Stocks of Chinese electric vehicle manufacturer NIO advanced almost 30 percent during early trade on Tuesday after the company announced it was in talks for a round of funding to open new factories.
NIO confirmed that it is discussing plans for a new venture in China with the municipal government of Hefei, where the company's central manufacturing facility is located. The "Tesla of China" is looking to raise over 10 billion yuan, or $1.43 billion, Reuters reported.
The new round of seed capital will be a welcome reprieve for the cash-deprived and loss-making electric carmaker which is among dozens of Chinese electric car firms competing against Tesla.
Under the initial deal, the Hefei government expects to provide equipment, materials and financial funding for the long-term program of NIO in the city, the capital of the Anhui province, a press statement disclosed. In turn, the company stated "plans to establish" NIO's headquarters in China, further expand its business operations and strengthen its cooperation with ecosystem partners in Hefei.
China's electric vehicle industry saw an aggressive growth in the past few years lifted by state subsidies. However, those subsidies have slowly been trimmed down and that has caused a major drop in profits of new green vehicles which plunged 55 percent last month, records from the China Association of Automobile Manufacturers showed.
NIO has struggled to raise money in the midst of China's slowing car market. Just this month alone, NIO has released $200 million in short-term convertible bonds in two batches to bring in enough capital to keep its operations going.
The funding will be a welcome boost of optimism for China's business communities as enterprises try to resume their normal operations following an extended shutdown after the Lunar New Year holiday.
The company will provide more information in the next two months, Reuters bared. NIO's agreement with Hefei is one of eight major contracts the city has signed as part of ongoing measures to combat the spread of coronavirus and support economic sustainability, CNBC said, citing a translation of Hefei's official website.
"The news puts speculation around the funding issues of NIO to bed - at least in the near future," noted Robin Zhu, analyst at Sanford C. Bernstein, who called the agreement a "government bailout." Zhu upgraded Nio stock to a 'Hold' equivalent.
But Zhu remains worried about Tesla competition and NIO's fundamental forecast, Bloomberg reported. Tesla, which started rolling out its Model 3 cars in China last month, re-opened its assembly plant in Shanghai on February 10.
