The Chinese electric vehicle (EV) industry, famous for being crowded and competitive, may be moving toward consolidation. Portions of NIO Inc. (NYSE: NIO) and Zhejiang Geely Holding Group Co. will combine, the latest in a series of announcements from major Chinese EV makers indicating plans to merge. The deal draws attention to NIO's funding pressure but may not be enough to fundamentally alter the company's cash-burn concerns.
The terms of the deal include NIO's sale of a 30% stake in NIO Power, its battery-swapping unit, to Geely. In exchange, NIO will receive Geely's swap business in addition to 640 million yuan in cash (approx. $95 million). The deal values the unit at roughly ¥16 billion ($2.4 billion). On the surface, it appears that NIO found a partner willing to share the cost of its expensive battery-swapping network. However, a closer look at the terms of the deal and Geely's contribution may shift the focus to NIO's valuation and cash burn.
