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The NIO IPO Looks Like A Huge Gamble

Morning Report: Electric car company NIO filed to go public in the United States. Let’s dig into its filing.

NIO is a Chinese electric car company that has raised over two billion in capital and brought a car to market. Just. And now it’s going public.

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The company announced its ES8 electric SUV in December of 2017. TechCrunch reported at the time that the ES8 had 220 miles of range, fast charging (fully topped in an hour), and battery swapping tech for $68,000 “before incentives and subsidies.” At that point the ES8 went on pre-sale, allowing customers to put down a nominal amount to reserve their spot in line.

Per the company’s F-1 filing, NIO had “reservations for more than 17,000 ES8s with deposits” and the end of the second quarter, of which “approximately 12,000 consisted of reservations for which only an initial fully refundable deposit of RMB5,000 had been made.” Customers who want to actually buy an ES8 must commit their reserve payment and pay “an additional RMB40,000 non-refundable deposit.”

At the end of June, there were 3,186 such reservations. By the end of July, that figure had risen to 4,989 ES8 SUVs. But those are just reservations. How many cars has NIO sold? And how are its finances?

Few Cars, Less Revenue, Huge Losses

NIO announced the ES8 in December of 2017 and started deliveries in late June of 2018. The company delivered 481 cars through the end of July.

It’s August now, but NIO’s reported financial data only goes as far as the second quarter — the company has very limited revenue-generating history.

That doesn’t mean we can’t look at NIO’s books, of course. So let’s: The company’s revenue of zero in 2016 was met by its 2017 revenue of zero. However, in the first half of 2018 NIO’s top line grew to $6.7 million. That small revenue slice generated a gross loss of $23.2 million.

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From there, things got worse. The company’s operating loss came to $504.6 million in the first two quarters of 2018. NIO’s net loss of $502.6 million in the period was slightly better. Throw in a billion dollar charge for “accretion of convertible redeemable preferred shares to redemption value” due in part to the firm’s comical corporate structure, and the company’s net loss “attributable to ordinary shareholders” swelled to over $1.5 billion in the first half of the year.

There’s more bad news. NIO consumed $549.3 million in cash to operate during the first six months of 2018. Its negative $174.4 million in investing cash flow in the same period was bad, too. Happily, positive financing cash flow came to $286.8 million during the half year. All told NIO’s cash supply went from $1.42 billion at the end of Q2 2017, to $1.14 billion at the end of Q4 2017, to $676.0 million at the end of Q2 2018.

And that’s why the company is going public.

A Gamble

NIO could be the next big thing in cars. Or it could quickly consume its cash and go out like a light. What it lacks is operational history, any proven ability to grow revenue over an extended period of time, and anything approaching a path to profitability.

But it has brought an electric SUV to market and has plans to build more, cheaper vehicles over time. It’s similar in form to Tesla down to its pre-order strategy but younger. However, the more mature Tesla has been roiled of late by the antics of its CEO Elon Musk, who may have tarnished the sector’s overall luster along with his own company.

Telsa itself has a history of staggering cash burn, along with slipped deadlines and ego. If the American company’s struggles will impact the younger Chinese company isn’t clear today.

NIO’s IPO looks like a gamble. But we’ll know more when the company prices. More soon.

Top Image Credit: Li-Anne Dias