Tencent-backed Nio fails to hit IPO fundraising target

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Tencent-backed Nio has raised $1bn in its IPO, little more than half the $1.8bn it was targeting, in a worrying sign for Chinese start-ups aiming to tap the public markets.

Nio is the first of China’s 300-odd electric car start-ups to list and its failure to attract the full amount it desired ahead of its debut on the New York Stock Exchange raises questions over the sector’s ability to raise money.

The group priced shares at the lower end of its $6.25 to $8.25 target range at $6.26. This values the business at $6.4bn, according to bankers familiar with the deal.

The lossmaking company is now facing the possibility of having to slow down its expansion plans.

Founded by serial entrepreneur William Li, Nio heads to market as investor sentiment on Chinese companies is wilting.

“In the second half of this year, we may likely see some EV start-ups go bust and some might end up being acquired by big [original equipment manufacturers],” said Wang Honghao, a car industry columnist for Zhihu, a Quora-like social media site. “Maybe only the top five players would be able to survive.”

Early battery car start-ups from Tesla to Faraday Future have faced funding challenges, as the costs of developing, launching and making cars outstrip profits from fledgling operations.

Nio has lost a net Rmb10.9bn-plus ($1.6bn) in the past three years and has come under attack from consumers in recent months over a range of problems including electricity consumption, missed delivery deadlines and manufacturing defects. 

The group’s own IPO documents show that it had $668m of cash at the end of June, and burnt through $461m of cash in the first half of this year.

Costs “will increase significantly in the future” it also warned, with plans to spend $600m next year, and $1.8bn over the next three years.

Although the group has the capacity to raise another $150m if there is demand, missing the original fundraising target may force it to return to the markets within a year, or curb the scale of its own ambitions.

Analysts said it may be forced to delay its next vehicle, trim R&D spending or cut some of its more ambitious projects, such as offering to swap batteries for its vehicles while on the road.

Tencent holds a 15.2 per cent stake in Nio, according to the company filing. Other shareholders include Baidu Capital, Sequoia Capital and TPG Global.

Nio is the first of a trio of big Chinese companies to price this week. It is to be followed by food and services delivery group Meituan Dianping and online content company Qutoutiao.

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