Nio’s $2 bln Christmas gift requires some strings

Christmas has come early for Nio NIO. The Chinese electric-car maker on Monday announced that Abu Dhabi-based CYVN will spend $2.2 billion to bump up its stake to 20.1% from 7% and will also snag two board seats. To make good on its investment, Nio’s partner needs to push for more thrifty habits in the new year.

Founder William Li could use the cash. Although Nio revved revenue by some 46.6% to 19 billion yuan ($2.6 billion) in the three months to the end of September, the cost of sales rose faster, by 55.7%. Meanwhile, net debt could reach more than 6 billion yuan by the end of this year, Jefferies calculated earlier this month.

That means CYVN’s festive funds won’t last long, unless the top line can rise faster or Nio engineers leaner operations.

Growing sales is tough. Dozens of other marques are chasing after a piece of Nio’s home market in China, even though demand for new energy vehicles is growing less quickly there this year. While Nio had a head start as one of the first pure EV brands in the world’s largest auto market, its share fell to 1.2% in the first 10 months of 2023, down from a high of 1.5% in 2020, according to Bernstein. Nio is pursuing exports, too, but efforts to find a foothold in Europe seem somewhat precarious as local policymakers grow wary of Chinese-made battery-powered cars.

Nio has already started to cut costs. However, there is much more to do on that front. It continues to offer extravagant and capital-intensive services such as battery swapping to its clients. And it relies on flashy marketing, including its city-centre “Nio House” clubs, to burnish its brand. Last month, the company said it had more than doubled the size of its sales team, too.

For CYVN, even modest improvements could help it to secure a better return on its investment. The average price per share for its total $3.3 billion infusion since July is $7.85, which by some measures looks cheap. It’s not far off the company’s IPO price of $6.25 in 2018, and a far cry from the 2021 high of $61.25.

Although CYVN now owns more stock than CEO Li, he still holds greater voting power. But if Nio’s new partner can nudge Li and Nio along a different road in 2024, shareholders can enjoy their festive cheer for longer.

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CONTEXT NEWS

Electric-vehicle maker Nio on Dec. 18 said CYVN Holdings, an investment vehicle based in Abu Dhabi, is to invest $2.2 billion in new shares in the Chinese company.

In July CYVN invested almost $740 million in new Nio shares as well as buying a chunk from Tencent for $350 million.

The latest deal, expected to close in the final week of December, would take CYVN's shareholding to 20.1% of Nio's total issued and outstanding stock. CYVN would also be entitled to nominate two directors to the company’s board.

Nio’s New York-listed shares rose 4.6% to close at $8.35 on Dec. 18.