(Yicai Global) Sept. 13 -- Nio, the Chinese electric vehicle startup that fancies its chances against Tesla, raised just USD1 billion in an initial public offering in New York yesterday, making it the third-largest US float by a Chinese company so far this year.
Nio priced the shares at USD6.26 each, near the bottom end of a target price range of USD6.25 to USD8.25, valuing the Shanghai-based company at USD6 billion. The stock [NYSE:NIO] gained 5.3 percent to close at USD6.60, after earlier falling more than 10 percent. USD1 billion worth of shares changed hands.
Founded in 2014 by William Li, Nio is China's first electric carmaker to go public in the US. The timing was not ideal, according to analysts, who cite trade tensions, a deflating stock market and the lack of profitability at other electric car startups as negatives weighing on the IPO. Geely Holding's Volvo Cars has suspended plans to go public due to trade worries, and Tesla co-founder Elon Musk flirted with taking the firm private amid tight cash flow.
Like Tesla, Nio is unprofitable. From 2016 to June 30, it had a total net loss of CNY10.92 billion (USD1.6 billion) on revenue of just CNY46 million (USD6.72 million) and operating expenses of CNY10.74 billion. As of June 30, cash and cash equivalents stood at less than CNY4.5 billion.
Still, Nio founder Li, who is known as Li Bin in China, was feeling calm before the New York Stock Exchange's starting bell rang at 9.30 a.m. Nio is still a young company and it takes time to make a profit, he said. The management team is confident the financial situation will improve, he added.
Now or Never
Had the company not seized the opportunity to list when it did, it may never have had another chance, Zhongrong Fund Management Beijing Chairman Cao He told Yicai Global. Without going public, it would not have be able to give an explanation to founder investors and secure subsequent funding, he added.
Nio attracted about USD2.4 billion through several pre-IPO fundraisings. It now has almost 60 investors, which means it is not easy to land more funds from the private market.
Car production takes years of accumulated know-how and massive expenditure on research and development, according to Windsor Capital Management analyst Li Bo, who added that good supply chain management is also a key competitive factor. "Nio doesn't have experience of mass production," he said. Its "production and supply capacity may not keep up with demand even if sales increase."
As of Aug. 31, 2,400 ES8 electric sport utility vehicles has rolled off Nio's assembly line, of which 1,600 have been delivered. Over 14,000 orders are pending. If that is not enough, the firm plans to launch another five-seat high-end electric SUV named ES6 in the first half of next year.
Nio intends to use 40 percent of the IPO funds for research and development. Twenty-five percent will go on sales and market expansion, including building showrooms in major cities. Another 25 percent will be used for factories and supply chain construction, while the remaining 10 percent is earmarked for general operations.
Nio may have to sell 100,000 electric vehicles a year to break even, which is 10 times its year-end target, said Robin Zhu, an analyst at Sanford C. Bernstein in Hong Kong.
Editor: Emmi Laine