Today, a Weibo post from the Hefei Municipal People’s Government pushed NIO into the spotlight once again. NIO’s stock also surged nearly 30\% in pre-market trading.
According to the Weibo post and NIO’s official announcement, NIO has signed a cooperation framework agreement with the Hefei government. Based on the agreement, NIO’s China headquarters project will be located in Hefei. The project includes establishing NIO’s China headquarters, building R&D, sales and production bases, and creating an operational system based in Hefei. The project plans to raise over 10 billion yuan.
To confirm, 42HOW reached out to Qin Lihong, Co-founder and President of NIO, who confirmed that Hefei’s plan to fund and invest 10 billion yuan in NIO is true, and NIO’s China headquarters will be located in Hefei after the investment agreement is signed. NIO’s global headquarters will remain in Shanghai.
This dark cloud is an endless hope for NIO, which has been short of money.
Now is when NIO needs money the most
It is well known in the industry that NIO has been short of money since 2019.
In May 2019, NIO signed a framework agreement with Beijing E-Town Capital, which would invest 10 billion yuan in cash in “NIO China” to build an advanced manufacturing base for NIO and produce the second-generation platform models.
However, there has been no substantial progress on the investment since then, and only scattered rumors have been circulated, indicating that the project failed.
In October 2019, the media reported that NIO was negotiating a new round of financing of 5 billion yuan with Huzhou, Zhejiang.
But eventually, it ended with a statement from the responsible person in Wuxing District, “After evaluation, due to the project’s high risk, cooperation was terminated.”
In January 2020, the media reported that Guangzhou Automobile Group planned to invest 1 billion dollars in NIO, but Guangzhou Automobile Group stated that the two parties had discussed NIO’s financing plan, which was still in the early stages and had not formed any binding agreements, and the total amount of self-raised funds and funds raised was not expected to exceed 150 million dollars.
In February 2020, there were reports that Geely Auto planned to acquire nearly 10\% of NIO’s shares for USD 300 million, but there have been no further updates on the matter.
Since May 2019, there have been continuous reports about financing, but the outcome has either been no further updates or denial from the other party.
However, the current situation is different from before as NIO’s current financial situation is unlikely to last until Q2 2020. NIO’s desire for financing is stronger than ever before.
The Q3 2019 financial report showed that as of September 30, 2019, NIO held a total of CNY 1.9067 billion in cash, cash equivalents, restricted cash, and short-term investments. This amounted to approximately CNY 2.6 billion, including the USD 95 million not yet included from Li Bin’s USD 100 million debt-to-equity conversion subscribed in September 2019.
However, the net loss in Q3 2019 was CNY 2.5217 billion, which means that after Q4 2019, NIO was basically broke in 2020.
The issuance of USD 200 million in convertible bonds in February 2020 bought NIO some time, but it only solved an immediate problem for such a massive company, and did not fully address their financial concerns.
Only after this investment of more than CNY 10 billion is secured will NIO’s short-term survival issues be truly resolved. Based on NIO’s current net losses of more than CNY 2 billion per quarter, this investment can only prolong NIO’s life for more than a year. In other words, within this year, NIO must make an effort to turn their gross profit margin positive.
NIO in 2020: Efforts to Sell Cars
In a Weibo post from the “People’s Government of Hefei” (which has since been deleted), there was another piece of data worth mentioning (note: the old Weibo post was replaced with a new one, which changed “planned financing of CNY 14.5 billion” to “planned financing of over CNY 10 billion,” and removed the specific estimated revenue). It is estimated that NIO’s revenue in 2020 will be CNY 14.8 billion, compared to CNY 7.8 billion in 2019.
How many cars does NIO need to sell to achieve CNY 14.8 billion in revenue?
In Q3 2019, NIO delivered a total of 4,799 vehicles, with vehicle sales revenue of CNY 1.7355 billion and an average vehicle sales price of CNY 362,000. In that quarter, total revenue was CNY 1.8368 billion, and vehicle sales accounted for 94\%.Estimating roughly, the revenue target for 2020 is 14.8 billion, and the revenue from vehicle sales accounts for about 14 billion, considering the average price of 362 thousand yuan. NIO needs to sell about 38,500 cars in 2020. By comparison, NIO’s total deliveries in 2019 were 20,749 vehicles.
In January 2020, NIO delivered 1,598 vehicles, which means an average of 3,354 vehicles per month for the next 11 months is required.
If NIO continues its growth trend from the end of 2019, achieving this goal is not difficult.
NIO is about to start delivering the new ES8 in April, followed by the EC6 in September, which are new models that can bring sales growth to NIO.
Furthermore, if the investment agreement is confirmed, and NIO gets rid of its financing problem and boosts consumer confidence, it will be good news for sales.
But all of this is contingent on obtaining financing.
Last Words
NIO is an indispensable member of China’s automobile industry, whether for emerging car makers or the industry as a whole. In the 2019 leaderboard for emerging car makers’ deliveries, NIO ranked first by a wide margin. NIO is undoubtedly the leader of the emerging car maker circle. The impact on confidence in emerging car maker brands would be enormous if NIO faces bankruptcy.
For the Chinese automobile industry, the process of new industrialization is being aggressively promoted. NIO is at the forefront of this and, by introducing Tesla to China, is not trying to destroy domestic emerging car makers, but to stimulate better and faster development in related industries.
According to the information obtained by Garage No. 42, prior to this, NIO has been striving to negotiate with Geely, Guangzhou Automobile Group, Great Wall and other car companies, as well as with local governments in Huzhou, Nanjing, Wuhan and Hefei, hoping to obtain financing in the best possible cooperative way.
Although the cooperation agreement signed with the Hefei municipal government is still a “cooperative framework agreement”, this time the Hefei municipal government first made an official announcement, and from the signing ceremony, it is clear that the government attaches great importance to this cooperation.
As driving forces and observers in this industry, we sincerely hope that this cooperation can be successful. The Chinese automobile industry needs a brand like NIO, and for NIO, getting this help is likely to make it live on.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.