Liquidity Public Markets

NIO, A Chinese Electric Carmaker, Targets $8 Billion Valuation In A Smaller IPO

China is home to a lot of electric car startups.

NIO is one of the companies jockeying for prime position in China’s competitive electric vehicle market, and it is hoping to secure incumbent status by raising money in an initial public offering.

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It’s a story that initially surfaced in May when the company confidentially filed paperwork with the SEC to raise money through U.S. markets. Earlier in August, after learning more about the company’s sales pipeline and financials, Crunchbase News concluded that the NIO IPO looks like a huge gamble.

NIO Sets IPO Deal Terms

Today we’re able to learn more about the company and its heretofore secretive IPO plans.

According to the F-1 filing (which is much like an S-1 filing, but for foreign companies), NIO is hoping to raise as much as $1.3 billion by floating 160 million in American depositary shares (ADS) at a target price between $6.25 and $8.25 (USD).

However, NIO also gave its underwriters a fifteen percent over-allotment option, which, if fully exercised, would result in 184 million shares being issued, raising as much as $1.52 billion if shares price at the top end of their targeted range.

The Wall Street Journal noted that, even at the upper end of its range, the offering is going to be smaller than prior unsubstantiated reports may have indicated. WSJ said the company was aiming to raise “at least $2 billion in its IPO” earlier this year.

The filing also said the company intends to list its shares on the New York Stock Exchange under the symbol NIO.

According to coverage from Bloomberg, the offering “would give the company a market capitalization of about $6.4 billion to $8.5 billion.”

NIO’s last private market valuation, priced in a Tencent-led Series D round in November 2017, was approximately $5 billion, post-money.

Parallels With Tesla

Besides the fact that NIO and Tesla are in the electric vehicle business, the two companies share some other similarities.

Just like Tesla has a backlog of orders for some of its vehicles, NIO does, too. According to WSJ, NIO “had delivered close to 500 vehicles” to customers as of July, and it still has a backlog of 15,761 vehicle orders to fill.

NIO’s capital structure also allocates a very hefty share of voting power to CEO William Bin Li. Elon Musk, Tesla’s CEO, controls approximately 21.9 percent of the company. NIO’s chief executive holds even more sway within his organization.

According to the amended F-1 filing, Bin Li will “be able to exercise approximately 48.3 [percent] of the total voting power of our issued and outstanding share capital.” Through various entities, Tencent, a corporation which has continued to double dip in the electric vehicle market, will be able to exercise approximately 21.5 percent of the voting power.1

Looking Forward

Reports suggest that NIO expects to go public within the next two weeks or so, and there’s a lot that can change between now and then.

Over the past year, Chinese company IPOs on American stock markets resulted in a bit of a mixed bag of opening day results. And given NIO’s financials and relatively thin sales pipeline, there’s good reason to be skeptical of the company.

A valuation of $8 billion is steep for a company which only generated $7 million of revenue in H1 2018 while reporting a $502 million net loss during the same period of time.

Unlike in the United States, where Tesla has dominant market share over a relatively small number of competing companies, China’s market doesn’t have an entrenched incumbent yet. There is always the chance investors will ignore the financials and buy on the growth potential narrative.

Crunchbase News will cover the company’s debut on public markets next month.

Illustration: Li-Anne Dias

  1. The share of voting power reported here assumes that NIO’s underwriters do not exercise their over-allotment option.

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