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Electric cars in China

China startup NIO gains $1bn state funding to chase Tesla

EV maker's crucial deal in Anhui follows attempts with Beijing and Shanghai

Chinese electric-car maker NIO brought a car to New York to celebrate its initial public offering there in 2018.   © Reuters

NEW YORK/PALO ALTO, U.S. -- When Chinese electric-car maker NIO sealed a 7 billion yuan ($1 billion) deal with a group of state investors Wednesday, the company wasted no time spreading the word to potential buyers.

Many consumers, while admiring NIO's vehicle models, have been on the fence about making a purchase, as they feared the Nasdaq-listed auto startup might go out of business, which would make future maintenance and battery charging difficult, if not impossible.

Having secured a new financial lifeline, the company reassured these consumers that its existential crisis is over. "Thank you," NIO said on Weibo, the country's domestic alternative to Twitter. "Now you can set your past worries aside and make a purchase!"

The new government investment comes after at least one similar deal collapsed, as NIO, whose Chinese name means "blue sky is coming," races to ensure cash flow while facing growing competition from American rival Tesla.

The funding is led by Anhui Province and its capital city of Hefei, the home base of NIO's longtime manufacturing partner, state-owned JAC Motors. CMG-SDIC Capital, a vehicle affiliated with the central government of China, also serves as a lead investor.

"This is awesome! At long last," Li Xiang, founder and CEO of fellow Chinese EV maker Lixiang, congratulated NIO via Weibo. "To be frank, the auto market is vast but also exceptionally tough. If only three of the over 100 new automakers in China can make it, we will strive to be one of them and hope the two alongside us will be NIO and Xpeng."

NIO's major rival, EV maker Tesla, now poses a mounting threat to the company as the California-based automaker has begun production at its Shanghai Gigafactory, allowing for further price cuts.

The U.S. carmaker reportedly is weighing another price cut after China last week announced its latest policy on subsidies for new-energy vehicles. The Finance Ministry said it will cut these subsidies -- including for electric cars -- by 10% this year, and that the subsidy will apply only to passenger cars costing less than 300,000 yuan, or around $42,390.

Tesla's China-made Model 3 sedans are priced at 323,800 yuan before subsidies, which disqualifies the automaker for the government incentives without an additional price cut.

NIO, which positions itself as a maker of premium electric autos, has priced all its vehicles above the threshold.

NIO surged over 17% during morning trading in New York. But the automaker remains far below its share price prior to a slowdown sparked by a major rollback in state subsidies for electric vehicles last year. A battery safety incident in 2019, which resulted in a massive recall and falling demand for the company, deepened NIO's financial woes.

The EV maker will place the headquarters of its China operations in Hefei's economic and technological development area as part of the agreement.

This move suggests that a deal announced last May between NIO and Beijing's municipal government has fallen through. The company had said it entered a framework agreement with Beijing's economic and technological development area that would see $1.5 billion in funding, as well as the establishment of NIO China -- then a new entity -- in that zone.

The agreement with Beijing came just two months after NIO announced the cancellation of a plan to build its own manufacturing plant in Shanghai as part of a deal with the city's government. The cancellation sent the company's shares tumbling.

The automaker, backed by the likes of Chinese internet giant Tencent Holdings, disclosed a net loss of 11.3 billion yuan ($1.6 billion) in 2019 -- widening by 17.2% on the year -- on revenue of 7.4 billion yuan. The company held only about 1 billion yuan in cash and cash equivalents at the end of 2019.

Though deliveries in the October-December quarter rose slightly on the year, revenue during the period declined by 17.1% as the company's lower-priced ES6 model made up most of these shipments.

NIO expects sales for the first three months of 2020 to drop by more than half compared with October-December due to the coronavirus outbreak, founder and CEO William Li said in an earnings call last month. But the automaker is well-positioned to meet its full-year delivery target despite the setback, he said.

Within a year of the company listing on the New York Stock Exchange in September 2018, NIO lost 85% of its share value as the cash-strapped EV maker continued widening its loss. The company laid off thousands of workers worldwide and undertook cost-cutting measures to slow the cash burn, yet it still faces additional challenges from a slump in the auto market and intensified competition in China.

Tesla delivered 10,160 vehicles in China during March, its best month yet, data from the China Passenger Car Association shows. NIO sold 4,185 cars in the three months ended March, a company filing shows.

During the past few months, NIO announced three separate deals raising a total of $435 million through short-term convertible notes from several Asia-based investment funds.

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