NIO Stock Rises After Company Bags $2.2 Billion Investment from CYVN Holdings

NIO stock (NYSE: NIO) is trading sharply higher in the US premarket today after the Chinese electric vehicle (EV) startup company bagged a $2.2 billion investment from UAE’s CYVN Holdings, its second investment from the investment giant this year.

In the previous investment round in July, CYHN invested $738.5 million in newly issued shares of NIO and purchased another $350 million from Tencent, an existing NIO shareholder.

CYVN Holdings to invest $2.2 billion in NIO

In his prepared remarks, NIO’s CEO William Bin Li said, “We are deeply inspired by CYVN’s vision to accelerate the global transition to a more sustainable future, and we appreciate its endorsement of NIO’s unique values. With the enhanced balance sheet, NIO is well prepared to sharpen brand positioning, bolster sales and service capabilities, and make long-term investment in core technologies to navigate the intensifying competitive landscape, while continually improving execution efficiency and system capabilities,”

He added, “We are confident that NIO will further solidify its leading position in the transformation of the automotive industry.”

The deal would be closed in the final week of December and CYVN Holdings would be entitled to nominate two directors on NIO’s board if its beneficial stake in the company is above 15%. It would be entitled to one director if its ownership is between 5%-15%.

CYVN to get two directors on NIO board

CYVN Holdings is also optimistic about the deal and its Chairman and Managing Director Jassem Al Zaabi,  said, “Our increased investment in NIO represents a continuation of our ongoing strategy to build a leading global portfolio in the mobility space,”

He added, “This transaction demonstrates our confidence in NIO’s unique positioning and competitiveness in the global smart EV industry. We are excited to be a long-term strategic partner of NIO and support its efforts in product innovation, technological breakthroughs and international market expansion.”

Middle East Countries Double Down on EV Companies

Cash-rich countries in the Middle East are doubling down on EV companies as they try to pivot their oil-dependent economies toward green energy. Saudi Arabia for instance has formed a joint venture with Foxconn to produce electric cars in the country. The country’s sovereign wealth fund PIF (public investment trust) is the largest stockholder of Lucid Motors and holds over 60% stake in the company.

Lucid Motors raised $1.5 billion cash by selling stocks in Q4 2022 and did another $3 billion capital raise in 2023. Of this, an affiliate of PIF invested around $3.5 billion. Saudi Arabia was also rumored to take Lucid Motors private.

EV losses spiral amid Tesla’s price war

There has been a brutal price war in the EV industry and Tesla which started the price war last year yet again lowered car prices in the US in October.

The Chinese EV market which is among the most competitive globally has been witnessing a brutal price war. Earlier this year, Tesla along with a dozen Chinese automakers pledged to avoid abnormal pricing and promote “core socialist values.” However, the failed and The China Association of Auto Manufacturers (CAAM) retracted the pledge within days.

NIO reported a massive loss in Q3

The EV price war – which NIO also joined the price war after having previously denied doing so – has taken a toll on the profits of EV startups. NIO reported a net loss of $663.9 million in the third quarter of 2023 and continued its streak of losses. Like fellow startup EV companies, NIO is also looking at ways to cut its losses and cash burn and recently announced a 10% reduction in its workforce.

Meanwhile, even as NIO posted massive losses in Q3, it showed an improvement in other metrics. It generated gross profits of $208.8 million in Q3 and while it was 12.2% lower than the corresponding quarter last year, it was up sharply from the previous quarter. Also, its gross margins also improved to 8% in Q3 as compared to 1% in Q2. The company’s vehicle margin also rose to 11% versus 6.2% in the second quarter.

It expects vehicle margins to rise to 15% in the fourth quarter and is targeting a range of 15%-18% in 2024.

NIO disappointed with its delivery guidance

NIO gave a guidance of delivering between 47,000-49,000 cars in Q4 which implies deliveries between 15,867 and 17,867 in December. While NIO is generally conservative with its guidance, the company’s deliveries have been trailing that of peers in recent months.

For instance, Xpeng Motors delivered 20,041 vehicles in November which was 245% higher YoY and a new monthly record for the company. It was the second consecutive month where Xpeng Motors’ EV deliveries were more than 20,000. Also, its deliveries have risen every month for 10 consecutive months.

Volkswagen invested in Xpeng Motors

Foreign companies have been interested in Chinese EV companies and earlier this year German auto giant Volkswagen took a stake in Xpeng Motors. As part of the deal, Xpeng Motors would build two EVs on its platform and also buy a stake in the company for a total consideration of $700 million. The deal was a pathbreaker for not only XPEV but also the Chinese EV ecosystem as it reflected the confidence of the German auto giant in a startup EV company. It was also a testimony to Xpeng Motor’s self-driving capabilities.

Xpeng Motors expects the deal with Volkswagen to also help improve its margins. It reported a gross margin of -3.9% in the second quarter as compared to 1.7% in Q1 2023 and 10.9% in Q2 2022. The company’s vehicle margin was -8.6% in Q2 2023 as compared to -2.5% in Q1 2023 and 9.1% in Q2 2022.

The company expects its gross margins to improve over time and said that increasing volumes would help its margins to improve in Q4.

Xpeng Motors bought Didi’s self-driving assets

Notably, Xpeng Motors has been advancing its autonomous driving capabilities and in August it also acquired the self-driving assets of Chinese ride-hailing app Didi. As part of the $744 million deal, Didi took a 3.25% stake in Xpeng in exchange for its EV and autonomous driving assets.

Also, Xpeng would launch a new EV brand developed under the project name “MONA” and would produce vehicles in the mass market RMB150,000 price range.

Meanwhile, Xpeng Motors stock is trading flat in the premarket today even as NIO is up in double digits. Looking at the YTD price action though, while NIO is still in the red, Xpeng Motors has gained over 42%