It is not new for Middle Eastern funds to invest in Chinese companies, but it is rare for the same well-known sovereign fund to make two consecutive investments in a Chinese company in just six months.
On December 18th, NIO (NYSE: NIO; HKEX: 9866; SGX: NIO) announced the signing of a new round of share subscription agreement with Abu Dhabi investment firm CYVN Holdings (hereinafter referred to as CYVN). According to the agreement, CYVN Holdings will make a strategic investment of approximately $2.2 billion in cash to NIO through its subsidiary CYVN Investments. In July of this year, CYVN completed a strategic investment of approximately $1.1 billion through targeted issuance of new shares and transfer of old shares.
Currently, Middle Eastern countries are transitioning towards clean energy, and sovereign wealth funds are deploying new energy vehicles, preferring companies with long-term development potential and strategic investment value. Therefore, NIO has become a high-quality target in the eyes of CYVN. This can prove NIO's competitive advantages in technology, products, market, and management. After this financing, NIO's cash reserves will increase by an additional 2.2 billion US dollars (approximately 15.7 billion yuan) on the existing basis, which can ensure the subsequent development plans.
At the same time, according to the customary rules of the capital market and the development models of well-known internet companies both domestically and internationally, NIO has already adopted a "super voting structure", which fully guarantees Li Bin's control over NIO; According to NIO's announcement, both rounds of CYVN's investments received A-class common shares and did not require additional voting rights, fully demonstrating its recognition of NIO's management team. Next, NIO will continue to develop according to the established plans of Li Bin and the management team.
"Super Voting Rights Architecture" as a Guarantee for Li Bin to Continue Holding Control of the Company
"At present, the Middle East region, including Saudi Arabia, has a high level of attention to the development of China's new energy vehicle industry, which is related to the strong competitiveness of China's new energy vehicles on a global scale." Cui Dongshu, Secretary General of the National Passenger Car Market Information Joint Conference, previously stated.
Compared to labor-intensive traditional manufacturing, the biggest feature of intelligent electric vehicles is their capital and technology intensity, thus requiring more support from the capital market in their development. Taking NIO as an example, its huge market potential and the need for sufficient funds to leverage technological breakthroughs have become a good opportunity for Middle Eastern sovereign wealth funds to enter.
From NIO's financing results, it appears that it will not easily weaken the founder's power due to changes in equity structure caused by financing. After all, for high-tech companies, long-term development not only depends on the increase of material capital, but also on the professional knowledge, industry experience, and management level of founders and managers. Therefore, NIO, like other high-tech companies, will fully ensure the control of founder Li Bin over the company.
In fact, NIO has already adopted a "super voting structure" to effectively ensure Li Bin's control.
According to NIO's 2022 annual report, as of February 28, 2023, Li Bin held 30467776 shares of Class A common stock and 148500000 shares of Class C common stock, with a total shareholding of 178967776. NIO also clearly disclosed in its annual report that Class A common shares have a 1:1 voting right, and Class C common shares have a 1:8 voting right.
According to the relevant announcement of CYVN investment disclosed by NIO, it can be understood that CYVN obtained 84695543 Class A common shares and 40137614 Class A common shares respectively through targeted issuance of new shares and transfer of old shares during the first round of investment, resulting in a total of 124833157 Class A common shares. According to NIO's latest announcement, it can be learned that CYVN has received 294 million shares of Class A common stock for targeted issuance in this round. After two rounds of investment, CYVN will hold a total of 419 million Class A common shares, accounting for 20.1%. Meanwhile, based on the number and proportion of shares held by CYVN, it can be estimated that the total number of shares issued by the company to the public is 2.08 billion.
Taking into account Li Bin's holdings of Class A common shares and Class C common shares, divided by the roughly calculated total number of outstanding shares, it can be inferred that Li Bin's equity percentage is 8.6%. However, due to the 1:8 voting rights of Class C common shares, Li Bin's actual voting rights are around 39%. CYVN's shares are all Class A common stocks, and after the investment is completed, it holds around 13% of the voting rights. Therefore, Li Bin remains the shareholder with the single largest voting rights and has control over the company.
"Super voting rights architecture" is not uncommon in the global development of internet companies. Google's 2022 annual report shows that although its founder team only holds about 11% of the shares, they control about 51% of the voting rights through super voting rights. Of course, there are also some companies that maintain control over the board of directors through special partnership systems or founder rights. The founding teams of globally renowned companies such as Tencent and Alibaba have achieved control over the company through multiple equity structures or special arrangements.
Taking the well-known Tencent as an example, many people are not aware that its largest shareholder is actually a mysterious South African company. As early as 2001, the South African newspaper group Naspers acquired 46.4% of Tencent's shares and remains its largest shareholder to this day. According to Tencent's 2022 annual report, its largest shareholder is MIH Internet Holding, which holds 26.9% of the shares (MIH is a wholly-owned subsidiary of the South African Press Group). The founder only holds 8.4% of the shares, but this does not affect his ability to exercise control over the company through special arrangements. Since then, Tencent has been in a state of rapid development, covering multiple fields such as the internet, gaming, social media, and entertainment, becoming one of the most talked about internet brands by the Chinese people. Its market value has also surpassed that of Wall Street giant Apple at one point.
The above financing and equity setting methods are more common in internet companies, technology companies, and media companies, which is related to the fact that these companies have more external investment or are related to it. This is also to prevent companies from being controlled by foreign investment. In the future, as China's intelligent electric vehicle industry gradually moves towards the global market, such situations will also become more and more common among car companies.
Adequate preparation for the final round of the 2025 competition in NIO
According to NIO's announcement, after the completion of this investment, NIO and CYVN will continue to carry out strategic and technological cooperation in the international market. It is reported that NIO has recently completed a comprehensive planning of the company's long-term operational plan to determine key goals, priorities, and action plans, and has identified opportunities for organizational optimization, cost reduction, and efficiency improvement. Next, NIO will continue to focus on advancing core technologies, developing key products, and enhancing sales and service capabilities. This investment will significantly increase NIO's cash reserves and provide sufficient resource support for the above plan.
Among them, the development plan in innovative technology has become a crucial point. The entire intelligent electric vehicle industry will enter the finals in 2025, and the debate about industry technology is likely to settle by then. Therefore, NIO must first ensure high-quality investment in innovative research and development. In the third quarter of this year, NIO's R&D investment was 3.04 billion yuan, exceeding 3 billion yuan for four consecutive quarters. In fact, in the past few years, NIO has invested nearly 40 billion yuan in research and development, making it the enterprise with the highest R&D investment among new forces. As of the end of November this year, NIO has a total of approximately 7700 pending and authorized patents worldwide, leading the industry.
By investing in high-quality technology research and development, NIO has gained a global competitive advantage. With the launch and delivery of the all-new EC6 in September this year, NIO has entered a strong product cycle and become the world's first intelligent electric vehicle brand to complete vertical switching of technology platforms.
In fact, in the field of intelligent electric vehicles in China, only NIO is mentioned as a brand that can continue to lead the high-end pure electric market. Data shows that in the third quarter of this year, NIO ranked first in the electric vehicle market with an average transaction price of over 300000 yuan, with a market share of over 45%. From July to November this year, NIO held a leading position in sales for five consecutive months in the market with an average transaction price of over 300000 yuan in Shanghai.
The creation of high-end brands relies on technical cultivation and product polishing. During this process, Li Bin, the founder of NIO, has long been accustomed to personal participation. On December 17th, Li Bin demonstrated his actual high-speed endurance performance of a 150 degree battery through a live broadcast. In actual testing, Li Bin drove the NIO ET7 equipped with a 150kWh battery pack from Shanghai to test how far it could go. After more than 14 hours of driving, the average energy consumption per 100 kilometers of 1044 kilometers was measured to be 13.2 kWh, with a remaining 3% of electricity. It is expected that the vehicle can still travel more than 30 kilometers.
At NIO IN 2023 NIO Innovation Technology Day, NIO introduced in detail for the first time the "NIO Technology Full Stack" that covers the panoramic view of intelligent electric vehicle business, including chips and in vehicle intelligent hardware, battery systems, electric drive and high-voltage systems, vehicle engineering, vehicle wide operation systems, panoramic interconnection, intelligent driving, intelligent cockpit, intelligent energy, intelligent manufacturing 12 key technological fields, including artificial intelligence and global digital operations, meet NIO's research and operation needs in three dimensions and nine elements: intelligence, electric, automotive, products, services, communities, multi brand, multi platform, and multi region.
The accumulation and application of innovative technological achievements have enabled NIO to win multiple domestic and international heavyweight awards and receive high recognition from authoritative institutions. Among them, NIO ES7, ET5, and ET5T have received the European Union's authoritative safety testing agency 2023 Euro NCAP five-star safety rating. Among all test results released by Euro NCAP in 2023, NIO ET5 and ET5T won the annual championship with the highest score, while NIO ES7 won the annual championship in the SUV category; In addition, the NIO ET7 has also become an official designated vehicle for the CIIE and World Manufacturing Conference this year.
It can be anticipated that in the future, NIO will continue to develop according to the management's layout direction in technology, products, and operations. The deep participation of CYVN can provide more assistance for this Chinese high-end brand in product innovation, technological breakthroughs, and international market expansion.
Wen/Li Xin
(This article does not constitute any investment advice, and the information disclosed shall be subject to the company's announcement. Investors shall operate based on this and bear their own risks.)