Caixin
Jan 16, 2020 07:56 PM
BUSINESS & TECH

Cash-Strapped Tesla Rival in Talks With Automaker for $150 Million Lifeline

A Nio dealership in Shanghai on April 27, 2019.
A Nio dealership in Shanghai on April 27, 2019.

Spring may have arrived early for Chinese electric vehicle startup Nio Inc. after a troubled 2019, with the company’s share price rising on the back of confirmation that it is in financing talks with a state-owned automaker.

The Tesla challenger saw its shares close up over 14% at $4.29 in New York Wednesday, after the company confirmed media reports that it is in talks with Guangzhou Automobile Group Co. Ltd. (GAC).

GAC confirmed Thursday that it is in early stage talks with Nio, but cautioned in a statement (link in Chinese) that there is still uncertainty as to whether the two companies can strike a deal, and reiterated that the two parties have not yet formed any binding agreement.

GAC said it is considering buying a stake in Nio through a subsidiary, with a combination of owned capital and external fundraising, but the potential investment will not exceed $150 million. It denied earlier media reports that the SOE would invest up to $1 billion.

The two companies have an existing relationship, and set up an electric vehicle (EV) joint venture called GAC Nio in 2018. GAC Nio operates independently of its investors, and launched its first electric vehicle model last month, priced between 260,000 yuan ($37,740) to 300,000 yuan, a mid-range model between Nio’s higher-end and GAC’s cheaper electric vehicle models.

Nio is in urgent need of financing. The young carmaker disclosed in its third quarter financial release last month that its cash balance at the end of the quarter was not sufficient to support its expenses for the next 12 months. As of the end of September, Nio had $274.3 million of cash and cash equivalents.

The company announced in the first quarter of 2019 that it was close to securing new funding, but no deal has so far materialized. Nio laid off more than 3,000 employees last year in a bid to balance the books.

But the five-year-old electric carmaker is still the shining star among its EV startup peers in China. Despite cash flow worries, its third quarter financial release sent the company’s stock soaring after revealing narrowing losses than anticipated. It is seen as the challenger with greatest potential to rival U.S. competitor Tesla, which recently delivered its first made-in-China vehicle after breaking ground on a Shanghai factory in January 2019.

Nio delivered 20,565 cars in 2019, ranking the first among its domestic EV peers. The company’s stocks plunged to $1.19 in October last year, but recent reports of continued shipment gains and its latest narrower-than-estimated quarterly loss sent its share price back on the rise.

Nio’s shares slipped 7.69% in pre-trading in New York as of publication time Thursday. GAC’s shares in Hong Kong closed down 3.79% at HK$9.39 ($1.21) Thursday, while its stocks in Shanghai slipped 2.65% to close at 11.76 yuan

Contact reporter Isabelle Li (liyi@caixin.com)

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