(Bloomberg) — A rally in the price of Nio Inc.’s convertible bonds isn’t enough to allay concerns over the Chinese electric vehicle maker’s financial health, analysts say.
Nio’s 3.875% US dollar notes due 2029 have risen this week, buoyed by positive sentiment surrounding the sector as auto executives from around the world gather in Shanghai for the nation’s premier car show. But only earlier this month they were at 67.65 cents on the dollar — a level widely considered distressed and the lowest in seven months.
Nio’s shares haven’t fared much better. They’re down 10% since January and far off highs seen in 2021 when optimism that Nio, Li Auto Inc. and Xpeng Inc. — the trio of US-listed Chinese EV startups — could take on legacy automakers was at its peak.
Nio said in a statement that it prudently manages cash flow and maintains a flexible capital markets strategy.
“The price war that’s been going on in China’s auto market over the past three years has weighed heavily on Nio,” Sandeep Rao, a researcher at Leverage Shares Plc, said. “There could be some turnaround if Nio manages to launch and successfully retain market share through its budget cars.”
That’s looking increasingly doubtful.
Nio, which in 10 years hasn’t managed to make money at home on a full-year basis, is now recalibrating its expansion strategy in Europe due to increasing challenges there. The launch of Firefly, an entry-level brand that sells only one model, has been delayed and the carmaker is coming to realize its self-operated direct-sales network and ambitions around battery swapping might not fly overseas.
In China, Nio is up against intense competition from the nation’s No. 1 selling marque, BYD Co., as well as EVs from Tesla Inc. and Zeekr, which also play in the premium market. Previously only selling cars under its eponymous brand, Nio has now adopted a multi-brand strategy, introducing a mass-market offering, Onvo, and the even more budget friendly Firefly.
Regardless, Nio last month flagged first-quarter results that are likely to disappoint after finishing 2024 on a weak note. The high research and development expenses and large operational costs it incurs as it seeks to cultivate a lifestyle story around its cars is a key drag.
In the face of such challenges, Nio has been raising funds, mainly from external investors.
Contemporary Amperex Technology Co. Ltd. in March agreed to invest up to 2.5 billion yuan ($343 million) to help build out a battery-swapping network across China while Nio in September secured 3.3 billion yuan from a consortium of strategic investors including Hefei government-backed funds that it used to help repurchase $378 million of other convertible notes due 2027. It got a $2.94 billion capital injection from Abu Dhabi’s CYVN Holdings in 2023.
More recently, Nio raised HK$4 billion ($520 million) via an equity placement.
“Nio isn’t in a liquidity crunch given its sound access to equity market funding and cash is adequate to cover short-term maturities in 2025,” Zerlina Zeng, the head of Asian strategy at Creditsights Singapore LLC, said. “But I don’t see any clear positive earnings catalysts given the persistent industry pricing pressures” so there isn’t much of a buying opportunity, she said.
Others are even less complimentary.
“Recently most of the external funding has been equity investment, betting the company can turning losses into profit,” Yu Yao, the founder of Shenzhen-based credit research firm RatingDog, said. “With its declining stock price, the debt repayment risk for Nio’s convertible bonds will intensify.”
–With assistance from Charlotte Yang.
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