Shanghai-based electric vehicle (EV) maker Nio Ltd. (NYSE: NIO) announced Tuesday morning that it had entered a framework agreement with the municipal government of Hefei, a city of more than 4.2 million residents in Anhui province located about 200 miles west of Shanghai. Hefei is Nio’s main manufacturing and assembly center.
The agreement comprises funding from Hefei in exchange for moving Nio’s headquarters to the city and expanding and deepening Nio’s “relationship with local ecosystem partners in Hefei.” Details remain to be worked out, but Bloomberg has reported that the company plans to use the agreement to help it raise more than $1.4 billion in new capital.
Although many of China’s electric car makers are aiming to build less expensive vehicles for the Chinese market, Nio is following a path similar to the one that Tesla Inc. (NASDAQ: TSLA) paved in the United States. Nio’s first vehicle was a sports car, the EP9, of which Nio sold exactly six at a price tag of around $1.5 million per vehicle. Tesla’s original Roadster, of which 1,000 copies were built, sold for $250,000 apiece.
Tesla’s second vehicle, the Model X SUV, carries a starting price of around $81,000. The Nio ES8, a competing luxury sport utility vehicle, is Nio’s second model and carries a sticker price beginning at $67,000. The price for each can go much higher.
And if there’s one area where Nio surpasses Tesla, it’s in the Chinese company’s ability to burn through great piles of cash.
Both companies now are taking aim at the crossover market, with Tesla prepping its Model Y for delivery in China by late 2020 and Nio expected to begin selling its ES6 crossover around the middle of 2020. In September, a smaller crossover, the EC6, is expected to go on sale in China.
All that chatter and all that hopefulness came well before the coronavirus (Covid-19) outbreak in the city of Wuhan, in Hebei province. Hebei shares its northeastern border with Anhui, and Wuhan is about 150 miles from Hefei.
As of Tuesday morning, Anhui province has reported 988 cases of Covid-19 and eight deaths, far fewer than the 64,786 cases reported and 2,563 deaths reported in Hebei province. The totals for mainland China are 77,658 reported cases and 2,663 deaths.
Robin Zhu, an analyst at Sanford C. Bernstein, told Bloomberg that Nio’s deal with the municipal government was a bailout and that the firm “remain[s] dubious over the company’s fundamental outlook, and remain[s] concerned about Tesla competition. But the existence of a government backstop means the ‘EV call option’ thesis for investing in NIO gains some credibility.” Bernstein lifted its rating on the stock from Underperform to Market Perform and maintained its price target of $4 per share.
In the late morning Tuesday, Nio shares traded up by about 18.7%, at $4.61 in a 52-week range of $1.19 to $10.64. The consensus price target on the stock is $21.25. Average trading volume is just over 75 million shares a day. More than twice that many shares had changed hands so far in Tuesday’s trading session.
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