Tesla and NIO, they make different choices

On August 7, Elon Musk, CEO of Tesla, announced that the privatization of Tesla was going to be realized. On August 14, NIO finally made substantial progress in its going public in the US after long-time rumors. NIO formally submitted an initial public offering (IPO) prospectus to the US Securities and Exchange Commission (SEC), applying for listing on the NYSE.

As two emerging EV manufacturing technology companies that are at the forefront of development, every move of the two can become hot topics and the focus of the entire industry. The two companies that seem to have developed in a similar path have chosen different directions at the crossroads. Tesla has delisted, while NIO goes public. It seems that the direction is quite different, but their purposes are to achieve a long-term development of the company.

The same as the technology-based electric vehicle manufacturing enterprises face the similar problems

Tesla's success provided an example of automotive industry electrification to global automakers. From the Model S, the Model X to the Model 3, each model is significantly subversive. After 8 years of listing, Tesla’s stock price has soared 20 times. The market value has surpassed Ford and GM, becoming the largest auto company in the US. Even so, Tesla is still regarded as an underdog, and it’s not profitable up till now. It lost $2.2 billion last year. Even though there was a significant increase in revenues (approximately $40.02 billion, an increase of 43.4%) at the Q2 of this year, the losses are still a considerable gap which is expanding.

Just as Tesla, NIO is also a technology EV manufacturer. Less than four years have passed since the NIO was founded, the accumulated raised funds amounted to $2.4 billion. After a long-time operation, NIO began to have income recently, but still do not make a profit. According to the data, NIO had a net loss of more than 2.57 billion yuan RMB (approx. $372.4 million) in 2016, more than 5 billion yuan RMB (approx. $724.4 million) in 2017, and more than 3.3 billion yuan RMB (approx. $478.3 million) in the first half of 2018.

A lot of doubts about these emerging automakers come from the “bounce” of the delivery of the products. The NIO ES8, which was planned to be delivered in the first quarter of this year, was finally delivered in May. According to data released by China Passenger Car Association (CPCA), the sales volume of NIO reached 1,331 units in July, but there is still a big gap in the goal of delivering 10,000 units before the end of the year. Li Bin, NIO founder, chairman and CEO, is confident and makes a bet with his peers.

Tesla, who has been founded for 13 years, has never got rid of the problem of delay delivery. The Model 3 received more than 370,000 orders in the beginning, and then, even exceeded 500,000 units. However, its delivery time was pushed back over and over again. Until the end of June, Tesla just complete the target of producing 5,000 units weekly. The productivity of Model 3 will become a standard that whether can Tesla achieve profitability.

Technology car companies that are still in the early stages of development need a lot of financial support. Musk is tired of the intervention and influence of the capital market imposed on enterprises, but Li Bin is looking forward to the prospect of listing. Therefore, these two companies of the similar type have chosen two paths that are completely opposite at different stages.

Different paths: Go public or go private

Elon Musk announced that Tesla would be privatized for $420 per share. One purpose of privatization is to better advance and protect the company from the volatility of stock prices. On the other hand, Tesla is facing the pressure of the quarterly earnings cycle, which does not meet the long-term interests of the company. After privatization, Tesla does not need to disclose financial statements. That means Tesla will not be affected by short positions and can make decisions according to their own wishes instead of taking care of Wall Street.

However, privatization is not all good for Tesla. Tesla will not be able to raise funds from the open market in the future, and all expenditures must be borne by itself, which will be a huge challenge for both Musk and Tesla.

The purpose of NIO choosing to start its IPO in the US at this time is to provide sufficient funds for enterprise development through financing in the secondary market. Currently, NIO is still expanding its investment in product R&D. At the same time, it plans to build a self-built factory in Jiading, Shanghai. In addition, to establish large-scale and high-input service network requires a large amount of funds and manpower as well. NIO needs to take the listing to maintain its position as the leader among China's emerging automakers

The current environment of the overseas capital market is relatively unfavorable to the ChiNext stock market. Thus, the short-term value of NIO Inc. after going public in the US is not optimistic. However, Li Bin believes that a more stable US market can still guarantee the continuous investment and operation, even if it is affected by capital.

Conclusion: "Listing" or "Delisting" are all strategic adjustments of a company to achieve a better development. For Tesla, although business after delisting can get rid of the interference of the secondary market, Tesla still have to focus on the subsequent financial challenges. NIO will need to disclose its quarterly financial statements after going public, which will be a vital test for a mere four-year-old company to respond to sensitive market information. But Tesla's development may be the best reference.