Qin Lihong, president of NIO Automobile recently allayed speculations that the company is leaving Shanghai on the heels of an agreement with Hefei regarding the transfer of its headquarters to the province. He said that “Shanghai is still the global management headquarters,” adding that NIO still has very good cooperation with Shanghai…” and that the company has actively communicated with the Shanghai Municipal Government.
The signing ceremony for the concentration of major industrial projects in Hefei was held last February 25. Eight key projects involving new energy vehicles, integrated circuits, medical health, industrial Internet, and equipment manufacturing were signed. Total investment reached 102 billion yuan. The most prominent among the agreements signed was the NIO Automobile’s China headquarters project.
Li Bin, the founder of NIO, traces his roots to Hefei. It is also where NIO Automobile had its beginnings. In the early years of the company, JAC Motors, with the support of the province, invested 2.5billion towards the building of a new factory for NIO.
With the company’s return to Hefei, it expressed that NIO’s move is giving investors confidence and increasing the bargaining chip for future financing and industrial capital games.
Global headquarters in Shanghai and China headquarters in Hefei to co-exist
Sources learned that NIO and NIO CHINA are in fact, two entities. This means that in the event that NIO Automobile sets up its China headquarters in Hefei, Shanghai will still serve as the global headquarters, with the existing structure and business operations remaining unaffected. Industry insiders opined that the establishment of NIO’s China headquarters in Hefei will be due to the consideration given to the government’s commitment to financing support and industry-related subsidies and incentives.
The framework agreement signed with Hefei involves the settling of NIO’s China headquarters in Hefei, the establishment of R & D and production bases, and the deepening of relationships with local industrial chain companies such as JAC. The JAC NIO EC6 mass production was launched simultaneous to the signing ceremony. The investment will bring in taxes and employment for the province.
GAC, Geely, etc. can still be potential investors
The cash flow difficulties of NIO Automobile are an industry open secret. In the past, Geely had intended to aid the company.
Qin Lihong was quoted as saying that “the mixed reforms uploaded… listing in China’s STAR Market, 14.5 billion (yuan) investment are all rumors, the rumors have no basis, I do not make too much evaluation.” However, he also said that the total investment scale will exceed 10 billion yuan.
Even with promise of the Hefei government to invest in the headquarters project, the government’s funds will still have to come from investors. Qin Lihong further said that “other financing is not exclusive. A startup in Chinese automotive industry like NIO with such a large amount of capital must definitely continue… and these will not be mutually exclusive.”
While the signing ceremony with the Hefei government gave investors confidence, the move also sent out a message that institutional investors who want to invest NIO must be the ones who will not push the prices too hard.
Industrial investors have harsh conditions relative to the government with decision-making and execution taking longer. Some sources said that where the GAC investment is more based on sentiment, the Geely investment will more inclined towards business complementarity and the bottom line. Industrial investors will always have a desire for controlling the business. Li Bin, however, by all appearances, prefers to have autonomy.
Is the industry-finance model Li Bin’s compromise?
NIO may just acquire low-cost industrial land from Anhui Provincial Government through the name of a joint venture with JAC Motors and the relevant industrial fund of the provincial government. It will then use the land allocation as lure to introduce relevant real estate industry fund development. Divided into portions, the developed property and land title certificate are mortgaged to obtain financing. This is the industry-finance model.
This model matters little as to whether it concerns the transfer of the company’s Chinese or global headquarters to Hefei as long as there are local governments that will be willing to cooperate, and that banks and industrial funds can be relayed. Government endorsement, land and housing mortgages, and industry-finance fund guarantees are crucial to the emergence of bank financing. This is the way many industrial and finance projects operate in the Chinese market.
With the increase in production and sales, NIO’s market value will continue to increase and the company’s capital chain problem will find a solution. The simplicity of the industry-finance model notwithstanding, Li Bin was disdainful at the beginning. It was revealed that Li Bin has many opportunities to seek government cooperation in the past but was reluctant to be “abducted” by local governments. This was reportedly the rationale behind the company’s decision not to set up a headquarters in Hefei in the beginning and opting for Shanghai instead.
NIO also had the opportunity to cooperate with Changan Auto on new energy vehicle to combine with Chongqing municipal government, however the idea was rejected by Li Bin. The company was also rejected by Beijing E-Town Capital during a time when it was undergoing financial turmoil.