Electric cars | Tesla wannabe asking investors to pay for potential

Investor excitement for China’s electric-car business gets a reality check next week.

NIO Inc. will become the first major electric-car maker to have a U.S. initial public offering since Tesla Inc. in 2010, and its stock is set to start trading Sept. 12. The Tencent Holdings Ltd.-backed company seeks a valuation of USD6.4 billion to $8.5 billion – even though it’s delivered fewer than 2,000 vehicles ever.

Shanghai-based NIO wants to grab the pole position in the race to be China’s homegrown answer to Tesla, competing with dozens of domestic automakers to capitalize on rising demand in the world’s largest market. Yet that battle also attracts the same type of intense scrutiny that Elon Musk’s company faces, as many of the fledgling companies need to convince investors they have the manufacturing capacity to deliver on their promises.

“The bull case for NIO is that it has the potential to be China’s EV champion,” said Robin Zhu, an analyst at Sanford C. Bernstein & Co. in Hong Kong. “The bear case is that the business burns cash at an alarming rate and hasn’t demonstrated transformative demand levels.”

Tesla’s still-diminutive presence in China – fewer than 12,000 of its vehicles were registered this year through July, according to LMC Automotive – creates an opening for local startups. The Chinese government’s quest to lead the world in EVs has created favorable policies and lured investors – at least five local electric-car makers attracted $1 billion or more in backing with minimal production.

In addition, there are several established electric-car makers in China with years of experience in manufacturing. Those companies – including BYD Co. and Beijing Electric Vehicle Co., which is preparing for an IPO in China – typically focus on cheaper, less flashy vehicles that don’t directly compete with the likes of Tesla.

NIO represents a different breed, targeting wealthier buyers through a focus on connectivity and performance. After breaking speed records with its EP9 race car, NIO is ramping up production of the ES8 SUV, its first commercial product, at a partner’s plant in the eastern city of Hefei.

NIO founder William Li pledged to deliver 10,000 vehicles to customers by year’s end. One skeptic, He Xiaopeng, the chairman of rival Xpeng Motors Technology Ltd., said in a social-media posting in July that’s a goal no Chinese EV startup, including his own, can reach.

One early NIO backer, JD.com Inc. billionaire founder Liu Qiangdong, took 10 seconds to decide to invest, said Liu’s wife, Zhang Zetian. Liu made the decision immediately after NIO’s founder made a presentation at Liu’s home, Zhang said at an event in December.

“He is so creative,” Liu said in a January interview with Bloomberg. “I am sure he will get a very successful IPO and make a perfect car for consumers.”

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. Bloomberg