What Nio's Nearly $1B Financing Deal Means For The Chinese EV Manufacturer

Nio Inc – ADR NIO shares are advancing to their highest level since early March after the electric vehicle manufacturer confirmed recent speculation about further capital infusions into the company. 

Nio's Financing Deal

Nio announced Wednesday ahead of the market open that it has definitive agreements with a group of strategic investors led by Hefei City Construction and Investing Holding, CMD-SDIC Capital and Anhui Provincial Emerging Industry Investment regarding a 7-billion-yuan ($989 million) cash injection into Nio China.

Nio said it will transfer its core businesses and assets in China, including vehicle R&D, supply chain and sales and services and Nio Power into Nio China, with the total value of the assets estimated at 17.77 billion yuan.

The company also said it will invest 4.26 billion yuan in cash into Nio China.

Following the completion of the strategic investments, Nio will hold about 75.9% of Nio China and the strategic investors will hold the remaining 24.1% stake.

The fund injection by Nio and the strategic investors will be done in five installments, with the final instalment planned to be completed on or before March 31, 2021. The assets will be transferred to Nio China within a year of closing, which is expected to occur in the second quarter of 2020, Nio said.

Nio will set up its headquarters in the Hefei Economic and Technological Development Area, where its main manufacturing hub is located.

In late February, the company had signed a cooperation framework with the Heifei City for raising about 10 billion yuan.

Pandemic Derails Nio's Trajectory 

For cash-strapped Nio, the investments should come in as a welcome relief. Cash and cash equivalents, restricted cash and short-term investment as of Dec. 31, 2019 totaled $151.7 million, according to Nio's recent quarterly financial statement. For a capital-intensive automaker such as Nio, it's a small number. 

The COVID-19 pandemic could not have come at a worse time for Nio. After sales took a hit in the summer of 2019, Nio was beginning to take a turn for the better in the later half of the year.

Nio was forced to tap the debt market multiple times this year to keep its operations going. After private placements of an aggregate amount of $200 million in February, the company announced a $235-million private placement of short-term convertible notes in early March.

Financing To Fuel Nio's Long-Term Growth

Nio said the investments in Nio China are an important milestone for its long-term growth. The cash injection, according to the company, will leave it with sufficient finances to support business development, enhance its products and technology and augment its customer services offerings.

The company sees the shifting of the headquarters to Hefei as a move that will help improve its operational efficiency and sustain its growth and competitiveness in the long run.

In premarket trading Wednesday, Nio shares were surging up 15.27% to $3.85.

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Photo courtesy of Nio.