CEO William Li said the virus had primarily affected Nio’s supply chain. Now he’s managed to secure the expected.
Nio CEO William Li says the investment is a strategic arrangement and not a bailout, but Nio just handed 24% of its business to the state. Nio badly needed that security. Nio’s announcement of a 7 billion yuan ($1 billion) investment from strategic investors can resolve the company’s capital needs for a relatively long period of time.
Nio might not be the next Tesla, but it’s still a promising startup in a sector that’s likely going to drive an incredible market in the mid term in China. The injection of capital comes from several investors, including Hefei City Construction and Investment Holding Group, CMG-SDIC Capital and Anhui Provincial Emerging Industry Investment Co.
It’s also a very bizarre deal. Nio will move its base of operations 300 miles away from Shanghai to Hefei as part of the deal. Nio’s factory is already in Hefei, which it operates with Anhui Jianghuai Automobile Group. The spread of the novel coronavirus has upended the automotive industry and made it more challenging to turn a profit, but this could also mean a driver for the stuttering EV sector that has stalled in recent times within China.
Now Nio will locate all of its Chinese operations, including R&D, sales, service and supply chain, in the Hefei Economic and Technological Development Area. It also gives up a sizable ownership of the company in the process. But the good news is that in spite of its liquidity issues, Nio’s product release schedule and research and development haven’t been affected that much for March and April of 2020 as expected.
Nio’s obstacles though aren’t over. Nio faces a series of challenges, including a downturn in the Chinese automotive market. Electric vehicle sales in China declined 4%, to 1.21 million vehicles in 2019, from the previous year. With the injection, NIO will have enough money to build out its distribution network and launch its upcoming new models, at least for a medium period.
China is a weird place and this deal shows that. The parties are creating a new company, called NIO (Anhui) Holdings Ltd., into which NIO will put substantially all of its assets in China, plus some money, in return for a 75.9% stake. That sounds like a bailout to me. It’s better than insolvency. Nio’s brand awareness is still pretty flashy and it will get a chance to prove itself in the months ahead.
This is not what you want to see happen for your ambitious startup. It was bad timing for Nio, as the auto industry is expected to truly not be that brilliant in the near future. At the end, investors will hold a 24.1% stake in Nio China while Nio will have a 75.9% controlling equity interest in the unit.