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China’s Tesla Rival Prices $1 Billion IPO Near Bottom

Crystal Tse, Ying Tian
The rear lights stand illuminated on a NIO Eve autonomous concept electric vehicle (EV) on display at the Beijing International Automotive Exhibition in Beijing, China, on Thursday, April 26, 2018. The Exhibition is a barometer of the state of the world’s biggest passenger-vehicle market. Photographer: Qilai Shen/Bloomberg

NIO Inc. sold stock in its U.S. initial public offering near the lower end of its target range, people with knowledge of the matter said, as investors scrutinize the Chinese electric-car maker seeking to take on the likes of Tesla Inc.

The Tencent Holdings Ltd.-backed company raised about $1 billion selling 160 million American depositary shares at $6.26 apiece, the people said, asking not to be identified because the information is private. The shares were offered at $6.25 to $8.25 each. The sale values NIO at about $6.4 billion.

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NIO is testing investor appetite for electric-car makers vying to become a homegrown answer to Tesla in China, the world’s largest market for such vehicles. The company faces competition from dozens of local rivals as well as BMW AG, Daimler AG and a slew of other global players.

A representative for NIO didn’t immediately answer phone calls seeking comment.

By going public, NIO is set to attract the same type of intense scrutiny that Elon Musk’s company faces as investors seek proof that it has the manufacturing capacity to deliver on its promises. NIO had delivered fewer than 2,000 vehicles ever up until its IPO filing.

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A slew of Chinese electric-vehicle startups that compete with NIO, including Byton and Xpeng Motors Technology Ltd., have raised funds as they prepare their product lineups. Xpeng was valued at 25 billion yuan ($3.6 billion) in a recent fundraising round even though it hasn’t delivered a single vehicle and doesn’t own a factory.

NIO, meanwhile, is ramping up production of the ES8 SUV, its first commercial product, at a partner’s plant in the eastern city of Hefei. Founder William Li has pledged to deliver 10,000 vehicles to customers by year’s end. The company needs to sell about 100,000 vehicles a year to break even, according to estimates by Sanford C. Bernstein & Co.

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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.

In its prospectus, NIO said it expects to receive a manufacturing license in 2-3 years, and that it plans to use about a quarter of its IPO proceeds to help develop production facilities and supply chain.

Based on its current financials, NIO may appear pricey. It has accumulated $1.6 billion in losses since the start of 2016, and only started generating revenue in the first half of this year, bringing in $7 million.

But the valuation of electric-car maker is based on the market’s expected growth. China targets 7 million new-energy vehicles sold by 2025 . By 2040, more than half of all new-car sales and a third of the planet’s automobile fleet -- equal to 559 million vehicles -- will be electric , according to a global outlook published by Bloomberg New Energy Finance in May.

Tesla was valued at less than $2 billion in its 2010 IPO, and now has a market value of $47.7 billion even after this year’s declines.

NIO’s offering was led by banks including Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co. The shares are set to trade on the New York Stock Exchange under the symbol NIO.

Updates with market capitalization in second paragraph.

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