New Car Companies Gather in Hong Kong, NIO Joins Late but Arrives

On February 28th, NIO announced that it has obtained the preliminary approval to be listed on the main board of the Hong Kong Stock Exchange for the second time through the HKEX hearing.

NIO’s Hong Kong listing is scheduled to start trading on March 10th, 2022, with the stock code “9866”. In addition, NIO has also applied for an introduction listing on the mainboard of the Singapore Stock Exchange.

Therefore, the three Chinese new forces, NIO, XPeng, and Li Auto, have all completed listings in both Hong Kong and the US. However, unlike XPeng and Li Auto’s dual primary listings in Hong Kong and the US, NIO has adopted an “introduction listing” method for its secondary listing.

What is an introduction listing?

An introduction listing, also known as a “list by introduction,” refers to the listing method in which the company does not need to substantially sell stocks to the public before listing, but directly applies for listing. That is to say, as NIO officials stated, it does not involve new stock issuance and capital raising.

Since there is no capital raising involved, what is the purpose of NIO’s listing in Hong Kong?

What are the intentions?

According to NIO officials, the purpose of this Hong Kong listing through introduction is to provide an alternative trading venue for the company’s investors, ease geopolitical risks, expand the investor base, and achieve the same listing purposes while not diluting the interests of existing shareholders.

It seems to be a win-win situation, not diluting the interests of existing shareholders while adding a trading venue to ease geopolitical risks.

But listing is not an easy task. In fact, NIO has done a lot of work to meet the requirements for a Hong Kong listing. Is it just to alleviate geopolitical risks?

First, let’s take a look at what NIO has prepared for this Hong Kong listing.

As early as March 2021, there was news about NIO’s return to Hong Kong for a second listing. However, on April 16th, 2021, after the revision of the “Listing Rules” of the HKEX took effect, new requirements were proposed for companies listing in Hong Kong.

On July 12th, 2021, NIO’s investors, BAI Capital’s founding and managing partner Long Yu, became the third independent non-executive director of NIO’s board of directors. This also made NIO’s board of directors have a female director. Long Yu also serves as the chairman of the board nomination and corporate governance committee.

This allowed NIO to meet the following two revised proposals of the listing rules:

• Establish a nomination committee, chaired by an independent director, with a majority of independent directors as members.
• The board of directors must have at least one member of the opposite sex.However, NIO’s path to listing in Hong Kong has encountered a new issue. On September 10, 2021, NIO’s plan to list on the Hong Kong stock exchange was once again delayed due to the approval issue of its shareholding structure raised by the Hong Kong Stock Exchange, with the core issue being the user trust fund established by NIO in 2019.

NIO’s user trust fund is mainly used for public welfare, environmental protection, and necessary projects related to its customers. To be specific, during the Zhengzhou floods in 2021, NIO’s user trust fund sent every NIO car owner a window smasher. However, when the user trust fund’s shareholding will be sold and how the profits will be distributed, clear responses need to be provided to the Hong Kong Stock Exchange. The uncertainty of the user trust fund made the Hong Kong Stock Exchange consider it as not being standard, which led NIO’s Hong Kong listing to be delayed once again.

Various factors have caused NIO to postpone its listing time, in addition to the accumulated listing expenses of 58.3 million yuan, it obviously lacks enough persuasive power to mitigate geopolitical risks.

The fact is that introducing the listing may be the best choice for NIO at present. On the one hand, NIO is not short of money, and as of September 30, 2021, it had a cash reserve of 47 billion yuan, and there is no need for Hong Kong listing to inject blood. On the other hand, NIO’s current market value is at a low point. At present, NIO’s total market value is less than 38.2 billion U.S. dollars, and the U.S. stock price has fallen from the highest 66.99 U.S. dollars/share to the current 22.84 U.S. dollars/share.

Obviously, large-scale financing at present will not only dilute shareholders’ interests but also increase NIO’s financing costs. Furthermore, in 2022, NIO’s three new cars ET7, ET5, and ES7 on the NT 2.0 platform are about to be delivered in large quantities. Based on the current pre-order performance of ET5 and ET7, the capital market will naturally have a positive feedback after the delivery. Therefore, NIO will finance, but not now.

Latest Developments

The Hong Kong listing this time also revealed NIO’s internal situation at present. As of the end of 2021, the number of employees at NIO exceeded 15,000, with 4,809 R&D personnel, an increase of 95.9% compared to 2020.### NIO’s Strategy for 2022-2023: Huge Investment and Capacity Expansion

NIO is known for its significant investment in research and development. He XPeng, the CEO of NIO, once stated in a financial conference that NIO plans to expand its R&D team to 4,500 people by the end of 2021. As of Q4 2021, there were 3,400 members in the ideal R&D team.

In terms of R&D expenses, NIO spent ¥1.19 billion in Q3 of 2021, a 35% increase compared to the previous quarter. Accumulated R&D expenses exceeded ¥2.7 billion in the first three quarters of 2021, and it is expected that NIO will invest ¥5 billion in R&D for the entirety of 2021. XPeng, a new player in the market, is expected to spend ¥4 billion in R&D expenses in 2021. Ideal revealed in its Q4 financial report that its R&D expenses for 2021 were ¥3.29 billion.

NIO’s production capacity is expected to have a significant breakthrough in 2022. Currently, its joint venture with JAC Motors has an annual production capacity of 120,000 vehicles. After expansion in 2022, the capacity will reach 240,000 vehicles annually (calculated at 4,000 working hours per year).

The JAC factory in Hefei, Anhui Province, provides the basic production capacity for NIO’s ES8, ES6, EC6, and ET7 models.

NIO also revealed information about its new factory in Neo Park, Hefei. The new factory is expected to begin production in Q3 of this year and will have an annual production capacity of 300,000 vehicles. The first NIO ET5s produced by this factory will be delivered in Q3 2022.

Of course, the new factory will still have a ramp-up period, but NIO’s production pressure for this year should not be too great.

NIO’s production capacity demand may explode in 2023. In addition to the three new models this year, the mid-term facelift of the ES8 and ES6 should be launched in 2023. After all, XPeng P7 is planning to release a facelifted model this year. Therefore, 2023 will be a test for NIO’s production capacity.

The highly anticipated 150 kWh battery pack is mentioned in the introduction book of this launch event and is still expected to launch in Q4 of this year as scheduled. Unlike the 75 kWh and 100 kWh battery packs currently supplied by CATL, the 150 kWh battery pack of NIO belongs to the semi-solid-state battery category. Since CATL has not disclosed any information regarding this battery, NIO’s 150 kWh battery pack may come from another supplier.NIO’s 150 kWh battery pack offers flexible upgrade options, giving BaaS users yet another choice for an ultra-long range. According to official statistics from NIO, as of December 31, 2021, 50% of NIO owners have chosen the BaaS program, thanks in part to the company’s comprehensive second-hand car system.

On January 3, 2021, NIO launched its official second-hand car business, which has made more people choose the BaaS program. According to Li Bin, CEO of NIO, “NIO’s official second-hand car business is not designed to make big profits, we just want to make some modest profits and, more importantly, better serve our old customers and give the greatest benefit guarantee to users who sell their cars.”

As a result, users who choose the BaaS program can be more assured, and the residual value of second-hand cars can also be guaranteed to some extent.

NIO needs to fully develop its system competitiveness, which means a huge demand for funds.

In the first half of 2022, NIO will deploy 1,300 battery swapping stations, and the deployment of supercharging and destination charging stations will not slow down. NIO House, NIO Space, and other offline spaces will continue to expand. Next, NIO will develop new models, promote autonomous driving, enter the European and American markets, develop NIO Life, and even make mobile phones.

For NIO, financing is still important, and the key is to choose the right time for large-scale financing.

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.