What's happening
Shares of Chinese electric-vehicle maker NIO (NIO -0.48%) were down sharply on Wednesday after a Chinese business publication reported that an anticipated financing deal for the company had fallen through.
As of 1:30 p.m. EDT, NIO's American Depositary Receipts had fallen about 7.5% from Tuesday's closing price.
So what
China's National Business Daily reported on Wednesday that a deal that would have given NIO a much-needed financial lifeline had fallen through. The reported deal, between NIO and the government of Wuxing district, in China's eastern Zhejiang province, would have provided the automaker with at least $707 million in new funding in exchange for an agreement to build a factory in the district.
NIO's electric SUVs have sold well, but the company is far from being able to sustain itself without outside financing. Image source: NIO, Inc.
The deal's collapse leaves the company in a perilous situation. NIO is believed to be in a severe cash crunch. It said on Sept. 23 that it had burned about $620 million in the second quarter, leaving it with just $503.4 million as of June 30. A separate deal to raise $200 million by selling convertible notes to NIO's CEO and a key backer was supposed to have closed by the end of September, but it appears that didn't happen.
A key analyst said on Sept. 30 that the company likely had just "weeks" of cash remaining.
Now what
NIO appears to be scrambling to raise enough cash to keep the lights on. If so, then every day that passes without a deal puts the company a day closer to insolvency. It's still possible that a deal will appear in time, but the terms may well be onerous.
Let's put it this way: If you're an investor wondering if NIO's beaten-up shares are worth grabbing, I'd strongly advise you not to invest any money you can't afford to lose.
