Chinese listing, though it has no concrete plans for one, he said.

“This isn’t a challenge for NIO only," Li said. “We wouldn’t exclude any potential options."

Shares of NIO have lost more than a third of their value since the company’s 2018 initial public offering in New York.

Li also described Volkswagen AG’s plans, announced last week, to deepen its relationship with a Chinese EV partner in the Hefei region as “very positive news" for NIO. The move signals that the area is emerging as a powerhouse in the EV industry, and Li said NIO is also seeking to increase cooperation with local partners and encourage its suppliers to invest more in the region.