Shares of Chinese electric-car maker NIO (NIO -1.47%) were sharply higher on Wednesday morning after a Chinese business-news outlet reported that the cash-strapped company had secured new financing from a major automaker. As of 12 p.m. EST, NIO's American depositary shares (ADS) were up about 16% from Tuesday's closing price.
According to a report from Chinese business-news site Sina Finance that cites a person familiar with the matter, NIO will soon receive a cash infusion of about $1 billion from Guangzhou-based GAC Group (GNZUF -6.94%). (At press time, neither NIO nor GAC had confirmed -- or denied -- the report.)
GAC is one of China's big domestic automakers. It has significant joint ventures with Honda Motor and Fiat Chrysler Automobiles, among others. If GAC has in fact decided to make a major investment in NIO -- and as of now, neither company has confirmed the report -- then NIO's future is bright.
That's an important development. In its 15 months as a public company, NIO has seen rising sales and strong customer loyalty, but its rapidly declining cash has called its future into question. As of Sept. 30, the company had just $274.3 million remaining, down from $1.123 billion on March 31.
If this report is accurate and if the deal closes, then it's extremely bullish for NIO -- but I think that auto investors should tread a bit carefully here. Note that an earlier bailout deal fell through at the last minute because of concerns about the company's viability. Use caution with this one.