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Chinese Electric Vehicle Startup NIO Secures $1 Billion Investment

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【Summary】Electric vehicle startup NIO, one of China’s most promising new EV startups, received a 7 billion yuan (US$1 billion) strategic investment that will help the company to continue its operations. NIO is considered by many as the "Tesla of China." However the company was running dangerously low on cash as China's automakers deal with fallout of the coronavirus pandemic, declining new car sales and the loss of generous government subsidies to build electric vehicles.

Eric Walz    Apr 29, 2020 11:05 AM PT
Chinese Electric Vehicle Startup NIO Secures $1 Billion Investment
The fully electric NIO ES6 SUV

Electric vehicle startup NIO, one of China's most promising new EV startups, received a 7 billion yuan (US$1 billion) strategic investment that will help the company to continue its operations.

NIO is considered by many as the "Tesla of China'', however the company was running dangerously low on cash as China's automakers deals with fallout of the coronavirus pandemic, declining new car sales and the loss of generous government subsidies to build electric vehicles.

As part of the deal, NIO will establish a new entity named "NIO China", which it will control.  Strategic investors Hefei City Construction and Investment Holding, CMG-SDIC Capital and Anhui Provincial Emerging Industry Investment called for NIO to "inject its core businesses and assets in China, including vehicle research and development, supply chain, sales and services in the a new company, NIO said in a statement on Wednesday.

Upon completion of the investments this second quarter, NIO will hold a 75.9% controlling equity interest in the new company and the three strategic investors will collectively hold the remaining 24.1%. NIO will also invest 4.26 billion yuan in cash into NIO China. 

NIO announced earlier this year that it would likely not have enough cash to continue its operations through 2020 without new funding. NIO, which is also backed by Tencent Holdings, cut thousands of jobs and axed plans to construct its own manufacturing facility in Shanghai last year because of mounting losses.

On March 5, NIO announced it was issuing and selling convertible notes in an aggregate principal amount of US$235 million to several unaffiliated Asia-based investment funds through private placements. The investment funds purchasing the notes were not named.

As past of the new strategic investment, NIO will set up a new headquarters at the Hefei Economic and Technological Development Area in Hefei. NIO's ES8 electric sport utility vehicle is manufactured in the area by state-owned partner JAC Motors.

"After receiving the investments from the Strategic Investors, NIO will have more sufficient funds to support its business development, to enhance its leadership in the products and technologies of smart electric vehicles and to offer services exceeding users' expectation," said William Li Bin, founder and chief executive of NIO, said on Wednesday.

The news of the investment sent NIO's shares up 15% on Wednesday. 

NIO launched its U.S. IPO on the NYSE under the symbol NIO on September 12, 2018, becoming the first Chinese electric automaker to list its shares in the U.S. Nio raised $1 billion in its IPO, however the figure was short of the $2 billion it hoped to raise.

Nio's stock reached an all time high of $10.06 in March 2019. However, the automaker's stock price fell to an all-time low of $1.39 on October 1, 2019 as sales of its vehicles slowed in China. NIO posted losses of US$1.6 billion in 2019 amid China's cooling auto market.

New car sales in China fell for the 21st consecutive month in March and the coronavirus pandemic severely impacted new car sales this year. First-quarter sales totalled 3.7 million vehicles, down 42% from a year ago, according to the China Association of Automobile Manufacturers.

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

The company is betting that its luxury ownership experience and advanced AI-powered electric models, which include autonomous driving capability, will set it apart from Tesla and the many other rising EV startups in China, including BYTON and Xpeng Motors.

However, NIO was forced to recall nearly 5,000 of its flagship ES8 SUVs in June 2019 due to a problem with the vehicle's battery pack, which caused at least one vehicle to catch fire, which damaged the company's reputation. A video of the electric SUV catching fire in a parking garage was widely shared on Chinese social media. NIO inspectors concluded there was a vulnerability in the design of the battery pack that could cause a short circuit.

NIO is also facing increasing competition at home from U.S. electric automaker Tesla with its recently opened Shanghai gigafactory. The factory is Tesla's first overseas plant and gives the U.S. automaker an advantage by avoiding steep import tariffs by building its vehicles locally. Tesla is the first foreign automaker to wholly own a factory in China, so NIO is facing an uphill battle to gain market share.

NIO's next vehicle is the EC6, which it calls a "smart electric coupe SUV." The EC6 will have a range of over 380 miles with the optional 100 kWh battery pack, positioning it as a strong competitor to the Tesla Model Y. Preorders for the EC6 are already open in Mainland China.


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