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Tesla Competitor Nio Surges 35% after Funding Talks with Hefei Govt

Nio inc (NYSE: NIO) stock rose more than 30% on Tuesday. The rise happened after the company indicated a landmark agreement with the Heifei municipality in China.

Could Nio becomes the new Tesla Inc (NASDAQ: TSLA)? The time will show. At the time of writing, NIO stock is trading at $4.60 indicating a rise of 4.55% within a trading day. TSLA is doing not so well today. Being traded at $784, it has lost around 1.90%.

Its main factories are located reportedly within the Heifei region. Sources also indicate that the manufacturer plans to raise about 10 billion Yuan or $1.42 billion from the deal. This will help the company greatly as it currently has several cash issues. 

Dwindled demand and declining government support have been blamed for a weak market for electric vehicles in China. This deal seems to have provided the much-needed breather for Nio. As per the deal, the Heifei municipality will provide financial and other resources for Nio. Nio also intends to set up its corporate headquarters in Heifei. 

The automaker indicated in a press release that it “plans to establish Nio China headquarters, further expand its operations and deepen its relationship with local ecosystem partners in Hefei.”

The automaker had this month issued about $200 million worth of debt. This debt is in the form of short-term notes. The company has reportedly had financial following its recent performance in the market place. With only about 20,000 of its vehicles (ES6 and ES8), Nio is still small-time when it comes to electric vehicle manufacturing. Tesla, on the other hand, has sold about 370,000 last year. Nio has also had a 30% increase in its debt burden since last year. As of September 2019, the net debt had risen to $1.3 billion from $1 billion in 2017. This also indicates a higher than normal debt profile for a company looking to scale things up in terms of profits. Tesla has had a few months of free positive cashflow. Nio has been slicing through its cash. 

With only about $250 million in cash as of September 2019, Nio has been seen by many investors to take on higher than normal risks. The company reportedly had been having costs of about $400 million. The net difference has been reportedly fueled by debt. Many have feared that breaking even for Nio could be an issue if demand for its vehicles doesn’t pick up. 

American Depository Receipts (ADRs) were also up by about 13.5 percent. This is an indication that foreign inflows’ from the US may shore up ay gaps in local investments in Nio. This, however, is tied to its profitability. Several investors have reportedly raised predictions of the ADRs to rise to $4. Others, however, view the price target as speculative as full details of the company’s finances aren’t available on any standard US SEC filing. 

The agreement is also long-term as Nio intends that Heifei Municipality will be its home in China. New manufacturing facilities are also reportedly a part of the deal. This represents one of eight deals that the municipality is making to help grow its economy. It also comes amidst COVID-19 concerns. Hefei is the capital city of China’s Anhui province. 

Tesla Competitor Nio Surges 35% after Funding Talks with Hefei Govt

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