After getting wind of Tesla’s contemplation over going private, Chinese electric car manufacturer, NIO, is rushing to go public to fill in Tesla’s void – and to raise additional $1.8 billion for its rising operational costs. Tesla CEO Elon Musk said he may use Saudi Arabian capital to finance the company’s move in the near future.
But NIO’s financial figures may disappoint potential investors.
During the previous three years, NIO suffered average losses of $100 million each year. Relevant stakeholders have started to question the profitability of the company in the short term, as well as its ultimate future. In the past three years, NIO has lost more than $1.6 billion.
NIO, for its part, remains optimistic. In its IPO documents, NIO boasted about being a pioneer in electric car production and redefining the idea of car ownership. Its flagship product, the ES8, has received more than 17,000 orders. Regarding its long-standing financial losses, the company argued that NIO is still in its research and development phase. The company’s primary goal is not to turn a profit but to attract investors and grow.
If NIO goes public in the United States it will be a first for Chinese electric car companies. Established in 2014, the four-year-old electric automobile manufacturer sees the United States as its future source of investments. Analysts and experts in the field said the company may find it difficult to attract additional investors in China. Companies such as Tencent and Hillhouse Capital Group are among NIO’s current investors.
NIO No Selling Point?
While NIO’s IPO documents and grand mission statement sound great, the company has yet to find a unique selling point to survive in the competitive automobile industry.
The mere idea of electric cars, new energy or self-driving cars could be inspiring for some. However, when it comes to owning a car, many consumers are more concerned about maintenance costs, quality assurances and price. NIO has yet to prove its competitiveness against established car manufacturers such as Volkswagen, Toyota or Ford in these factors and fields.
For car owners, driving an electric car is not that different from driving a gasoline-powered car: at the end of the day, it’s about getting to the destination in a safe and speedy manner. Reliability – not originality – comes first.
Some would argue that Tesla’s success has proven that market for electric cars. However, as with many products developed by Apple, cutting-edge creations must be the best of the best to attract consumers.
It’s a winner-take-all market segment, and there is little room for a runner-up. For those interested in new technologies it would be a no-brainer to pick between NIO and Tesla. Even if Tesla costs more, the majority of the consumers have shown their interest in the vehicle with their purchasing decisions.
The greatest challenge NIO faces is its lack of a clear strategy that will lead to profit. Without significant advantages over Tesla, NIO will never be the winner in the new-energy auto sector. That will leave NIO in a permanent loss spiral unless the company shifts its corporate strategy to focus on research and development.
Behind NIO’s Public Offering?
An extra $1.8 billion could help NIO to cover up its nearly three years of losses. At least that’s what previous numbers show. But what investor would be willing to cover a company’s loss with his own money?
The idea of investing in the stock market is simple: buy a stock because of the company’s extraordinary performance and profits. As a shareholder, you might be able to share a part of that profit. When the company performs well its stock price rises. As a shareholder, you enjoy the capital gains made by the company and the company acquires the cash it needs through your purchase.
So why would someone invest in a company that is suffering losses? Some argue the loss is only temporary and these companies have a bright future.
Yet there could be another version of the story: a tragic one. Going public is no longer a way for companies to raise money. Rather, it is a way for private investors to cash out from their gains or losses. It is liquidity, not opportunity, that the investors are looking for.
It remains uncertain which case NIO belongs to. Perhaps we will have a clearer answer by the time NIO’s stock begins to trade.