Other BriefingsNIO’s $2 Billion Funding by CYVN: Catalyzing New Narratives for China and the Middle East
On December 18, 2023, China’s Nio (NIO) revealed it received a US$2.2 billion (RMB 15.55 billion) investment from Abu Dhabi’s CYVN for 294 million new shares. With this deal, CYVN will hold a 20.1 percent stake in Nio.
By Yi Wu
The deal, priced at US$7.50 (RMB 53.02) per share, is 6 percent below Nio’s Friday closing price. CYVN, already having invested US$738.5 million (RMB 5.22 billion) in July, can now nominate two directors to Nio’s board post-transaction closure, given it holds at least 15 percent of Nio stock. The transaction subject to customary closing conditions, is expected to conclude in late December, with a six-month lock-up period for both parties.
Established in 2014, Nio positions itself as a “pioneer” for its distinctive battery-swapping technology which allows for rapid battery changes. Despite challenges from supply chain disruptions, competition, and Tesla’s pricing war, Nio has unveiled new models, expanded its European battery station presence, and introduced a smartphone with 30 car-specific features. While targeting luxury buyers, Nio is also set to launch a second brand for the mass market in 2024.
Nio holds a 2 percent market share in China, trailing behind Tesla (6 percent) and BYD (35 percent). Nio is taking a loss for every vehicle it sells, according to co-founder and president Lihong Qin, who said the company has “not become profitable yet.” In June, Nio slashed prices by RMB 30,000 (US$4,200) after resisting pressure from a price war led by Tesla. In September, the company reported a 25 percent reduction in net loss to RMB 4.6 billion (US$625 million) since July.
Nio Inc.’s (NIO) ADRs rose 5 percent on December 28, following news of the US$2.2 billion (RMB 15.55 billion) investment. Despite a stock decline from its highs, CEO William Bin Li stated that the cash infusion would enhance Nio’s financial position, allowing for improved brand positioning, increased sales and service capabilities, and long-term investments in core technologies to navigate heightened competition.
Why is the Middle East eyeing the renewable energy market?
The Middle East, historically rich in oil and gas, is shifting toward a more sustainable future, with a focus on electric vehicles (EVs) and renewable energy. Arab countries are diversifying their economies from their historic economic staple, oil, into investible fields.
Many countries have promoted sustainable initiatives. In the UAE, initiatives like COP28 position the region as a renewable energy hub, and are expected to attract US$1 trillion (RMB 7 trillion) in solar and wind investments by 2050. The region’s commitment to building its EV supply chain opens opportunities in smart manufacturing, autonomous driving hardware, and resilient solid-state EV batteries suitable for hot weather conditions. Despite the inevitable EV transition, challenges persist in creating new supply chains for batteries and securing upstream minerals and metals.
Saudi Vision 2030 also exemplifies this shift, aiming to reduce fossil fuel dependency and nurture a tech-driven startup community. Saudi Arabia is actively establishing its EV supply chain, presenting opportunities in smart manufacturing, autonomous driving hardware, and durable solid-state EV batteries. The government is also investing in EV infrastructure through initiatives like the Saudi Electric Vehicle Charging Infrastructure Development Initiative (SEVCIDI), targeting 50,000 domestic charging stations by 2025.
These policies promote sustainability and pave the way for market development. This creates opportunities in various sectors, including smart manufacturing, autonomous driving hardware like chips and sensors, and robust solid-state EV batteries designed to withstand hot weather conditions.
China and Middle East relations
Middle East countries and China have seen warming interactions in recent years, driven by growing energy needs. The region considers China a primary trading partner and a significant investor, with a focus on energy projects.
Over half of China’s oil imports come from the Middle East, strengthening ties with mainly Gulf countries. Beyond trade, China’s increased investments in regional infrastructure projects have deepened economic relations. Chinese private equity firms contributed to a trade value of US$431.4 billion (RMB 3.051 trillion) in 2022, compared to US$75.6 billion (RMB 534.72 billion) in 2021.
China’s President Xi Jinping’s state visit to the Middle East in recent years also solidified relations. During his visit to Saudi Arabia in December 2022, President Xi pledged to expand the use of the RMB for settling oil and gas purchases from the region. Further, China’s Belt and Road Initiative, created a decade ago, also aims to link economies into a China-centered trading network, emphasizing investments in energy, transport, and logistics. Other platforms, such as the Arab-China Business Conference, held on June 12, 2023, and the Asian Infrastructure Investment Bank (AIIB), which opened its first overseas office in Abu Dhabi in September 2023, play a crucial role in the relations between the parties, facilitating the signing of agreements, particularly in the energy sector. UAE’s entry into BRICS in September 2023 also boosts economic dynamism and strengthens cooperation with China, marking a milestone in their evolving bilateral trade relations.
Under such favorable relations, some recent major interactions include:
Saudi Arabia:
- ACWA Power and Power China signed a US$1.5 billion (RMB 10.6 billion) agreement for financing, investment, and construction of renewable energy projects in 2022.
- Saudi Arabia’s Ministry of Investment signed a US$5.6 billion (RMB 39.59 billion) deal with Human Horizons, a Chinese EV manufacturer in June 2023.
- Beyonca, backed by Renault and Dongfeng Motor, received investment possibilities with Riyadh-based Al Faisaliah Group Holding Company in October 2023.
United Arab Emirates (UAE):
- UAE is China’s top Arab trading partner, accounting for 30 percent of China’s non-oil trade with Arab countries. China also is the third-largest foreign investor in the UAE, contributing 5 percent of total global FDI inflows by the end of 2020, primarily in trade, finance, insurance, and real estate sectors.
- On June 12, 2023, official discussions between the UAE and China aimed at enhancing cooperation in trade, investment, and various sectors.
Iraq:
- Discussions were held on June 9, 2023, between Iraq’s state-owned Missan Oil Company and Chinese company Geo-Jade to develop the Huwaiza Block in Maysan Province.
In sum, China and the Middle East are evolving into a broader initiative for global cooperation, focusing on energy security and economic development. This includes strengthening energy cooperation and elevating mutual partnerships to a strategic level.
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