UPDATE 2-Chinese EV maker Nio surges on funding talks with Hefei govt

(Adds share price move, analyst note)

BEIJING, Feb 25 (Reuters) - Shares in China’s Nio Inc surged more than 30% on Tuesday after it signed framework agreements with Hefei’s city government on a fundraising of more than 10 billion yuan ($1.42 billion) and new manufacturing facilities.

Cash-strapped electric vehicle (EV) maker Nio is the most prominent among dozens of Chinese electric vehicle startups vying to become the next Tesla Inc.

All are hampered by dwindling demand in the world’s largest car market and reduced government subsidies for EVs.

Loss-making Nio is in talks with Hefei, the capital city of Anhui province, where it is building cars with local automaker JAC, to build research centres and car plants.

Nio will provide details in the next two months, it said.

“We think the news puts speculation around Nio’s funding issues to bed – at least in the foreseeable future,” said Bernstein analyst Robin Zhu in a note, adding Nio’s cash burn would remain significant in the foreseeable future.

“We remain dubious over the company’s fundamental outlook, and remain concerned about Tesla competition,” Zhu added.

Under cash flow pressure, Nio said in May last year it would form a joint venture with Beijing E-Town International Investment and Development Co. Ltd which will invest 10 billion yuan in the new entity. There has been no further announcements on the deal.

It has also issued bonds and accelerated cost-cutting to slow its cash burn as it seeks to attract more investors.

Vehicle sales in China fell 18% in January while sales of battery electric and other so-called new energy vehicles plunged 54.4%, preliminary data from the China Association of Automobile Manufacturers (CAAM) showed.

Electric car sales have fallen for seventh consecutive months, the CAAM said.

$1 = 7.0255 Chinese yuan renminbi Reporting by Yilei Sun and Brenda Goh, editing by Louise Heavens, Jason Neely and Alexandra Hudson