Tencent backed company and Tesla's rival NIO is set to raise $1 billion through IPO. Photo: File

INTERNATIONAL – The global excitement about electric cars faces a test in New York today.

China’s NIO, which seeks to take on the likes of Tesla, starts trading on the New York stock exchange after raising about $1 billion (R15bn) selling American depositary shares at $6.26 apiece. The electric-car maker, backed by Tencent Holdings, 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 sale, which values NIO at about $6.4bn, 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, which intend to compete with BMW, Daimler 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 and JPMorgan Chase, 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.

Intense scrutiny

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.

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.

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.

– BLOOMBERG