China's 'Tesla' Raises $650 million in a Convertible Bond

The Shanghai-based NIO Inc is the rival to Tesla in its home base

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China's 'Tesla' Raises $650 million in a Convertible Bond
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Former Correspondent, Entrepreneur Asia Pacific
3 min read


The electric carmaker NIO Inc raised $650 million in a five-year convertible bond, right after four months of its listing in New York. The Shanghai-based NIO Inc is the rival to Tesla in its home base.

The trend of raising capital through convertible bonds has become a new fad in the business ecosystem. The companies that are in need of cash and want to do away with their debts, are using convertible bonds. China's Netflix-like video platform iQiyi, which sold a $750-million convertible bond in November last year after going public, is one of the few leading examples of it.

Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving a bondholder the option of converting the debt into company shares at a set price in future. The equity link gives investors fixed returns and the prospect of profiting from a rise in the issuer's share price, according to the company’s press release.

Louis Hsieh, NIO’s chief financial officer, told investors on a call on Wednesday that part of the reason for selling a convertible bond was to make up the difference between what the company raised in its IPO and what it had originally sought to raise, quoted Reuters in its report.

NIO raised $1 billion in its US IPO but it had earlier aimed for $1.8-$2 billion, Hsieh said.

Commenting about the timing, Hsieh said the convertible bond market was receptive to a deal and he did not want to wait until March or April and risk a possible worsening in US-China trade tensions.

Burgeoning Market of EVs

China’s EV and plug-in electric vehicles (PEVs) market have growing tremendously fast over five years. China has been both the manufacturer and seller of cars globally, but over the past few years, it has been disrupted by the growing trend of hybrid cars and EVs in the world.

After a three-month streak of record-breaking sales, PEVs in December just kept on pushing forward. China registered over 180,000 PEVs, making it the forth record month in a row and achieving 70 percent year-over-year (YoY) growth, said a Clean-tech nica report.  The 2018 sales fell short of the 1 million units mark and 2017 was the first year that plug-ins reached 1 million sales globally.

However, according to China Association of Automobile Manufacturers (CAAM), 601,000 NEVs were sold in the first three quarters of 2018, which means they still account only for a small fraction of the market.

Among other countries, China is at the forefront in pushing PEVs and EVs forward, to cut air pollution and develop a strong industry. In fact, Chinese government is contributing with a major share to drive the EV revolution in China. The government in China has had subsidies in place for nearly a decade, and these have been supplemented by subsidies from regional governments. This has pushed a lot of other players in the market to turn their focus on this growing trend.

However, some regulatory issues like fear of removal of subsidies and heavy cost production are yet to be looked at in the industry.

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