- The coronavirus outbreak is having a sizable impact on the Chinese economy.
- Car sales have slumped and will probably stay subdued for the entire year.
- Chinese electric car-maker — Nio — was already cash strapped, and the coronavirus outbreak will likely push it into bankruptcy.
The growing number of coronavirus cases has crippled the Chinese economy. All the industries are negatively affected, but the automobile sector is bearing the full brunt of the economic slowdown.
As China continues to struggle to contain coronavirus, carmakers are in for a rough year. While all auto manufacturers in China will struggle, the impact from coronavirus will kill Nio Limited (NYSE: NIO), a Chinese Electric Vehicle (EV) maker that went public in
Nio a Failing Business Model
Even before coronavirus plagued China, Nio — often referred to as China’s Tesla — was struggling. The company was unprofitable and had a structurally bankrupt business model. A look at Nio’s horrible margins is all one needs to grasp the dire situation of the company.
And if Nio doesn’t turn a profit soon, the new funding will dry up, pushing it into bankruptcy.
China’s Tesla Rival is Severely Cash-Strapped
Earlier in February, Nio decided to raise $ 300 million via convertible notes
The Deal is highly dilutive for the existing shareholders, but Nio is running out of options. The desperate raise is indicative of low on cash the company is right now.
Just yesterday, reports revealed that Nio is delayed its January salary payments by six days
The timing of the events suggests that Nio didn’t have enough money to pay its employees before the capital raise. Considering that the total salary of the employees is around $ million, the situation looks dreadful.
Although Nio has successfully managed to kick the can further down the road, the $ million won last long. Considering that Nio lost over $ 306 million in the last quarter, a bankruptcy looks inevitable.
Coronavirus Adds to Nio’s Woes
Coronavirus has battered the Chinese automobile industry. The near-term impact on the industry has been much worse than it was during the SARS outbreak.
Nio’s sales were down . 5% year-over-year, which was almost in-line with the overall decline in Chinese automobile sales. China’s efforts to contain the outbreak have not been bearing fruits. The number of cases has Cars sales will stay subdued in 233819 according to China Association of Automobile Manufacturers assistant secretary-general Xu Haidong : The domestic auto market is expected to see. a short-term consumption peak after the end of the epidemic, but we should not be optimistic about the sector for the whole year. Coronavirus couldn’t have come at a worse time for Nio. The company was already in a precarious situation, and the outbreak has made things worse. With profitability not in sight and sources of funding running out, bankruptcy looks inevitable. The only thing that can save Nio now is a bailout by the Community Party of China. This article was edited by Samburaj Das
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