Please ensure Javascript is enabled for purposes of website accessibility

Why NIO Stock Is Lower Today

By John Rosevear – Sep 2, 2020 at 1:45PM

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

The market is absorbing a lot of new shares.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO 7.62%) were trading lower on Wednesday, as the market continued to digest the details of the company's recent secondary stock offering. As of 1:00 p.m. EDT, NIO's American depositary shares were down about 3.6% from Tuesday's closing price.

So what

NIO said on Monday that it had sold 88.5 million new American depositary shares at $17 each, raising roughly $1.5 billion. That was a larger offering than it had initially planned, which seemed bullish, but the price was below market: NIO had closed at $18.50 on Friday.

A silver NIO EC6, a sporty electric SUV, on an auto-show stand.

NIO expects to begin deliveries of its new EC6 this month. Image source: NIO.

NIO plans to use part of the proceeds to buy back some of the assets it gave up as part of a $1 billion bailout deal earlier this year, when it was close to running out of cash amid the coronavirus pandemic. Under the deal, economic-development authorities in NIO's home province of Anhui agreed to provide a $1 billion cash infusion in exchange for a 24.1% share of the company's China assets, which were placed in a subsidiary called "NIO China."

Since then, NIO's share price has soared, thanks to a nice post-COVID sales rebound and an upbeat second-quarter earnings report. Now, it plans to buy back some of what it gave up: If all goes as planned, NIO will put about $600 million into the NIO China subsidiary to boost its stake and pay an additional $360 million more to buy out some of its investors. It will then own 86.4% of NIO China, up from 75.9%. (The remainder of the proceeds from the offering will help fund NIO's self-driving effort and its marketing outside of China.) 

Now what

For auto investors with a long-term perspective, it's a bullish plan that should improve NIO's cash flow (from the NIO China subsidiary) over time. It also shows that NIO's government investors have high confidence in the company's growth plan.

But in the short term, the market has to absorb the 88.5 million new shares, and that was bound to create some volatility. That's probably why the stock is down today. 

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
NIO
$16.67 (7.62%) $1.18

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
331%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

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