Chinese EV startup NIO announces $1Bn fundraise from a group of state-owned companies in China

NIO, the now embattled Chinese electric vehicles startup that was once considered one of the most potent rivals to Tesla, has announced a $1 Billion fundraise from a group of state owned companies in China. The investment was led by state-owned Hefei City Construction and Investment Holding (Group) Co., Ltd., CMG-SDIC Capital Co., Ltd., and Anhui Provincial Emerging Industry Investment Co., Ltd.

As a part of the deal, NIO will move its headquarters to the city of Hefei, within its Hefei Economic and Technological Development Area. It is also the region where company’s core manufacturing hub is located. However, the company’s headquarters and other operations are in Shanghai about 300 miles from the Anhui provincial city.

The investment has come at a crucial time for NIO, which had been on the look out for a financial lifeline for quite some time now. Post closure of the deal, NIO will own 75.9% of controlling equity interests in NIO China, with the remaining 24.1% lying with current investors.

In a statement released on Wednesday, NIO said that the investment holds significance for company’s long term growth plans. “After receiving the investments from the Strategic Investors, NIO will have more sufficient funds to support its business development, to enhance its leadership in the products and technologies of smart electric vehicles and to offer services exceeding users’ expectation. Additionally, the Company believes the launch of NIO China headquarters in Hefei enables NIO to improve its operational efficiency and to sustain its growth and competitiveness in the long run.”

Interestingly, experts and analysts believe that the investment is more of a financial bailout by the Chinese government, than pure-play investment. NIO’s CEO William Li however, is defiant. In a statement released while announcing the deal, Li said that the cash injection is “not a state bailout”.

The capital infusion alone won’t solve all of NIO’s problems. The company is caught in a triple whammy of declining EV demand in China, the ongoing coronavirus pandemic and a resurgent Tesla in China. Tesla’s rapid set up of its manufacturing facility in Shanghai, not too far from NIO’s has further tilted scales in the American company’s favor. Additionally, Tesla’s affordable Model 3 has garnered much more interested than some of NIO’s existing models, such as the ES8 and ES6.

The Company expects the closing of the investments to take place in the second quarter of 2020, subject to the satisfaction of customary closing conditions. The Strategic Investors and NIO will each inject cash into NIO China in five installments, namely (i) RMB3.5 billion and RMB1.278 billion respectively within five business days of the satisfaction of closing conditions, (ii) RMB1.5 billion and RMB1.278 billion respectively on or prior to June 30, 2020, (iii) RMB1 billion and RMB0.852 billion respectively on or prior to September 30, 2020, (iv) RMB0.5 billion and RMB0.426 billion respectively on or prior to December 31, 2020, and (v) RMB0.5 billion and RMB0.426 billion respectively on or prior to March 31, 2021. Moreover, the Asset Consideration shall be injected into NIO China within one year of closing.

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