The government of Abu Dhabi is set to acquire a 7% stake in Shanghai-based electric carmaker Nio Inc. The move will give the struggling automaker a boost as it grapples with losses and uncertain demand in China's increasingly competitive EV market. The deal will also grant CYVN Holdings LLC, an investment entity controlled by the Abu Dhabi government, a seat on Nio's board.
To achieve the 7% stake, CYVN is purchasing approximately 85 million newly issued Class A shares for $738.5m in cash, equating to $8.72 per share. CYVN is also acquiring a further 40 million shares from Chinese internet giant Tencent Holdings Ltd.
Nio had a challenging start to the year, with net losses in Q1 being higher than expected due to a drop in shipments. As a result, the company faced concerns that it was losing its footing in the highly competitive Chinese auto market. Nio CEO William Li has reacted to this by cutting the prices of all models sold in China and pushing back a goal to break even by the end of 2021.
The capital injection from Abu Dhabi will provide Nio with the necessary boost to accelerate its business growth. Li said in a statement that the infusion "will further strengthen our balance sheet to power our continuous endeavors in accelerating business growth." The deal also includes an agreement to "jointly pursue opportunities in Nio's international business."
As part of the deal, CYVN will be allowed to nominate one director to Nio’s board as long as it maintains at least a 5% stake.
Among the three Chinese EV makers listed in the US, Nio has been expanding into Europe while also developing an extensive network of battery swapping stations. The company is aiming to double sales to 250,000 electric vehicles this year, with a mass-market brand potentially being launched as early as 2024.
Li insisted last week that he is still "confident" Nio will reach its goal of delivering more than 20,000 cars every month in H2 2021. However, following the disappointing start to the year, he announced the need to postpone some research and development plans, delay some investment in fixed assets, and be more cautious regarding overseas expansion.
Nio's shares fell 1.7% at 11 a.m. in New York despite the positive news.