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Why Shares of Chinese Electric-Car Maker NIO Are Surging Today

By John Rosevear - Nov 5, 2019 at 11:48AM

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A new deal with Mobileye could be a financial lifeline.

What's happening

Shares of Chinese electric-vehicle maker NIO ( NIO -11.19% ) were up sharply on Tuesday morning on news that the company has secured an agreement to build cars with self-driving systems developed by Intel ( INTC -0.51% ) subsidiary Mobileye. 

As of 11 a.m. EST, NIO's American depositary shares were up about 26% from Monday's closing price.

A blue NIO ES8, a seven-passenger upscale electric SUV.

NIO began mass-producing its upscale electric SUVs last year. Image source: NIO.

So what

NIO's deal with Mobileye has two parts:

  • NIO will integrate Mobileye's Level 4 self-driving system into upcoming models for consumer markets in China and "other major territories."
  • NIO will also work with Mobileye to develop and build a self-driving taxi that will be used exclusively by a Mobileye-owned "robotaxi" ride-sharing service. The taxi will be based on NIO's next-generation electric vehicle. 

NIO investors clearly hope that this deal represents a financial lifeline for the struggling company. After heavy spending in the second quarter, the company found itself in acute danger of running out of cash. Investor concerns grew after a hoped-for financing deal reportedly collapsed. A second deal, involving the sale of convertible securities to NIO's CEO and a key investor, appears to be on hold. 

Now what

As of this writing, we don't know the terms of the deal -- specifically, we don't know how much money NIO will receive or when it will arrive. That Mobileye, which has long-established relationships with most of the world's global automakers, chose NIO to make its robotaxis suggests that it got very favorable terms -- meaning that this might not be a financial bonanza for NIO when all is said and done. 

Long story short: This looks like good news for NIO investors, but whether it will be enough to keep the company going remains to be seen. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

NIO Inc. Stock Quote
NIO Inc.
$32.15 (-11.19%) $-4.05
Intel Corporation Stock Quote
Intel Corporation
$49.25 (-0.51%) $0.25

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