Considering that Nio is carrying $1.5 billion in debt and that its free cash flow for fiscal 2019 is expected to be negative $1.4 billion (about 9.8 billion yuan), the recently announced new financing seems to be in vain, according to Bloomberg.
Since its founding in 2014, Nio has lost a total of $6 billion. No matter what kind of financing project it is carrying out, it may need very large funds to help stop bleeding.
On February 25, Nio announced that it had signed a cooperation framework agreement with Hefei, Anhui Province, where Nio's China headquarters will be located in Hefei.
According to the preliminary agreement, Nio will establish the Nio China headquarters in Hefei, establish R&D, sales, and production bases, and build an operating system of the China headquarters centered on Hefei.
Hefei City will lead the organization in strategic investment in Nio, and the investment amount is agreed to be not less than 10 billion yuan.
On February 14th, Nio also announced that it had signed convertible bonds with two Asian investment funds that had no relationship with them to subscribe for a total of $100 million in convertible bonds.
Earlier on February 6, Nio said that it had completed a total of approximately $100 million in convertible debt financing.
As a result, the total financing of all non-publicly issued convertible bonds announced by Nio so far in 2020 will reach 200 million US dollars.
Nio's lack of money is an indisputable fact. According to the third quarter financial report released in January, the company had only $274 million in cash at the end of the third quarter.
The company told shareholders that the company can only survive if it raises new funds quickly. Nio's third quarter net loss was $357.3 million.
Nio wrote in the financial report at the time: "The company's cash flow is not enough to provide the working capital and liquidity needed for continued operation in the next 12 months." "The company's continuing operations ... depends on whether the company can obtain sufficient external equity or the ability to finance debt. "
Nio also said that there are currently "several financing projects underway” but did not disclose at what stage these projects are at or how much funding may be brought to the company.
In addition, due to funding difficulties caused by the outbreak of the new coronavirus, Nio even postponed the payment of employees' wages in January, and also launched a plan for employees to voluntarily participate in replacing 13 salaries into restricted stock (RSU).
According to analyst forecasts compiled by Bloomberg, Nio's losses will continue to expand, with losses expected to reach $1.2 billion in 2020 and revenue of $1.7 billion.
Before cooperating with Hefei City, Nio had contact with Beijing, but then the project was stranded, and investment could not be left. In the first half of last year, Nio announced that it has signed a framework agreement with Beijing Yizhuang International Investment Development Co., Ltd.
According to this agreement, Nio will set up a new entity "Nio China" in the Beijing Economic and Technological Development Zone and will contribute 10 billion yuan in cash to acquire the non-controlling shareholders' equity held in "Nio China".
Nio's investors include Tencent, Bailie Gifford & Co. (Tesla's larger investor) and Temasek Holdings Pte.
The company has been burning money since going public in 2018. Bloomberg quoted Goldman Sachs analysts as estimating that Nio burned about 1.5 billion yuan to 2 billion yuan in the third quarter and will have 14 billion yuan in cash out before it breaks even in 2023.
Therefore, the Hefei government's funds cannot quickly reverse the Nio business at such a rate of burning money. Part of the fundamental problem is that the company does not manufacture cars itself, but instead produces them at JAC Motors in Hefei. The two parties signed a five-year cooperation agreement in 2016.
However, the cost-effectiveness of such a car manufacturing method is questionable: In the first three years, Nio paid for each car and paid for the factory's operating losses. It is unclear what the specific arrangements are.
Nio set up the factory after many twists and turns. Earlier, the company planned to build a factory in Jiading, Shanghai. However, due to funding problems or the impact of Tesla, the self-built factory plan was eventually cancelled, and the JAC OEM model was still continued.
Despite a slight increase in car sales, Nio continues to make ends meet. In the third quarter, the cost of sales of Nio and other products increased faster than revenue.
Its cost of sales rose to 2.1 billion yuan, up 2.3% from the second quarter and 30% from the same period last year. Research and development expenses decreased compared with the second quarter, but compared with the same period last year, it was almost the same, at 1.02 billion yuan, accounting for nearly 60% of total revenue.
Nio has spent a full year cutting costs, including layoffs of more than 2,000 people worldwide. The layoffs were aimed primarily at the company's employees in China, but the North American headquarters was also hit hard.
In 2019, Nio made three rounds of layoffs at its Silicon Valley branch, eventually cutting about 300 of its more than 600 employees and closing an office in San Francisco.
Nio's new funding is best spent on building a solid car, rather than spending heavily on marketing expenses.