Nio Secures $1 Billion Investment Amid Cash Concerns

(Bloomberg) — Chinese electric-car maker Nio Inc. struck a definitive pact for a 7 billion yuan ($1 billion) investment from entities led by the municipal government of Hefei, alleviating concerns that Nio is running out of cash.

As part of the deal, Nio will transfer core assets and businesses in China into a new company and hand over 24.1% of that entity to the new investors. Nio will own 75.9% of the company, called Nio China, and will inject 4.26 billion yuan of cash into it, according to a statement issued Wednesday.

The maneuver is set to allay shareholders’ worries about Nio’s liquidity. The Chinese company lost about $1.6 billion in 2019 and had $151.7 million of cash, equivalents and short-term investments left at the end of the year, forcing it to reiterate last month that it may not have liquidity to survive 12 months.

Heavy spending on marketing and splashy showrooms failed to generate demand for Nio’s ES8 and ES6 electric sport utility vehicles. The virus pandemic intensified the company’s woes as shoppers stayed away from dealerships.

The transaction “resolves near-term liquidity concerns around Nio,” said Robin Zhu, an analyst at Sanford C. Bernstein. “Investors can now go back to analyzing the demand and cash-flow picture.”

Nio flagged the funding pact in February with the municipal government of Hefei, the capital of eastern China’s Anhui province. The company said Wednesday the new investors are Hefei Construction Investment Holding (Group) Co., CMG-SDIC Capital Management Co., and Anhui High and New Technology Industrial Investment Co.

Nio shares jumped over 17% Wednesday morning in New York. The stock lost about half its value since the company’s 2018 initial public offering in New York. The new pact in China won’t change the shareholding structure of the parent company.

Assets outside China, such as research and development centers, aren’t included in Nio China, the company said.

The investment pact “opens more fundraising opportunities,” William Li, Nio’s co-founder and chief executive officer, said Wednesday in a press call. The company will use “flexible financing tools” including convertible bonds previously issued to raise the cash it needs to inject into the new entity, Li said.