Article by | Mingzhi Sun

Edited by | Xianzhi Wu

If there was no ET5, the current hot topic in the automotive industry would definitely be why NIO is falling behind. Fortunately, this model will officially begin delivery this week, relieving some of NIO’s current pressure.

Two of the “7”s in NIO’s new product line “775”, ET7 and ES7, began delivery in March and August, respectively. The “5” was given high expectations from NIO as the ET5, which opened its reservation on September 9th, just 2 days away from the final delivery.

On September 7th, NIO founder, chairman, and CEO, Bin Li, stated during the Q2 2022 earnings call that he is very confident in achieving the annual delivery target. NIO has delivered a cumulative total of 71,500 vehicles from January to August 2022. If the annual delivery target is 150,000 vehicles, NIO will need to deliver 80,000 new vehicles in the next 4 months, an average of 20,000 per month.

NIO’s average monthly delivery volume in the past three months has been around 11,000 vehicles, which is still some distance from the target of 20,000 per month. Therefore, the ET5 is NIO’s “weapon” to achieve the expected delivery volume.

The ET5 carries NIO’s blockbuster dream

With the support of the direct sales model, NIO has a high conversion rate from sales to delivery, so the prerequisite for NIO to achieve 20,000 deliveries per month is sufficient sales.

According to data from the China Passenger Car Association, NIO’s monthly delivery in November and December 2021 was around 10,000 vehicles. At that time, NIO only had three models on sale, the “866”. However, in the past three months, NIO’s average monthly delivery volume has been around 11,000 vehicles; the high-priced ET7 and ES7 (both priced above RMB 4.4 million) have not contributed much to the increase in NIO’s monthly delivery volume.

The ET5, also known as the “shrunken version of the ET7”, is undoubtedly the best choice for NIO to significantly increase sales volume at present. The difference in configuration between the two is not significant, but the ET7 is a mid-to-high-end model with a price of around RMB 400,000. This title can help the ET5 increase its value and popularity.But unlike the ET7, the ET5 has a more sporty appearance; the “Mirror Space Pink” color was introduced to attract female users; and NREAL and NIO jointly developed exclusive AR glasses to integrate the concept of “metaverse” into the ET5. Simply put, the ET5 has almost everything the ET7 has, and some things the ET7 does not.

Furthermore, the price of the “miniature version of the ET7” has also been “shrunk.” The ET5 is currently NIO’s lowest-priced model, with a starting price of 258,000 yuan if using battery rental services, making it the company’s first model with a starting price below 300,000 yuan.

Currently, the 20-30 yuan new energy vehicle market includes models such as Tesla Model 3, XPeng P7, SkyDrive NeoKan, WM Motor’s Weltmeister EX5, BYD’s Tang, Changan Blue Whale SL03, etc. Among them, some models have been on the market for a longer time and have high sales figures, becoming hot sellers; some other models have only been on the market for a short time but are highly popular and have performed well.

At present, the ET5’s on-paper performance data and parameters are not weak, and it has a slight edge in intelligence and supplementary power. Due to the price range, the ET5 has more competitors, and their strengths are not too weak either. In the future, the ET5 will face a “big battle.”

Among the emerging automakers, the first mass-produced model of LI Motors, the LI ONE, has become a hit, and XPeng’s second mass-produced model, the XPeng P7, has become a small hit. Compared with them, NIO’s best-selling ES6 cannot be called a hit. NIO urgently needs a best-selling model to verify its accumulated capabilities over the past few years in branding, technology, channels, battery swapping, services, etc.

NIO’s high-level executives have high hopes for the ET5. At the Chengdu Motor Show in August, NIO’s CEO William Li stated that the monthly sales of the ET5 would exceed that of the BMW 3 Series within a year. The accumulated sales of the BMW 3 Series in 2022 were 103,000 units, with an average monthly sales of 12,000 units. In order for the ET5’s sales to exceed those of the BMW 3 Series, it needs to sell more than 12,000 units per month.

In other words, NIO hopes that the ET5 will become a hit, with monthly sales comparable to those of the BMW 3 Series. Coupled with the company’s recent delivery data, NIO may deliver more than 20,000 vehicles per month in the future, which may lead to the realization of the annual delivery plan. Although this may seem somewhat idealistic, it is undeniable that NIO is currently preparing for the future hit model, the ET5.

A Road to Price Reduction That Cannot Be Lost

Ensuring delivery and maintaining production capacity are also critical factors in achieving the delivery plan.On August 24th, NIO announced that the first batch of pre-production vehicles for the ET5 has rolled off the production line at the NIO Xin Qiao factory. During the earnings call on September 7th, CEO William Li mentioned that NIO’s supply chain and production capacity issues will be alleviated in October. Additionally, the Xin Qiao factory will start production in the fourth quarter, with ET5 being the only model initially manufactured.

This implies that the Jianghuai factory, previously responsible for producing five car models other than ET5, indicates that NIO has some confidence that the ET5 will become a hot-selling model. NIO has prepared ample production capacity in advance to prevent any issues caused by the limited capacity of ET5 in the future.

As the last model to be delivered in the “775” program, the ET5 is launched after the ET7 and ES7, both of which are also built on the NT 2.0 platform, which helped pave the way for a more mature product with better reliability than before. However, the ET5 will also take away some of the original orders for the ET7. Some people who originally booked the ET7 later changed their order to the ET5, while others who had intended to buy the ET7 eventually chose the ET5 instead. In response, William Li said, “It’s okay to have two successful kids in the family.” This means that ET5 is a model that needs to achieve large volumes of sales, and taking some of the orders that originally belonged to ET7 is not a big deal.

Currently, the ET5 is experiencing high demand, which is good news for NIO. However, there were reports of many scalpers on secondary trading platforms trying to profit from reselling ET5 orders at higher prices. Furthermore, the number of orders does not necessarily correspond to the actual delivery volume, and the ET5 orders also have some fraudulent elements, so it remains to be seen how the delivery situation will unfold.

Overall, the ET5 is of utmost importance to NIO, mainly because it needs to become a hot-selling model, boost NIO’s sales, meet the company’s annual delivery target for 2022, and improve market expectations for 2023. This is also NIO’s attempt to explore the market and the beginning of its entry into the “mass consumer” market. The starting price (after battery rental) of 200,000 to 300,000 yuan has been set, which is a price range that was not previously seen for NIO’s sub-brand “Exploration.”

Currently, NIO’s overseas expansion plan is in progress, but its impact in the short term may not be significant; its subsidiaries have yet to introduce new products, and its 150-degree solid-state battery has been delayed. Therefore, NIO’s short-term revenue growth and building trust inside and outside the company rely on the performance of the ET5.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.