Nio’s HK debut brings down its US shares, amid delisting scare from SEC

Nio, one of the top Chinese electric vehicle companies, made its debut on the Hong Kong Stock Exchange on March 10, by way of introduction. Listing by way of introduction, in short, means that no new shares will be issued and no additional funds will be raised. Nio’s shares opened at HK$160, briefly soared to HK$169 level, and closed at HK$158.9. On March 11 afternoon, Nio’s HK shares drop to HK$146 level.

Nio’s shares in the U.S. reflect the same pattern. Following a big rise on Wednesday(12%), which made Nio rose to US$20.4 level, its shares have dropped to US$17.2 level on March 11, equating to the lowest amount in a year, according to data provided by IEX Cloud. 

In regards to going public in New York Stock Exchange. Nio was two years ahead of its Chinese competitors Xpeng and LiAuto. In 2018, the then four years old Nio became the first Chinese EV startup to go public in the U.S. Shadowed by Tesla, one of the market dominators, Nio sold US$1 billion in shares in the IPO. 

Yet, Nio failed to sustain its head start. The company filed to go public a year earlier, in March 2021, ahead of Xiaopeng, which went public in July 2021, and Li Auto, which went public one month later, raising HK$14 billion and HK$11.8 billion respectively. Nio’s IPO process was delayed due to HK’s regulators’ concerns regarding its User Trust holdings.

In order to list in Hong Kong, Nio eventually chose to list by way of introduction. Nio’s choice can possibly be attributed to geopolitical factors such as the ongoing tensions between China and the U.S.  

The drop of Nio’s shares in HKSE follows a recent move from the Securities and Exchange Commission. According to CNBC, on March 10, the SEC identified five US-listed American depositary receipts of Chinese companies (Yum China, BeiGene, Zai Lab, ACM Research and HUTCHMED) for failing to adhere to the Holding Foreign Companies Accountable Act (HFCAA). The five companies are the first Chinese ADRs to be identified as failing to adhere to the HFCAA. 

Passed in 2020, the HFCAA grants SEC with authority to “review company audits for three consecutive years,” otherwise they can be delisted. “All the Chinese listed ADRs will likely end up on the list, because none of them will be able to comply with requests to have their audits reviewed,” said Brendan Ahern, chief investment officer at KraneShares, quoting from a report by CNBC.

The concern of being audited or delisted may have prompted Nio to have moved quickly with its Hong Kong IPO. 

According to Nio, the company currently has cash reserves of approximately RMB 60 billion, providing strong financial security for its subsequent development of new models, with no urgent financing needs in the short term.

Nio’s R&D and marketing fees have remained high for the past years. According to Nio’s prospectus, its marketing expenses amount to RMB 1.825 billion in the third quarter of 2021 alone; whereas the annual R&D investment is expected to be RMB 5 billion for the whole year of 2021. 

Although it remains skeptical whether or not Nio has financing needs, the prospects of Nio, along with the whole EV industry in China, remain positive as they align with the green-tech trend. The government has been promoting EV and other eco-friendly technology in order to cut emissions in China. During the ongoing Two-Sessions, an annual meeting of the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), EV became a hot topic. Multiple delegates spoke about the matter, including Geely Automobile’s chairman Li Shufu and Xiaomi’s co-founder Lei Jun.