No Major Variables, Geely’s Deal with NIO to be Settled Soon

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Yesterday, a source confirmed to us that Geely’s stake in NIO is settled, there are no major variables, the amount of investment is not less than 300 million US dollars.


The source also revealed that Geely may plan capacity integration for NIO, and in the future, Geely will produce vehicle for NIO.

No Major Variables, Geely's Deal with NIO to be Settled Soon
NIO EC6

For NIO, 2020 would be like a blossoming year.

Yesterday, media reports broke out rumor that Geely plans to invest 300 million US dollars in NIO, we asked Li Bin about this report, he said, “We will not evaluate such market rumours, please use our official announcement as the prevailing one.”

The relevant person in charge of Geely Holdings has also said, “I don’t know about it and would not like to comment on market rumours.”

It is worth noting that although both sides characterized it as a rumour, they did not deny it. On the timeline, this “rumour” is a result of another “rumour” one month ago including Geely, GAC and SAIC, all of which are bidding for NIO with an investment scale of one billion US dollars. Now the promoters are up, and the amount has reduced to 300 million US dollars.

According to the above-mentioned sources, Geely ’s investment in NIO will be similar to the  form of Geely ’s investment in Daimler. In other words, it is just the financial investment, Geely will seek power to interfere with operations and aims to promote strategic harmony.

This strategy will greatly reduce the investment risk of Geely, the price of Geely’s equity investment in NIO should not be higher than the previous conversion price of NIO’s convertible bond financing of $3.07, equivalent to 80.79% of the current stock price of $3.80. As of February 18, NIO had a market value of about $4 billion.

Based on this estimate, the US $300 million can buy less than 10% of NIO’s shares.

No Major Variables, Geely's Deal with NIO to be Settled Soon

NIO’s 2018 financial report shows that the largest shareholder is Li Bin, holding 14.4% of the shares; followed by Tencent, 13.3%; followed by Bailie Gifford & Co., 9.7%. At the time, the fourth-largest shareholder, Hillhouse Capital, cleared its positions before the end of last year.

More important than these figures are the related voting rights, with Li Bin accounting for 48%, Tencent’s 21.6% and Baillie Gifford & Co. ‘s only 4.1%. This is not in tune with the number of shares held.

No Major Variables, Geely's Deal with NIO to be Settled Soon
Li Bin, founder of NIO

Through the rules, Li Bin’s control is very solid. For Li Bin and Li Shufu, who are highly skilled in financial investment, there will be no problems in the process if there is an agreement. The key lies in how Geely views the return on investment of the entire account.

A month ago, we learned that Geely thinks of investing $1 billion. According to the current market value calculation, the equity ratio is about 25%, and Geely will be the largest shareholder (as mentioned earlier, this role is not too great). At the same time, one of their funding requirements is that Li Bin should be replaced, Geely did not want him to be the chairman and CEO, to ensure that the investment project has more fair costs and profits.

We can’t say that dreams have prices. However, if Geely still thinks of buying shares that can get them the right to speak, the amount of negotiation and funding required will be much greater than the price of being the largest shareholder, much higher than $1 billion. Not to mention, Geely would undertake NIO’s future and destiny.

This is not as good as a strategic investor availing the first opportunity. From the reducing investment amount, we can also see Geely has made the choice and probabily reached a settlement about Li Bin’s position.

Right now is a good time to invest in NIO.

NIO’s financial shortage is almost an agreement inside the industry. In addition to the difficult times, it can be imagined that funds are decreasing further. From the employee’s internal letter released by Li Bin a few days ago, we can have a look at a few things:

“We are not the same as other mature companies. We are still a start-up company seeking survival. Corona virus has added to the difficulty of our work. Please, everyone, recognize that we need every colleague to make a living. “

But from the low delivery numbers, we can feel they are doing their best. In January, NIO delivered 1,598 vehicles, a decrease of 11.5% year-on-year, and a drop of nearly half from the previous month. Taking into account the impact of the widespread coronavirus during the off-season of traditional holidays, the effective delivery date in January was only 16 days, which was 6 days less than the same period last year.

At the same time, the continued good performance of the capital circle can also explain the confidence of the outsiders in NIO. Since the beginning of this year, NIO has completed a total of 200 million US dollars in convertible debt financing, targeted at many unrelated investment funds. On Wall Street, as the delivery improved in the third quarter of last year, the financial report also showed higher than expected capital utilization efficiency, and the depressed stock price was also significantly increased. From the fourth quarter of last year ($ 1.32) to today ($ 3.80), the increase has been more than 87%.

In aspect of Geely, NIO is a light asset investment with manageable risks and expected returns.

The source also provided us with two details:

No Major Variables, Geely's Deal with NIO to be Settled Soon
Geely’s latest model ICON to be launched soon

First, Geely values ​​NIO’s marketing and customer service more than product itself. At the product level, Geely’s view is relatively weak, because Geely believe that Geely’s vehicle is not bad. If you put them in relative price ranges, it may be true. Geely is the king in price range of 40,000 to 200,000 (yuan). But it also reflects another layer of self-awareness of Geely’s products which is not premium enough. In a short term, Geely and even other mainstream auto maker are unlikely to occupy more than  market in price that higher than 300,000 yuan.

By investing in shares, Geely eliminated the risk of competitive relationship, and covering the market in price section of up to 300,000 yuan.

Not only in the premium electric vehicle market but also in the luxury SUV market, NIO also has a name, even crossing some second-tier luxury brands. This is a map that other auto companies do not have and find it hard to catch up with.

We can ask another question: why isn’t another company, such as WM Motor, which has a more confusing relationship with Geely. Last year, its annual delivery volume was 16,876 units, ranking second among Chinese EV startups, just behind NIO.

From Geely’s point of view, WM Motor’s product line is more popular and is dependent heavily on the 2B travel market, but this can be done by Geely itself, and with the existing resources and scale, they can do it better. From this aspect, it can be seen that NIO’s brand achievements are unique and are being recognized by the industry.

Secondly, as mentioned at the beginning, Geely may integrates production capacity of NIO, which will be produced by Geely in the future.

This is based on two considerations:

One is the volume of new energy vehicle sales.

Last year, Geely sold more than 113,000 new energy vehicles, with a year-on-year increase of 66.5%. This is a very good result. Compared with the new energy market, it fell 4% year-on-year, which is not consistent. It can also rank among the top three new energy manufacturers in China.

However, by January this year, the situation was worse, and its sales of new energy vehicles were 4,762, a year-on-year decrease of 47.2%. The market was even worse. In January, the total sales of new energy vehicles were 44,000, a year-on-year decrease of 54.4%.

Industry analysts pointed out that the main reason for the decline was the decrease in subsidy and the Chinese Spring Festival holiday. When the corona virus broke out, it had already entered the holidays, which had less impact on January but had a greater impact on upcoming months. This adds to the confusion this year.

The second is that it has extra capacity for new energy vehicles.

No Major Variables, Geely's Deal with NIO to be Settled Soon
Statistics of Geely’s production capacity in 2019

In the middle of last year, Gasgoo’s has done statistics that “relying on more than 20 traditional automobile factories, the current Geely new energy vehicle production capacity plan is over 1.8 million units. Also, if Volvo ’s production capacity in China is calculated, after combining fuel vehicle production capacity, Geely Group’s new energy vehicle production capacity may reach 3.2 million units. ”

Even following last year’s high growth power, related production volume has been already stretched. Transfer to NIO and paying-off the cost together is a very bright operation.

NIO does not suffer losses.

The 300 million investment is a great saver. The important is not on the amount of money, but it is invested by Geely.

As a result, Geely’s investment as industrial capital can improve NIO’s ability to deal with risks.

Secondly, as a Chinese leading auto maker Geely could become NIO’s financing support. In addition to the US $300 million, it is easier to find more money.

Thirdly, looking for Geely’s plant may further reduce the production cost of NIO, thereby improving the overall profit level.

According to Li Bin, improving overall profit is a very important work for NIO in 2020. It will continue to improve in three ways from sales, product combination, pricing, and continuous drop in battery price, it is confident that the overall profit will turn positive next year.

If the deal can be achieved, and with the help of Geely, we may be able to get a profitable NIO in 2020?

(Source