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Why Shares of Chinese Electric-Car Maker NIO Fell Almost 33% in March

By John Rosevear - Apr 8, 2020 at 2:32PM

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China may be recovering, but NIO still has problems.

What happened

Chinese electric-carmaker NIO (NIO 1.45%) didn't escape last month's auto-stocks rout. The price of the company's American depositary receipts fell 32.7% in March, according to data provided by S&P Global Market Intelligence, on continued concerns about the company's cash and prospects in China's recovering economy.

So what

NIO began March the same way it had begun February: By issuing short-term convertible notes to raise $235 million, enough money to cover its payroll and expenses for a little while longer. 

NIO was close to running out of cash even before the COVID-19 outbreak in China. The company revealed in mid-March that it had just $161.7 million in cash remaining as of the end of 2019 -- enough for, at most, a couple months of operations.

A red NIO ES6, an upscale five-passenger electric SUV.

NIO's ES6 has been its best seller since its launch in mid-2019. Image source: NIO, Inc.

The company had said in late February that it was working on a deal with a municipal government that would provide it with long-term financing, but as of April 8 that deal has yet to be completed. At least one similar deal fell through last year, after officials balked at NIO's balance sheet. 

But the short-term cash raises in February and early March helped keep NIO's lights on for the time being. And there was a bit of good-under-the-circumstances news: Auto investors were heartened to learn on March 10 that the company had delivered 707 vehicles in February.

That's a tiny number, but one that represented a smaller year-over-year decline than the overall Chinese new-car market's. 

Now what

NIO's production and deliveries have continued to recover as the coronavirus outbreak has receded in China. The company said on April 7 that it delivered 1,533 vehicles in March, enough to meet its delivery guidance for the first quarter. CEO William Bin Li said in a statement that the company is still working with its suppliers to get production up to full speed, but its store traffic is picking up as the country returns to normal.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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