Chinese EV Start-up Nio Plans to Raise $1 Billion to Reduce Debt and Strengthen Balance Sheet

Chinese electric vehicle (EV) start-up Nio is seeking to raise $1 billion through the issuance of convertible senior notes in an effort to reduce debt and strengthen its balance sheet. The Shanghai-based carmaker plans to issue two batches of $500 million notes, which can be converted to American depositary shares (ADS) maturing in 2029 and 2030.

Nio’s move comes after it received $740 million from Abu Dhabi government-backed firm CYVN Holdings through a share placement. The company intends to use a portion of the net proceeds from the notes offering to repurchase existing debt securities, while the remainder will be used to further strengthen its balance sheet and for general corporate purposes.

Nio, along with Guangzhou-based Xpeng and Beijing-headquartered Li Auto, is seen as China’s answer to Tesla. These companies assemble premium EVs with high-performance batteries, advanced in-car entertainment systems, and preliminary autonomous driving technology. While they trail behind Tesla’s Model 3 and Model Y in terms of sales, they face fierce competition from nearly 200 players in China’s EV market.

Li Auto is currently the only one among the Chinese trio that has turned a profit, driven by strong sales of its SUVs with extended-range battery technology. The other companies, including Nio, are facing the challenge of preserving cash and reducing leverage ratios to ensure long-term financial health.

Nio incurred losses due to a price war in the mainland’s car industry earlier this year. However, sales rebounded strongly in June after the price war ended. The company recently began taking orders for its new EC6 coupe SUV and is optimistic about its outlook, projecting a significant increase in deliveries to Chinese customers compared to the previous year.

Despite the positive momentum, investment bank Jefferies expressed skepticism, highlighting potential challenges related to sales channels, capacity expansion, and the construction of battery swap stations that could impact margins in the second half of the year.

– Nio plans to raise up to $1 billion in convertible notes; source: Bloomberg
– Chinese EV makers poised for global expansion thanks to cost edge: UBS; source: South China Morning Post