BEIJING -- Chinese automakers Nio, Xpeng Motors and Li Auto together have raised roughly $12.5 billion on the U.S. market in 2020, taking advantage of growing investor interest in electric cars sparked by the recent surge in Tesla's stock.
China's electric vehicle market is approaching a major crossroad, as a key government subsidy expires after 2022 and new players rush in for a piece of the pie. The three companies are eager to take funds raised in the U.S. to expand their sales networks and turn a profit to survive this shift.
Nio, which was founded in 2014 and counts internet services company Tencent Holdings among its investors, raised $3 billion just this month through new share offerings. Overall, the automaker has secured $6 billion in new funds this year, including government investment.
Nio is known for producing the ES6 electric sport utility vehicle, which starts at 358,000 yuan ($54,700). Despite carrying a higher price than the popular Tesla Model 3, the ES6 has been winning new fans through word of mouth.
"It's been a lot of families looking for a second vehicle, or younger customers who like high-tech things," said one dealership in Guangzhou that has sold out of the SUV.
Nio sold about 37,000 vehicles overall in the first 11 months of 2020, up 110% from the same period in 2019. Though the company remains far behind Tesla, it ranks seventh in China's passenger EV market.
"Our cars are better than similarly priced gasoline vehicles," CEO Li Bin said at an event in Beijing this month.
But the company still has yet to turn a profit. Nio faces heavy fixed costs, partly because it maintains an annual capacity of 200,000 vehicles. China's Guosen Securities estimates the automaker needs to bring sales up to 180,000 units a year in order to break even.
The automaker's December share offering will fund "research and development of new products and next generations of autonomous driving technologies" as well as a "sales and service network expansion," the company said.
Nio also aims to expand its battery-swapping service, in which customers exchange spent batteries for fresh ones instead of waiting for them to recharge, to 1,000 locations from around 140 currently. Construction of each location is believed to cost about $480,000.
Expanding Nio's lineup beyond its three current models is another priority.
"It will lose customers unless it can keep coming up with something new," said Tang Jin at Mizuho Bank.
China's EV market can be divided roughly into a luxury sector targeting retail customers and a budget sector aimed at ride-share operators and other businesses. Nio focuses on the former, as do compatriots like Xpeng and Li.
Though Li currently produces only one plug-in hybrid model, it is developing electric cars and is treated as an EV maker in the industry. The company went public in the U.S. in July, followed by Xpeng in August. Both have since raised billions on the stock market, despite offering only a handful of models and turning no profit.
Their fundraising bonanza is part of a greater surge in EV-related stocks. Tesla's shares have jumped more than 600% in 2020, and the company joined the S&P 500 Index on Monday. Nio also has soared exponentially this year.
Roughly 1.12 million new EVs, fuel cell vehicles and plug-in hybrids were sold in China from January to November. The figure is roughly flat on the year despite the coronavirus pandemic, and November sales doubled from a year earlier. The country hopes to lift electric-car purchases by promoting rural sales and prioritizing license plates for EVs.
Competition is growing. Foreign players like Volkswagen and Toyota Motor plan further inroads in China, while non-auto companies like property developer Evergrande Group are angling for a piece of the market as well.
China also intends to eliminate subsidies for EV purchases at the end of 2022. The subsidies already do not apply to Nio vehicles, because they are priced above 300,000 yuan, but the EV sector as a whole could lose steam when they end.
"Competition between EV startups and established automakers will heat up," one analyst said. "Startups face a test on how quickly they can bolster their sales framework."
Companies like Nio also could be harmed by the growing Sino-American tensions, with Washington moving to tighten requirements for Chinese businesses listed in the U.S.