NIO Automobile announced that the company has completed a $235 million convertible bond financing project on March 5, 2020. A month previously, on February 6 and 14, the company has received US$100 million and another US100 million through convertible funds. The three convertible bond financing totaled US$435 million received within a one-month period.
The company has also ushered in the support of another local government and signed a cooperation framework agreement with Hefei City on the heels of lifting the cooperation framework agreement with Beijing E-Town Capital. According to the agreement with Hefei, NIO Automobile’s China headquarters project will be located in the city, with the local municipal government set to invest over 10 billion yuan through a designated investment company and joint market-oriented investors.
The funding, while timely for the company in helping provide solutions to its urgent requirements and needs, is far from sufficient.
NIO Automobile’s third quarter financial report for 2019 stated that the company’s revenue was 1.837 billion yuan while its net loss was 2.554 billion yuan.. Second half performance in 2019 saw the company’s sales rising especially during the fourth quarter with three-month deliveries of 2526, 2528 and 3170 units, a 71.4% increase against the same period of 2018.
It is safer and more stable to try to increase sales instead of raising investments. However, the unit price of the NIO ES8 is exorbitant. At this point, controlling costs, creating more affordable models, enriching product lines and gradually realizing large-scale production should be the company’s top priorities.
When NIO Automobile and Hefei City signed a framework agreement for the China headquarters, Li Bin, announced that the production line of NIO’s coupe-type SUV EC6 will be located in Hefei and that selling of NIO Automobile will begin by the second half of this year. It is projected that NIO Automobile’s financial situation will improve with the listing of the more affordable EC6 model.
However, there is much uncertainty that remains as the establishment of the NIO Automobile China headquarters in Hefei will also require a large amount of capital investment. The infusion of fresh funds notwithstanding, the company is still under severe financial pressure. Primarily, while the production and delivery capacity of the company has improved, the procurement of automotive parts, manufacturing equipment and plant costs, and labor costs will be relatively high. Therefore, the cost of products will also be high and the profit margins low. Even with more than 30,000 vehicles sold since the first car was delivered, profitability has not been realized.
The financial report of the third quarter of last year has reflected that the increase in NIO’s liabilities basically comes from the increase in accounts payable, which shows that the company is employing suppliers’ money to ease some of its financial pressures. However, this may inevitably lead to an increase in the purchase price of parts and components, which will affect the production volume and further limit its production and delivery capacity.
Secondly, NIO Automobile has high operating expenses and huge expenditures in the channels and markets. Li Bin has always respected the “customer first,” sparing no expense in building an offline experience store in the core business district – NIO House. In 2019 alone, 9 new NIO Houses were opened. Presently, there are a total of 87 NIO Houses. In addition, 50 NIO Spaces have been opened in a little more than a six month-period. The number of stores to be built by the end of 2020 is projected to reach 200. There are also the added expenses of advertising, press conferences, NIO DAY.
While the expense did gain brand awareness and prestige for the company’s products, NIO Automobile’s losses in each quarter continued. In the four quarters of 2018, net losses were 1.53 billion, 1.79 billion, 2.81 billion, and 3.5 billion, respectively. In the first three quarters of 2019, net losses were 2.62 billion, 3.28 billion, and 2.52 billion. The net loss for the fourth quarter of 2019 may be less though overall, the result appears far from profitable.
Simultaneous to the increase in funding pressure, NIO Automobile’s funding pressure asset-liability ratio has also increased: 56.7% in the fourth quarter of 2018, and by the fourth quarter of 2019, the asset-liability ratio exceeded 100% to 112.5%.
On one hand, the difficulties in making and raising money is coupled with the difficulty of expanding the scale of production. On the other hand, the debt repayment risk is rising. Overall, the outlook of NIO Automobile this 2020 appears less than rosy and optimistic.