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Chinese EV Startup NIO Raises $235 Million Through Private Placements as its Runs Low on Cash

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【Summary】Chinese electric vehicle startup NIO announced it will issue and sell convertible notes in an aggregate principal amount of US$235 million to several unaffiliated Asia-based investment funds through private placements. Earlier this year, the automaker warned that it would need additional capital to make its through 2020.

Eric Walz    Mar 06, 2020 2:15 PM PT
Chinese EV Startup NIO Raises $235 Million Through Private Placements as its Runs Low on Cash
The fully-electric NIO ES6 on display at a showroom in China.

It has been a difficult 2020 for Chinese automakers, as Coronavirus fears put the brakes on auto sales in China in the new year. For China's new crop of electric vehicle startups that are selling their electric models in smaller numbers, the drop in sales is more concerning. Earlier this year, Chinese EV startup NIO warned that it would need additional capital to make its through 2020.

NIO announced on March 5 it will issue and sell convertible notes in an aggregate principal amount of US$235 million to several unaffiliated Asia-based investment funds through private placements. The closing of the new private placements are expected to occur on or prior to March 11, 2020.

The investment funds purchasing the notes were not named.

A private placement is a sale of bonds in this case, or stock shares to pre-selected investors and institutions rather than on the open market. Raising cash via private placements has some advantages for businesses. For one, it requires no public filings and is easier to execute. The bonds are offered at a fixed rate and the purchaser can remain confidential.

This latest transaction is the third time NIO is raising money through private placements in less than a month. NIO sold convertible notes last month on February 6 and 14. On Feb 6, NIO issued and sold convertible notes in an aggregate principal amount of US$70 million and again for US$100 million on Feb 14.

NIO also disclosed it had already sold convertible notes private placement in January 2020 to another unaffiliated Asia based investment fund on similar terms. The combined amount of private placements this year will total US$435 million once fully completed.

NIO, which is considered by many to be the "Tesla of China'', is running low on cash due to slowing sales and the reduction in government subsidies for new energy vehicles (NEVs), which include fully electric and plug-in hybrid models. 

The Chinese government in the past offered automakers generous incentives to produce electric vehicles to spur their adoption as a way to help address China's air pollution.  However, With slowing EVs sales and a reduction in the subsidies, NIO is raising the additional capital it needs through private placements. 

The Chinese automaker was the first electric car manufacturer to launch an IPO in the U.S. on Sept 12, 2018. The company raised $1 billion when it started trading on the NASDAQ under the stock symbol NIO. The IPO fell short of the $2 billion NIO hoped to raise. The stock reached an all time high of $10.06 in March 2019. However, it has fallen ever since and its trading at $3.55 as of today.

NIO launched its first vehicle, the premium electric ES8 seven-passenger SUV in June 2018. The company followed that with the launch of the smaller five-passenger ES6 SUV in December 2018. 

The fully-electric vehicles include high-tech features and were designed to lure buyers away from Tesla. The ES8 starts around US$67,000 while the smaller ES6 starts at $US52,000.

NIO was forced to recall over 4,000 of its ES8 SUVs in June 2019 after a series of battery fires. The company's investigators concluded there was a vulnerability in the design of the battery pack that could cause a short circuit. The recall hurt NIO's sales in its home country.

On February 25, 2020, NIO announced that it entered into a collaboration framework agreement with the municipal government of Hefei, Anhui province, where the Company's main manufacturing hub is located. 

As part of the agreement, the Hefei government will provide funding for the long-term growth of NIO in Hefei. The agreement includes an investment of US$1.4 billion. 

"Under the framework agreement, Hefei government expects to provide resources and funding support for the long-term growth of NIO in Hefei, and NIO plans to establish NIO China headquarters, further expand its operations and deepen its relationship with local ecosystem partners in Hefei," NIO wrote in its press release.

As part of the agreement, NIO plans to establish NIO China headquarters in Hefei and further expand its operations and deepen its relationship with local partners in Hefei.

NIO is facing increasing competition in China from U.S. automaker Tesla. California-based Tesla starting delivering the first China-made Model 3s built at the automaker's new Shanghai gigafactory. Tesla is the first overseas automaker to wholly own a factory in China. The first deliveries to Chinese customers began in January, just one yer after construction started. However, the Coronavirus fears have dampened Tesla's China sales along with NIO's.

Demand for the Model 3 in China was strong before the virus disrupted China's auto industry, so Tesla can likely bounce back. NIO on the other hand, faces an uphill battle with its much lower sales volumes. After two strong quarters to close out 2019, NIO delivered just 1,598 vehicles in January 2020,  a 11.5% drop from the same month last year. 

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