By Trefor Moss
SHANGHAI -- NIO Inc., the embattled electric-vehicle startup
once feted as China's answer to Tesla Inc., has secured a financial
lifeline from state investors in return for agreeing to base its
operations partly in a provincial city 300 miles west of
Shanghai.
The 7 billion yuan, or roughly $1 billion, investment by
state-owned entities from Hefei, the capital of Anhui province, "is
not a state bailout", said William Li, NIO's chief executive,
announcing the deal on Wednesday.
The investors were acquiring a 24.1% stake in NIO's recently
established China unit at fair-market rates, Mr. Li said, in return
for which NIO China would establish a Hefei headquarters and
support the region's development as an EV production base.
Ownership of NIO Inc., the New York-listed parent, isn't affected,
he said.
"It's a vital strategic arrangement for the company," Mr. Li
said.
The deal marks the latest example of a cash-strapped Chinese EV
company turning to the state as the investor of last resort, with
private investors having largely abandoned a sector that so far
offered them scant returns.
While safeguarding NIO's immediate future, the move threatens to
relegate the company -- which styles itself as an innovative global
startup -- to China's auto-making minor leagues, where scores of
local manufacturers exist more to support the industrial policy of
local governments than to produce cars that consumers actually
want. A small state-run auto maker based in Hefei already builds
NIO's vehicles under contract, an arrangement that now looks set to
become permanent.
Mr. Li told reporters that the agreement with Hefei expands
NIO's options, as it makes it easier for the company to raise funds
in China, as well as in the U.S.
Only a handful of Chinese EV startups were able to secure
funding last year and the coronavirus pandemic has made their
situation tougher than ever, said Bill Russo, founder of
Shanghai-based consulting firm Automobility.
"This will force companies that wish to survive to accept funds
from whatever sources they can, including government agencies that
have a vested interest in the success of the company," Mr. Russo
said.
The investors include Hefei City Construction and Investment
Holding (Group) Co., CMG-SDIC Capital Co. and Anhui Provincial
Emerging Industry Investment Co., NIO said in a statement.
Chinese EV startups proliferated from around 2014, the year NIO
was founded, encouraged by Beijing's generous subsidies and other
EV-friendly policies. By early 2019 there were 635 of them,
according to official data.
NIO blazed the trail, its slick branding helping it to secure
billions of dollars from investors including Baidu Inc. and Tencent
Holdings, and enabling it to set up a network of global
offices.
But none of the country's EV startups including NIO have come
close to breaking even, let alone dethroning Tesla as the
pacesetter in the global shift from gasoline to electric cars.
By the end of 2019, NIO had sold nearly 32,000 vehicles but had
lost $4.2 billion in the process, according to its own financial
statements -- equivalent to $131,000 per car. Within a year of
listing on the New York Stock Exchange in September 2018, NIO's
shares lost 85% of their value as its promise dimmed in the eyes of
investors. Last year it laid off thousands of workers to stem
mounting losses.
At last year's rate of cash burn, the new $1 billion investment
would last NIO around seven months, and that is not counting the
$600 million that NIO has promised to commit to the Hefei venture
as part of the deal.
"We have some funds," Mr. Li said when asked where he would get
the money. NIO held $151.7 million in cash at the end of 2018, and
issued $435 million in convertible notes in February and March to
meet its operating expenses.
Another challenge for NIO and its startup peers is the prolonged
downturn in China's auto market, with 2019 EV sales declining 4% to
1.21 million vehicles from the previous year. The coronavirus
pandemic further hammered Chinese auto makers in the early part of
this year, with overall sales down 43% in the first quarter.
The start of production at Tesla's Shanghai plant in December,
combined with a ramping-up of EV launches by established auto
makers, has made the task facing China's army of startups more
daunting than ever.
Tesla sold 17,466 vehicles in China in the first quarter,
according to data company LMC Automotive, outselling all the
Chinese EV startups combined. NIO sold 4,185 cars during the
period.
--Raffaele Huang contributed to this article.
(END) Dow Jones Newswires
April 29, 2020 08:26 ET (12:26 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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