NIO founder is throwing random game plans at the wall. Will any of them stick?

William Li, founder and chief executive of Shanghai-based electric carmaker NIO, is a controversial figure among Chinese car enthusiasts because of his outspokenness.

But like it or not, this sometimes gaffe-prone billionaire is at the center of attention in China's sprawling new-energy vehicle industry.

At the 2024 NIO IN event on July 27, Li came onstage to introduce several new products – most notably the tape-out of a 5-nanometer, auto-grade chip called N9031.

Tape-out refers to the final stage of design processes for integrated circuits before they are shipped to a foundry for production.

Li has reasons to be proud. The debut of N9031 makes NIO the first electric-vehicle (EV) maker in China to develop a 5-nanometer chip. Four years of hard work have borne fruit.

NIO matched this chip with the introduction of SkyOS, again leading the way as the first domestic EV producer to lay its hands on a self-built, in-vehicle operating system.

These milestones, however, pale in comparison with big questions about the firm's finances.

There are ample reasons for skepticism. Designing a chip or even achieving tape-out is one thing; monetizing the technology is quite another.

Thanks to the explosive growth of China's EV industry over the past few years, the time needed for auto-grade chips to reach mass production has been shortened from 16 months to an average six months, according to industry sources.

Over the next six months, NIO will have to validate the stability, consistency and safety of its new chip while ensuring a solid yield rate, Chinese media reported.

A more critical question is whether the much-touted chip will truly possess the computing power that Li claimed can "rival four industry-leading flagship chips." He didn't specify which, though.

A harder nut to crack for NIO is to open-source its operating system for players from the domestic EV ecosystem to access and build on.

A developing industry consensus holds that an automotive operating system is an act of derring-do best avoided by individual carmakers due to the high costs, levels of difficulty and long development cycles.

And if an operating system were to be taken seriously, its creator would have to secure as many partners as possible to use it – and secure them fast.

So far signs are not encouraging.

"The SkyOS system will first serve NIO's internal models and users, then be opened to component partners in cooperative relationships with NIO, and finally be made available to other car manufacturers," Li was quoted as saying in Chinese media reports.

This three-step plan is typical of Chinese companies. The rub is this: How long will each phase last before NIO can acquire enough revenue to proceed to the next level?

In fairness, NIO's new releases do showcase the company's innovative spirit and its resolve to loosen the monopolistic grip of foreign competitors on core technologies, like chips and operating systems.

Currently, 80 percent of the world's market for automotive operating systems is divided between behemoths like QNX, Linux and Android, according to a report by MarketsandMarkets, an India-based research firm.

New domestic players like AliOS and Huawei's HarmonyOS hold only a small market share. Meanwhile, Qualcomm, Samsung and Nvidia dominate the market for high-end auto-grade chips.

Albeit more symbolic than substantial, the small steps taken by NIO and Huawei represent a giant leap forward in a Chinese automotive space bent on substituting imports with domestic alternatives.

While these developments offer a cause for celebration, Li's other remarks at the July 27 event again sparked some ridicule, both for him personally and for NIO.

He stated, for example, that NIO would never enter the robotaxi business. Li's comments were in response to the recent rollout of self-driving taxis in a number of Chinese cities, evoking widespread concern that artificial intelligence would wreck the livelihoods of drivers already competing in a tough market.

Li astutely replied that "the value of smart driving is not to eliminate the hard-earned work of ride-hailing drivers but to free up energy and reduce accidents."

He also predicted that no city government would allow millions of unmanned taxis to flood its roads. Moreover, the market potential for robotaxis simply isn't that big or "infinitely scalable," he added.

His words earned him some praise. But that's about it. His robotaxi grandstanding was mocked on social media as a "fig leaf" for NIO's inability to develop convincing end-to-end autonomous driving capabilities.

These criticisms are valid. Huawei and Xpeng arguably lead the nation's race to develop such autonomous driving, reliant on multi-sensor fusion perception and pure vision, respectively. NIO's approach, for its part, is a combination of both.

Li's previous backpedaling also invited derision. He once vowed that NIO would never resort to price cuts to drive sales, only to later slash prices on all its models amid a budding price war. No one knows if he will renege on his latest promise.

But regardless of whether he is a man of his word or not, Li has at least got something right.

Tesla's "full self-driving" technology has been updated to version 12.5. Despite the disparities in real-world performance on different roads and in different environments, it is no doubt becoming more mature with each passing day.

In this era of large language models, massive data input, improved AI algorithms and the gradual advancement of neural networks will combine to make autonomous driving more intelligent, effective and efficient.

To drivers' chagrin, partial replacement by robotic taxis in ride-hailing services is inevitable, but the utter devastation of this profession is problematical.

As Li rightly pointed out, the challenge of robotaxis is not a technical one, but rather one of policy and regulation. Which of the nation's regulators will sit by as driverless cars are left to dominate roads at the expense of millions of jobless drivers?

Companies involved in robotaxis, such as Waymo in the US and Baidu Apollo in China, are more sensitive to the regulatory boundaries than the general public. Li, as an industry veteran, knows that only too well, rendering his robotaxi predictions more of a public relations stunt.

But deftness at marketing can do little to redress damage caused by strategic missteps. NIO's strategy, it turns out, has misfired badly.

Its losses continue to widen. The company reported a net loss of 20.72 billion yuan (US$2.85 billion) for 2023, up 43.5 percent over the previous year. Social media users quipped that for every NIO car sold, the company blows between 130,000 and 200,000 yuan.

Against this backdrop, it's clear that NIO's new products may deliver a short-lived boost to the company's performance but are unlikely to buoy investor confidence for long.

As a carmaker, NIO may well be punching above its weight. Splurging money on chips, operating systems, phones and everything else costs the company 3 billion yuan in quarterly research and development investment and over 10 billion in annual spending, its financial data shows.

How much longer will it be before the capital market loses its patience with a company bleeding 20 billion yuan a year?

Mind you, NIO has the highest ratio of research and development expenditure to overall revenue among China's EV incumbents, standing at 24 percent in 2023. That's above Xpeng's 17.3 percent, Li Auto's 8.5 percent and BYD's 5.9 percent.

Ironically, despite the heavy tech investments, NIO has yet to attain a standing in intelligent driving that's on par with arch rivals Huawei and Xpeng.

I've long been bearish on NIO. In an industry marked by dog-eat-dog competition and brutal price wars, NIO's cash-burning model has limited impact on long-term revenue and profit. Under Li's stewardship, NIO has adopted an aggressive strategy of diversification, stretching its resources to fund multi-pronged expansion.

Rather than branching out into several domains and spreading resources thin, NIO would do better to pivot to a "pick and focus" strategy, concentrating on the most promising segments, like digital cockpits, to reinforce its premium brand image and prioritize user experience.

Instead, NIO's management appears to be throwing a lot of random game plans at the wall, hoping something will eventually stick. Fat chance.

(The author, a former Shanghai Daily opinion writer, now works as a business analyst and communication strategist. He has no conflict of interests to declare.)