Nio Needs to Raise More Money to Survive

A big interest repayment arrives Feb. 1, but Nio will probably come to an end of money upfront

Many reports arrived on Jan. 15 that Nio had raised $1 billion in financing from Guangzhou Automobile Group (OTCMKTS: GNZUF ) wednesday.

But, on the South China Morning Post reported that Guangzhou Automobile had confirmed that it would potentially invest up to only $150 million in Nio thursday.

Nio Is Starving for Money

Nio’s third-quarter report had been released on Dec. 30, 3 months following the end of their matching quarter. The report shows cash that is nio’s was right down to just $274.3 million.

But on June 30, 2019, Nio had $503 million in money and opportunities readily available. Which means Nio lost $228.7 million within the third quarter.

And so the company cannot manage to carry on burning through such huge amounts of money.

Through the third quarter, online installment loans north dakota bad credit Nio burned through $228.7 million. Additionally the company probably burned through an identical quantity when you look at the quarter that is fourth.

Will $150 Million Really Assist Nio?

Nio is going to need certainly to raise a lot more than $150 million so that you can endure. We estimate that by Dec. 31, 2019, the business had $45 million or less readily available

How come i believe therefore? Here’s just exactly what Nio stated about its money stability within the December report:

“The business operates with continuous loss and negative equity. The Company’s cash balance is maybe maybe not sufficient to present the necessary working capital and liquidity for constant procedure within the next year. The Company’s constant procedure … depends upon the Company’s capacity to get enough outside equity or financial obligation funding.”

The report additionally stated it is “working on a few financing projects” and will announce any developments whenever relevant.

Tright herefore here is the problem. By Jan. 31, for a price of $229 million per quarter, Nio will burn off through another $76 million. But it probably just had $45 million on hand at the conclusion associated with season.

Despite having another $150 million from Guangzhou Automobile, that could just provide it $195 million. Possibly the business might survive 8 weeks on that, however it is not yet determined. When I pointed out, the ongoing business is burning $229 million per quarter.

If there is no statement of outside capital by the finish of 2020, investors should likely expect the worst january.

Huge Debt Service Requirements

More over, one analyst had written that by Feb. 14, Nio must create a big interest repayment. Nio offered $650 million in senior notes that are convertible with interest levels at 4.5%, in February 2019. The attention is payable semi-annually.

This means that Nio needs to make a $14.6 million interest payment on Feb. 1 — only a couple weeks from today.

Failure in order to make that payment would place the ongoing business in standard. Also it may likely trigger a true range bad occasions.

Therefore, if Nio understands so it can’t make the repayment, it will probably probably come into a bankruptcy filing, so that you can protect its staying assets from creditors. Regrettably, which will likely imply that current shareholders could end up getting no value due to their stocks.

Even though convertible senior records are exchanging available in the market well below their par value, they have now been exchanging higher in past times many weeks. Perhaps these investors suspect that Nio can pull down a funding round. Possibly the Feb. is believed by them 1 re payment may be made on time.

Therefore, that knows really what’s going to take place with Nio’s funds? If Nio makes the interest re payment aided by the $150 million from Guangzhou, it can perhaps not leave enough money to survive.

The Important Thing on Nio Stock

To express that Nio stock is very speculative will be underrating the specific situation. I have already been warning in regards to the company’s funds in many of my articles that are previous.

A very important factor is certain. There’s no margin of safety right here. This is simply not a play for protective investors. In reality, it seems very most likely that Nio stock will come right into bankruptcy.

Which may suggest investors in Nio stock would end up with no value because of their shares.

A proven way the business could endure is if it offered it self or a sizable amount associated with business. We penned about that at the beginning of December. Whatever the case, it could nevertheless mean an enormous dilution for current investors.

So if you were to think that there surely is a future for Nio then choose the stock. At this stage, it would be a significant bargain if you think both the company and the present Nio stock will survive. Needless to say, there are not any guarantees about whether Nio stock will endure whatever “financing project” that the vehicle company will come up with.

Around this writing, Mark Hake, CFA will not hold a situation in every associated with the aforementioned securities. Mark Hake runs the Total give Value Guide which you are able to review right here. The Guide is targeted on high total yield value shares. Readers get a two-week trial offer.