Crushed by Falling Demand, Reduced Subsidies and the Virus, NIO Gasps for Air
The first quarter of 2020 was one of the toughest periods NIO has ever faced.
NIO (NIO: NYSE) was founded in 2014 by Li Bin and Qin Li Hong and is headquartered in Jiading, China. It mainly operates in the design, manufacture and sale of electric vehicles (EV), driving technologies, autonomous driving and artificial intelligence. The company’s products include the EP9 supercar and ES8, a 7-seater SUV.
Once seen as a challenger to Tesla, the Chinese EV maker has been hurt by various market developments.
The company started having financial problems after launching its initial public offering (IPO) in the New York Stock Exchange in September 2018. Stocks tumbled, then quickly recovered, before falling again after disappointing delivery figures that same year due to the Chinese government’s decision on reducing subsidies – which has had a massive influence on individuals’ decisions to purchase EVs.
2019 was even more disappointing for NIO due to the falling demand for EVs globally. According to the company’s end-of-year financial results, it suffered a net loss of USD 1.2 billion for the full year 2019 – an increase of 17.2 percent from 2018. The firm delivered a combined 8,224 of its ES8 and ES6 vehicles in the fourth quarter of 2019, and a total of 20,565 vehicles for the whole year – much less than initially expected by analysts.
Now the coronavirus outbreak has only made things worse, negatively affecting both production and deliveries of electric vehicles. Its cash balance – USD 151.7 million as of December 3, 2019 – isn't enough to provide the required working capital and liquidity for continuous operation in the next 12 months, the company said in a statement.
As a result, the company spent the first quarter of 2020 mostly searching for funding deals to bolster its financials.
In February, in return for setting up new manufacturing facilities and R&D centers in Hefei, NIO raised approximately USD 1. 42 billion from the city government.
"The parties are working on the legally binding definitive documents to be signed," NIO Founder and Chief Executive Officer William Bin Li said.
The company also made several private placements of convertible notes in February for an aggregate principal amount of USD 435 million to support its operations and business development.
Last month, NIO announced a short-term funding deal right before its monthly payroll was due. The company said on March 5 that it had secured a deal to raise USD 235 million through the sale of short-term convertible notes to unnamed investment funds in Asia.
It looks like NIO is living month to month with a ‘saving the day’ approach instead of long-term planning of its financial situation. Given all the economic hardship and the fierce competition in the market from similar companies such as BYD, Tesla, Xpeng, SAIC, Geely and BAIC, NIO needs to make up its mind and form far reaching-strategies.