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Why NIO Can’t Challenge Tesla—at Least Not in the Near Term

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NIO ES6 deliveries to start in June

NIO’s (NIO) future revenue growth is highly dependent on the demand for its new SUV model ES6, which launched in December 2018. The company plans to start the first deliveries of the ES6 in June 2019, which could hurt its gross margin in the second quarter.

The price of the standard version of NIO’s second SUV starts at 358,000 Chinese yuan in mainland China, according to its website—much lower than its ES8 six-seater’s price of 456,000 yuan. In comparison, the price of Tesla’s (TSLA) SUV Model X starts at 737,100 yuan in China.

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Why NIO can’t challenge Tesla

US electric carmaker Tesla started building its Shanghai-based Gigafactory in January 2019. In April, Tesla said that if it manages to reach high volume production in its Shanghai-based Gigafactory by the fourth quarter of 2019, its 2019 global production could reach 500,000 units.

While achieving this target will be a big challenge for Tesla, its Shanghai-based Gigafactory is expected to help it better compete with NIO and other electric car companies in China. Tesla’s premium electric cars help it keep its automotive gross margin in positive territory. In contrast, it might not be easy for NIO to maintain a strong gross margin with its current vehicle line-up and production rate.

To make the situation worse, NIO expects its car deliveries to fall ~19.8%–29.8% sequentially in the second quarter.

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