How Long Will the RMB$7 Billion Investment from the Government Last for Chinese Electric Vehicle Manufacturer NIO?

published: 2020-05-07 12:00 | editor: | category: News

NIO, once known as the “Chinese Tesla”, has been subsidized by Chinese local government for RMB$7 billion, which is almost the annual revenue of the company in 2019, yet it is unable to make up for the significant loss the company made last year.

NIO announced the new round of financing on April 29, where companies that are capitally invested by the country, including Hefei Construction Investment and Holding Co., Ltd, Guotou China Merchant Investment Management Co., Ltd, and Anhui Provincial Emerging Industry Investment Co., Ltd, have jointly provided an investment of RMB$7 billion (almost NTD$30 billion), and will be migrating the Chinese headquarters of NIO to the Hefei Economic and Technological Development Area.

For this agreement, NIO will be investing RMB$4.26 billion into the establishment of the new company “NIO China”, where the company holds 75.9% of shares, and the strategic investor will obtain 24.1% of shares.

Hefei People’s Government disclosed that projects from the Chinese headquarters of NIO include the establishment of a NIO Chinese headquarters in Hefei, the establishment of a R&D, sales, and production base, as well as create a Chinese headquarters operation system that is centralized in Hefei. NIO plans to forge a leading enterprise of billions in market value within 5 years in order to accelerate the development of the electric vehicle industry in Hefei, and hopes to invigorate Anhui Province into a key location of nationwide electric vehicle industry accordingly.

An entirely different story is painted if the sales performance of NIO is incorporated to this seemingly wonderful investment.

NIO had an annual revenue of RMB$7.4 billion last year, yet the company’s loss was at a whopping RMB$11.3 billion. The company even announced at the end of last year that it had about RMB$1 billion in cash and assets, which was only enough to last for another 12 months of operation.

Another terrifying news is that William Li, CEO of NIO, announced on a conference that the overall sales in 2020 will decline once again. At best, he expects the company to only achieve the same sales level as 2019. It is safe to say that NIO is on the verge of bankruptcy.

As described by the Wall Street Journal, the investment agreement with Hefei is a lifeline to NIO, which provides sufficient energy for the company to last until 2021. Though is NIO able to produce substantial returns? The answer is perhaps not likely.

William Li commented in 2018 that Tesla is a flower inside a Californian greenhouse that is unable to adapt to the fierce competition in China, whereas Qin Lihong, President of NIO, believed that it is impossible for Tesla to complete the construction of a plant and begin operation all within a year. Unfortunately, both prophecies have been proven false.

Under an aggressive advancement, Tesla achieved a 400% growth in sales during March, whereas the Chinese automobile market had deteriorated 43% in comparison. During discussion on the planning regarding sales, Wang Hao, General Manager of Tesla China, commented that “we will sell as many vehicles as our plant produces”. What is even more unbearable for NIO is the high possibility of further price reduction for Model 3 produced in China. The new version of Model 3 will cost less than RMB$300K since May 1st.

While Tesla is raging in the Chinese market, the “Chinese Tesla” NIO is struggling to survive. Nonetheless, it is still too early to come to a conclusion as Tesla also once borrowed money from the federal government of the United States during financial predicament, so perhaps salvation is still possible for NIO.

 (Cover photo source: NIO)

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