Nio becomes first Chinese EV maker to list in the U.S.
September 18, 2018 Category China News Round-up, Weekly
Nio, the start-up trying to take on Tesla in China, has slashed its fundraising size by nearly half as it became the first Chinese electric vehicle (EV) maker listed in the U.S. Backed by Tencent, Nio is offering 160 million American Depositary Receipts (ADRs) at USD6.26, near the bottom of the indicative range of USD6.25 to USD8.25 per ADR. The fundraising’s value now stands at USD1 billion, down 44% from the previous target of USD1.8 billion in its initial prospectus published on August 13. “An important issue is about the overall outlook of the Chinese EV sector,” said Angus Chan, Shanghai-based Analyst for Bocom International. “The competition is fierce, as many players are entering the market, while there is only so much demand, and EV makers’ short-term profitability is being questioned.”
Nio’s shares closed 10% up on their New York IPO debut in one of the year’s largest Chinese public offerings in the U.S. Nio raised USD1 billion and has a goal to turn profitable within three to four years.
Nio is a relative newcomer to the rapidly growing Chinese market. Founded in 2014 by Li Bin, it only launched its first production vehicle the ES8 – an all-electric, seven-passenger SUV – in December last year. The company claims its cars match Tesla’s models in performance, but at half the list price. The ES8 sells at a base price of CNY448,000, while Tesla’s Model X comes with a whopping CNY920,000 price tag in China. The company has delivered 1,381ES8s, and also has deposit-backed orders for another 15,700, it claims. Nio only started generating revenue this year, with USD7 million in the first six months. But it suffered a net loss of more than USD502 million during the same period. The company expects its capital expenditure to reach USD1.8 billion over the next three years.
Xie Zhicai, Analyst for Huatai Securities, said that “the clock is ticking for electric vehicle start-ups to raise capital. Car making is a capital-intensive and technology-driven industry. Early-stage development already requires significant investment. It’s better to be early than late to launch an initial public offering (IPO) to support subsequent capital needs from the secondary market.” Chinese EV car markers are also now faced with the challenge of fighting off foreign competitors, as the country lifted the ban on foreign ownership of local car ventures at the end of July.
Tesla is preparing to set up its “Gigafactory 3” in Lingang near Shanghai’s free-trade zone, with an annual capacity to produce 500,000 electric vehicles. “As soon as Tesla starts mass-producing in China, it will have a direct impact on domestic car firms,” Jia Xinguang, Executive Director of the China Automobile Dealers Association (CADA), told a public forum on the future of China’s EV industry in Shandong province. “There is only a window of three to five years for Chinese EV makers to come up with competitive products and services,” he added. The Chinese government forecasts there will be 2 million EVs on Chinese roads by 2020, and five years later, they will be accounting for a quarter of all car sales.
But years of massive government subsidies have led to overcapacity risks. Total production capacity had already reached 5 million vehicles by the end of last year, according to an estimate by China Automotive Technology & Research Center. The government is also phasing out subsidies, affecting the profitability of domestic EV makers, the South China Morning Post reports.
Even the China’s leading player in the sector, BYD, has been hit by the cut in government handouts. It said last month its net profit crashed 72% in the first half, which it blamed on the policy change. BYD said it will direct more resources into developing electric cars with longer driving ranges.
China’s auto sales fell for a second month in August on weak consumer demand but new-energy vehicles, with sales surges of nearly 50%, “have become the driving force for growth,” the China Association of Automobile Manufacturers (CAAM) said. In August, sales of NEVs soared 49.5% to 101,000 units, while production jumped 39% to 99,000 units. Sales of electric vehicles increased 31.7% to 73,000 units while 28,000 plug-in hybrid vehicles were sold last month, a jump of 130.8% from a year earlier.
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