Nio’s New Years Day surprise
Nio, China’s once-vaunted answer to Tesla, had a difficult 2019.
After listing on the New York Stock Exchange in 2018 to much fanfare, raising $1bn in the process, the electric car company has been in a state of seemingly perpetual crisis as it’s staggered, like a newborn giraffe, from one problem to another.
There was the recall of 5,000 cars. The resignation of its chief financial officer. The negative gross margins on its vehicles. The cancelled, then restated, second-quarter conference call. And the $200m convertible bond deal that was announced in September, but never confirmed as closed.
But the biggest problem of all, as Alphaville wrote in early December, was Nio’s cash balance.
After reporting $491m in cash and cash equivalents on June 30, little was heard about the state of its coffers since. A particularly acute issue as Nio burned through $619m in the second quarter alone.
Imagine the relief for its largely international investors then, when Nio announced it was going to hold its annual general meeting on the convenient date of New Year’s Eve, in the even more convenient location of Shanghai.
For those too lazy to attend the festivities, Nio did also provide its third quarter figures on the day after a torturous three month wait and surprise, surprise, they weren’t good.
Here they are in full:
Just the negative 12.1 per cent gross margin on its vehicles this time around. Perfectly normal.
All eyes, however, were on its cash balance which came in at just $274m as of September 30 -- down $217m from the second quarter. The question, though, was whether this included the $200m convertible bond, financed by Tencent and founder William Li, which was announced in September but never confirmed as closed?
Well, we finally got an answer, Nio’s chief financial officer revealed on the ensuing conference call [transcript via Sentieo]:
As everyone knows, Tencent and William has signed contract with NIO to -- for USD 200 million CB [convertible bond], in third quarter. Tencent's CB has already been closed so the USD 100 million from Tencent is already in our Q3 report. And also, USD 90.5 million were received from William, the rest, USD 9.5 million are being processed, and the transactions will close soon. Perhaps, as a reminder, the key CB terms, investor could be equipped to find them an announcement on September 5.
So absent that extra $100m from Tencent, Nio would have had just $174m in the bank at the end of September, and that also means its quarterly cash burn was $317m.
These calculations are Alphaville’s own as Nio did not provide a cash flow statement in its letter (as an ADR, it is under no obligation to do so in its quarterly figures) but it is fair to say that $274m, plus the extra $90.5m from Mr Li, is just over three months worth of cash and, in case you weren’t aware, it’s now been three months since September.
There are some mitigating factors, however. Alongside some positive momentum in car sales, which should improve its cash position, Nio did reveal on the call that they’ve been taking several cost saving measures -- including layoffs and slashing its research and development budget -- and are also actively exploring new financing options. But in the week since the results (yes, it’s been that long since New Years Eve), there’s been no news of fresh capital.
Despite how precarious the results looked, however, it’s also been bad news for the short-sellers betting against Nio’s tradeable securities. The shares are up 65.8 per cent in the last month, as the results were better than expected (yes, you read that correctly), whilst the $750m convertible bond has traded up 21 points to 49.50, and is now offering a yield of 24.9 per cent, according to Bloomberg.
But that doesn’t mean concerns over Nio’s cash pile have gone away, and a financial deadline looms. In just under four weeks, on Feb 3, its due to pay a $16.9m coupon to the holders of its distressed convertible bond.
That may not sound like a lot to a company with a market capitalisation of $3.9bn, but absent news of financing in the interim, it may prove to be a more critical juncture than it should be.