Source: Beast Finance Author: Beast Finance
Summary
(1) On June 20, NIO announced that it had signed a share subscription agreement with CYVN Holdings, an investment company controlled by the Abu Dhabi government. Than building an electric car factory.
(2) The investment comes at a time when NIO's losses are widening and competition in the electric vehicle market is intensifying.
(3) Due to the popularity of electric vehicles, the Middle East market is becoming more and more attractive to global electric vehicle companies.
(4) Cooperation with the Abu Dhabi government can open up a new market for NIO in the Middle East.
Weilai (NIO) announced on June 20 that it has received an investment of US$1.1 billion from CYVN Holdings, an investment company controlled by the Abu Dha government. In addition (the Hefei municipal government obtained 24.1% of NIO’s equity at that time), NIO actually found a new investor when it faced a crisis again.
The main content of the agreement between Weilai and CYVN Holdings includes: CYVN Holdings will make a strategic investment of about US$1.1 billion (equivalent to RMB 7.909 billion) in Weilai through private placement of new shares and transfer of old shares. The announcement issued by Weilai shows that after the transaction is completed, CYVN Holdings will hold about 7% of the total issued shares of Weilai, and CYVN Holdings will have the right to nominate a director.
However, it is worth noting that not all of the US$1.1 billion was given to Weilai. The investment is divided into two parts, one is capital increase and share expansion, with a total of US$738.5 million (equivalent to RMB 5.3 billion), and the other is the acquisition of Tencent The old shares of the subsidiary are about 361.5 million US dollars (2.599 billion yuan).
Prior to this, Weilai released its first-quarter financial report, which showed that Weilai's profit margin was declining sharply, and the delivery expectations for the second quarter were weak, which put Weilai's valuation under pressure again. However, the Abu Dhabi government's investment is a potential game-changer for NIO, as it not only provides it with additional capital amid mounting losses, but also provides NIO with the potential to grow in the future. Abu Dhabi has blazed a trail with the establishment of an electric vehicle factory.
Beast Finance believes that the Abu Dhabi government is following in the footsteps of Saudi Arabia (Saudi Arabia is spending billions of dollars to establish a domestic electric vehicle manufacturing base), and NIO may also use the Abu Dhabi government as a springboard to enter the Middle East EV market .
Impact of Abu Dhabi Sovereign Fund's Strategic Investment on NIO
On June 20, NIO announced to the market that it has obtained a strategic equity investment from CYVN Holdings, an investment company controlled by the Abu Dhabi government, at a price of US$8.72 per share. Invested $738.5 million in NIO's newly issued Class A shares. Weilai also stated that CYVN Holdings has reached a share purchase agreement with an affiliate of Tencent Holdings (00700), and that CYVN Holdings will purchase 40,137,614 Class A shares of Weilai from an affiliate of Tencent Holdings. After the transaction is completed, the Abu Dhabi sovereign investment fund will hold about 7% of NIO's outstanding shares.
Tencent is an important player in the field of autonomous driving. Weilai and Tencent signed a strategic cooperation agreement in the fourth quarter of last year. Support NIO's autonomous driving technology research and development and user experience innovation.
The cooperation between the two parties mainly includes, for high-level autonomous driving, Tencent Cloud will support the large-scale data storage, computing and model training required for NIO autonomous driving from R&D to operation; in terms of maps, Tencent will provide smart driving maps, scene-based intelligent Capabilities such as the service network and the map-related customized cloud service "Chetu Cloud" help NIO to improve the experience of piloting assisted driving. In addition, the two parties will jointly promote the continuous innovation of NIO's digital ecological community.
At the time of reaching a US$1.1 billion strategic investment agreement with the Abu Dhabi sovereign fund, NIO’s losses continued to widen, and the profit margin in the first quarter also fell sharply.
As NIO continues to launch new models such as the ES6 (ES6 will be launched on May 24, 2023), Beast Finance believes that the strategic investment of the Abu Dhabi sovereign fund will greatly increase NIO's cash reserves and ease the growth of NIO's sedan models The pressure on its cash flow and ensuring that NIO has the funds to expand more car lines and increase production capacity.
Beast Finance’s opinion on the cooperation between NIO and Abu Dhabi Sovereign Fund
Boldbeast Finance believes that the investment of Abu Dhabi Sovereign Fund is not only of financial significance to NIO, but also has strategic significance for NIO. That's because the government of Abu Dhabi has begun to challenge the government of Saudi Arabia in the field of electric vehicles. Previously, the Saudi Arabian government already held a 60% stake in US electric car maker Lucid Group (LCID) through its subsidiary Ayar Third Investment, which also participated in Lucid Group's latest stock offering.
In 2022, Lucid Group signed an agreement with the Saudi Arabian government (to deliver 100,000 electric vehicles to the Arab government by 2030). Lucid Group is currently establishing an AMP-2 manufacturing plant in Saudi Arabia (expected to have an annual production capacity of 155,000 electric vehicles), which further consolidates the relationship between Lucid Group and the Saudi Arabian government. Electric vehicle start-up Enovate has signed an investment agreement to build an electric vehicle manufacturing plant in Saudi Arabia.
Beast Finance believes that NIO is likely to reach a similar agreement with the Abu Dhabi government in the future. Although NIO has not announced that it will deliver electric vehicles to the Abu Dhabi government, the competition between Abu Dhabi and Saudi Arabia in the field of electric vehicles is likely to lead to a cooperation between NIO and the Abu Dhabi government similar to that of Lucid Group. Moreover, Weilai is facing fierce competition in the Chinese domestic market, so this possibility still exists.
The government of Abu Dhabi is already a major player in the global electric vehicle industry. In its "Global Electric Mobility Readiness Index 2022" research report, consulting firm Arthur D. Little ranks the United Arab Emirates as the 8th most promising electric vehicle market in the world. The company expects the EV market in the United Arab Emirates to grow at an annual rate of 30% between fiscal 2022 and 2028.
And for Nio, entering the Abu Dhabi/Middle East market (possibly by building an EV manufacturing plant) is a very logical next step. NIO's strategic move to enter Abu Dhabi/Middle East will also lead to a re-acceleration of NIO sales.
Weilai's valuation shows that its stock price has been seriously undervalued
From the perspective of valuation, whether it is relative to competitors or relative to the historical average, Mengshou Finance believes that Weilai is seriously undervalued. Nio's current P/E ratio of 1.05 is about half of its 1-year average P/E ratio. Although NIO's revenue forecast has also declined recently due to slowing consumer demand in the Chinese market, the market expects NIO's revenue to grow by nearly 50% year-on-year next year.
Nio also appears to be undervalued compared to its EV rivals in the U.S. and elsewhere overseas. Nio's price-to-earnings ratio is the lowest in the industry, while U.S. electric car rivals have the highest valuation multiples.
Conclusion
The cooperation between NIO and the Abu Dhabi Sovereign Fund may enable NIO to change the rules of the game in the electric vehicle industry. The investment will not only help Nio financially boost its cash flow reserves as it rolls out new models and ramps up sedan deliveries, but it could also open up a new avenue for Nio to enter the very attractive emerging EV market in the Middle East. the way.
If we were to speculate, we would say that the Abu Dhabi government is not only seeking investment and cooperation in the field of electric vehicles, but it will eventually encourage electric vehicle manufacturers such as NIO to build factories in Abu Dhabi and conduct electric vehicle production, partly because Abu Dhabi's main rival, Saudi Arabia, is spending billions of dollars to build a domestic electric vehicle manufacturing base.
So, with the $1.1 billion investment from the Abu Dhabi Sovereign Fund, NIO has not only gained a new investor, it has boosted confidence in NIO's long-term growth prospects, and it may also give NIO access to the growing Middle East. The EV market offers a springboard.