Fresh off its "NIO Day" event over the weekend, Chinese electric-vehicle (EV) maker NIO (NIO -0.36%) announced it plans to issue convertible debt to raise $1.3 billion. Investors liked what they heard over the weekend when the company announced plans for its first luxury sedan, new longer-range battery, and updates on its battery-swap program.
NIO is trying to build on the momentum with plans to issue $650 million each in 2026 and 2027 convertible senior notes. NIO said it plans to use the funds "mainly for general corporate purposes and to further strengthen its cash and balance sheet positions."
NIO ET7 luxury sedan. Image source: NIO.
Once the pricing of the new notes is established, NIO said it will privately negotiate agreements with holders of its outstanding 4.50% convertible notes due 2024 to exchange a portion for American depository shares (ADS).
NIO previously reported that it more than doubled its vehicle deliveries in the fourth quarter of 2020 compared to the prior-year period, with more than 17,000 EVs delivered. The announcement of its first luxury sedan moves the company into a more competitive position with Tesla's (TSLA 0.66%) Model S.
Investors cheered the news from the NIO Day presentation today, but shares retreated after the news of the debt issuance. In the announcement, NIO alerted shareholders that the offering, and potential subsequent exchange of the 2024 notes, "could decrease (or reduce the size of any increase in) the market price of the ADS."
Investors shouldn't fear a capital raise if management is trusted to use the money to grow the business wisely. But NIO is currently valued at $90 billion, which doesn't leave it much room for anything but stellar execution.
