On February 28, the media reported that NIO has hired eight banks, including Morgan Stanley and Goldman Sachs, to prepare for its planned listing in U.S. this year. The IPO is expected to raise up to $2 billion USD. If successful, NIO will be the first Chinese start-up electric vehicle company to IPO in the U.S.
As early as last December, it was reported that NIO may IPO in U.S. in 2018 to provide funds for the development of automatic driving technology. People close to the situation said that NIO was also considering selling shares of its U.S. business at $300 million to $400 million, but the details could change as the final decisions on the IPO and share sale have not yet been made.
According to incomplete information, NIO has accumulated $2.3 billion (14.3 billion yuan) in its previous four funding rounds. NIO responded to Securities Daily, who verified the news, “NIO now focuses on producing quality cars and serving customers as best as we can. NIO declines to comment on it.”
An industry insider said, “NIO is choosing to list at this moment because it has advantages over other startups now. It will undertake much higher risks when it unveils its cars.” NIO aluminum car bodies are produced by Jianghuai Automotive Corporation (JAC), an established Chinese automaker but which has no experience in producing all-aluminum car bodies. It is likely JAC will delay its delivery. In addition, the equipment in electric cars imposes high demands on engineering design capability and product precision. All of these factors cause people to cast doubts on NIO and JAC.
NIO To Raise Funds Before Selling Cars
NIO is expected to raise $1 billion to $2 billion in the IPO. The funds will be used to invest in the development of autonomous driving and battery technology. A successful $2 billion IPO will place NIO as the second largest IPO in the U.S. by a Chinese company, second only to tech giant Alibaba.
In 2014, Alibaba raised $2.5 billion in its U.S. IPO. In 2016, delivery company ZTO Express raised $1.4 billion in its U.S. IPO.
NIO was founded in 2014 by William Bin Li, who also established Chinese auto information website yiche.com. Li’s investment in nearly all fields related to traffic and travel has earned him the title of “travel godfather”, as coined by media. The companies that he has either founded or invested in cover many fields, such as auto manufacturing, automotive media, and shared travel, including star enterprises such as Mobike, yiche.com, Dida Pinche and Yixin Group.
Since its establishment, NIO has been favored by the financing market. By the end of last year, NIO had 56 investors. The six most well-known founding investors account for half of the internet giants, including Tencent‘s Pony Ma, JD.com‘s Richard Liu, Xiaomi‘s Lei Jun, Hillhouse Capital’s Zhang Lei, CHJ Automotive’s Li Xiang, and William Bin Li himself. NIO investors also include Baidu, Lenovo, Sequoia Capital, TPG, IDG, and China Merchants Bank.
In December 2017, NIO’s first mass-produced vehicle, the ES8, released for sale. It is scheduled to be delivered within the first half of this year. The basic version of ES8 is priced at $70,568 (448,000 yuan) before subsidy. The original version which comes in a limited set of 10,000 units is priced at $86,315 (548,000 yuan) before subsidy. This version is the most expensive new energy vehicle in China.
Lingering doubts on mass production and power-saving mode.
Making electric cars is not easy. Even as strong as Tesla is known to be, it still burned through $8,000 per minute in 2017. NIO had won support from Tencent, JD.com and other giants, and claimed that it will seize the opportunity. However, there are still doubts lingering on NIO’s mass production and battery storage issues.
NIO cars are manufactured by JAC. Although JAC began to cooperate with Baidu, NIO, and Volkswagen in 2017, it performed poorly in sales. According to the latest production and marketing report, JAC’s cumulative sales in 2017 was 222,174 vehicles, down 39.5 percent from the previous year and far less than the annual sales target of 400,000 vehicles. JAC sold a total of 28,263 new energy vehicles, which is ordinary performance in this industry.
Although NIO may make up for the battery life problem by replacing the batteries, this solution is still under discussion. NIO plans to establish 1,100 battery stations nationwide, and has reached an agreement with the State Grid Corporation of China, the state-owned electric utility monopoly. But as this solution is not profitable, the industry considered it to be just a publicity stunt. The establishment and operation of batter stations calls for a huge amount of capital, which requires NIO to have even better financing ability than Tesla.
The NIO ES8 uses a liquid-cooling 70-kilowatt ternary lithium-ion battery pack. During battery replacement, there are potential risks in mechanical structure, interface stability and omission. These all pose extremely high demands on engineering design and product precision. If the design or precision requirements are not satisfied, there could be safety risks during actual usage. This problem poses a big question mark for NIO and JAC.
Li once admitted that “building a car burns a large amount of money. If you do not have $20 billion, you better not enter this industry.” We can see that NIO indeed consumes a lot of money. Its press conferences cost $12.6 million (80 million yuan). Its service center costs tens of or even hundreds of millions of yuan per year. NIO also needs to provide free chargers, life-long warranty, and battery-change stations.
A car analyst said that NIO is going public in the US to raise funds. “It is possible for NIO to go public and get funds before it produces cars. But it is up to investors to decides how much money NIO will receive.”