China's Tesla rival NIO Inc. debuts on NYSE, prices $1 bn IPO near bottom

The global excitement about electric cars is facing a test in New York today. So far, it’s off to a bumpy start.

China’s NIO Inc., which seeks to take on the likes of Tesla Inc., starts trading on the New York stock exchange after raising about $1 billion selling American depositary shares at $6.26 apiece. The electric-car maker, backed by Tencent Holdings Ltd., priced the stock near the low end of its offering amid the tumult in Tesla shares, a global trade war and investor qualms over its manufacturing capabilities and profitability.

The shares opened in New York trading at $6 and quickly dropped as low as $5.35 before rebounding. The shares traded at $6 again at 10:51 a.m.

The sale, which initially valued NIO at about $6.4 billion, will test investor appetite for electric-car makers vying to become a homegrown answer to Tesla in China, where government incentives have helped the country become the world’s biggest market for clean-energy vehicles. The IPO may also be a bellwether for a clutch of Chinese startups such as Byton and Xpeng Motors Technology Ltd., which intend to compete with BMW AG, Daimler AG in convincing customers to switch to battery-powered cars.

“We’re optimistic about the prospects of domestic electric-vehicle manufacturers,” said Xu Dalai, chief executive officer of Shunwei Capital Ltd., an early investor in NIO. “We believe there are chances for startups to change and disrupt the whole industry with technologies. China will see its own batch of unicorn companies standing out. NIO is among them.”

The offering was led by banks including Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co., which have an option to buy 24 million additional shares to cover over-allotments. The shares will trade on the New York Stock Exchange under the symbol NIO.

By going public, NIO is set to attract the same type of intense scrutiny that Elon Musk’s company faces as investors seek proof that it has the manufacturing capacity to deliver on its promises. NIO had delivered fewer than 2,000 vehicles ever up until its IPO filing.

The company is ramping up production of the ES8 SUV, its first commercial product, at a partner’s plant in the eastern city of Hefei. Founder William Li has pledged to deliver 10,000 vehicles to customers by year’s end. NIO needs to sell about 100,000 vehicles a year to break even, according to estimates by Sanford C. Bernstein & Co.

Like many peers, NIO hasn’t secured an EV manufacturing license from regulators, so it tapped Anhui Jianghuai Automobile Group to build its cars. That allowed NIO to start manufacturing while working to build a facility in Shanghai, but it also means many production-related hurdles are beyond its control. Anhui Jianghuai works with other carmakers and also has its own ambitions.

In its prospectus, NIO said it expects to receive a manufacturing license in 2-3 years, and that it plans to use about a quarter of its IPO proceeds to help develop production facilities and supply chain.

“For other startups like us in the new economy and high-tech arena, our takeaway from NIO’s IPO is that we need to lay a solid ground for our company and make good product,” said Freeman Shen, founder of competitor WM Motor Technology Co. The company has a team looking into proposals for an IPO in the U.S., Hong Kong or China, Shen said in March.

Based on its current financials, NIO may appear pricey. It has accumulated $1.6 billion in losses since the start of 2016, and only started generating revenue in the first half of this year, bringing in $7 million.

Tesla was valued at less than $2 billion in its 2010 IPO, and now has a market value of $47.7 billion even after this year’s declines.

NIO’s valuation is based on the market’s expected growth. China targets 7 million new-energy vehicles sold by 2025. By 2040, more than half of all new-car sales and a third of the planet’s automobile fleet -- equal to 559 million vehicles -- will be electric, according to a global outlook published by Bloomberg New Energy Finance in May.

“The listing of the 4 year-old NEV maker in China, with no manufacturing license of its own, is a strong sign that investors have tolerant risk appetite for the burgeoning China NEV market,” said Steve Man, an analyst at Bloomberg Intelligence in Hong Kong. “The growth is backed by favorable Chinese policies for the industry.”