Please ensure Javascript is enabled for purposes of website accessibility

Why NIO Stock Is Rising Today

By John Rosevear – Sep 1, 2020 at 12:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It took investors a little while to understand NIO's plans for its $1.5 billion raise.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO 6.60%) were trading higher on Tuesday, a day after the company announced that a secondary stock offering had priced at a discount.

As of 12:45 p.m. EDT, NIO's shares were up about 3.5% from Monday's closing price.

So what

NIO's shares opened lower on Monday, after the company said that its secondary stock offering had priced at $17, $1.50 below Friday's closing price. That suggested to investors that NIO's bankers might have needed to sweeten the deal in order to sell the shares, but concerns might have been overblown.

A blue NIO EC6, a sporty electric SUV.

NIO will begin deliveries of its latest model, the EC6, this month. Image source: NIO.

It seems more likely that the banks' investors hesitated because NIO's plans for the proceeds of the offering -- $1.5 billion, roughly -- are a little complicated. 

Here's the simplified version. Earlier this year, when NIO was nearly out of cash, it made a deal to raise about $1 billion from economic-development authorities in its home province in China, in exchange for a 24.1% stake in its Chinese assets. 

NIO and the investors created a subsidiary to hold those assets. NIO owns 75.9% of that subsidiary (which it refers to as "NIO China"); the investors hold the rest.

In a nutshell, NIO is going to spend roughly $1 billion of the cash raised in this offering to increase its stake in NIO China. About $360 million will go to buy back some of that 24.1% of NIO China from its investors, and the remainder will be cash added to NIO China to boost NIO's stake. (The remainder of the proceeds will go into NIO's business.) 

Now what

If all goes as planned, NIO (and its American investors) will own 86.4% of NIO China, and the company will have roughly $1 billion in new capital -- including the money infused into NIO China, and the remainder of the cash raised -- to spend on its growth plan. 

That seems clearly bullish for auto investors taking a longer-term view on the company. But it looked complicated at first glance. That's probably why the stock was down yesterday, and why it's rising today, now that investors have had time to read and digest NIO's plan. 

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.

Stocks Mentioned

Nio Stock Quote
Nio
NIO
$13.41 (6.60%) $0.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.