Capital Structure of New Energy Automobile Industry

This paper examines the capital structure of two firms in new energy automobile industry to get a clear understanding of the propriety of the two firms’ capital structure and the feature of the industry. It turns out that as a nascent industry, new energy automobile industry is not one that enables firms to grow fast at the beginning. A typical feature of the industry is the low profit margin at start-up or even expanding stages, which makes the firms’ external financing vital. However, for especially start-up firms, it is relatively hard to finance by equity or long-term debt, therefore, they relied much on short-term debts or more on other external funding like government subsidies. As the firms grow larger, they are able to finance by equity and long-term debts, but the limited profit margin inhibits them to get high ratings, which restraints their debt financing. Consequently, equity becomes the best choice. Yet as the high volatility in stocks, the firms still should pay more attention to their debt ratio to make sure their capital structure is stable enough to sustain their operation.