Why has China's leading EV manufacturer been on a spree of repetitive fundraising during the past two months?
NIO (NIO:NYSE), which is considered the Chinese rival of Tesla, has announced the completion of a USD 235 million funding ground by issuing short-term notes that convert into stock to several un-named Asian investment funds. The deal will close by Feb. 11, the company said. The firm raised a total of over USD 400 million over 30 days.
This news comes after the New York-listed company announced the signing of a framework agreement with the Hefei government to launch its China headquarters in Hefei, capital of Anhui Province. This deal would see NIO relocate its headquarters and manufacturing to the city in exchange for an investment of at least USD 1.4 billion, enough to keep NIO funded for at least several more quarters. The company intends to build a second plant in the city and, if the plan spans out well, it will have three plants.
NIO has been trying to secure longer-term financing for at least several months. Last October, it was reportedly close to a similar deal with the government of the district of Wuxing, in the city of Huzhou, until the government-backed out after concluding that the risks were too high.
Prior to this funding, the firm raised two similar debt financing rounds on February 6 and 14, both worth USD 100 million. NIO released its third-quarter report on December 30, 90 days after the end of its corresponding quarter. It is also worth mentioning that NIO saw its sales plummet in January, with a year on year drop of 11.5%, with NIO blaming the outbreak of the COVID-19 for the negative results. The report also showed NIO’s cash position was down to just USD 274.3 million.
But on June 30, 2019, NIO had USD 503 million in cash and investments on hand. That means NIO lost USD 228.7 million in the third quarter. And the company likely burned through a similar amount in the fourth quarter. It seems clear that, no matter what happens next, the company cannot afford to keep on burning through such large amounts of cash.