Please ensure Javascript is enabled for purposes of website accessibility

Why Nio Stock Popped Today

By Rich Smith – Aug 31, 2021 at 1:24PM

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

Nio will take a stake in Geely's Lotus.

What happened

Shares of Chinese electric car manufacturer Nio (NIO 8.60%) stock hopped 2.6% higher as of 12:45 p.m. EDT Tuesday after Bloomberg reported that Nio investors may have a second way to get rich.

Because now they're going to own a piece of Lotus Cars.

Lotus Evora GT Sports Car.

Image source: Lotus Cars.

So what

As Bloomberg advises, Lotus, the iconic British sports car maker that is majority-owned by China's Zhejiang Geely Holding Group, is raising $2.3 billion that it will use "to transform [itself] into an all-electric brand." Nio won't contribute all of the $2.3 billion, but it will contribute a piece of it -- and get a piece of Lotus in return.  

In addition, Lotus' electric car division, Lotus Technology, and Nio "will explore collaboration in areas including high-end intelligent EVs."

Now what

That could become important as Geely contemplates taking Lotus public -- perhaps as soon as next year.

On the one hand, Lotus is planning to begin selling a new electric Type 132 SUV in 2022, to be followed in short order by a four-door coupe in 2023, a second SUV in 2025, and an electric Type 135 sports car in 2026. If any or all of these cars are based on technology developed by Nio, the latter could stand to reap beaucoup bucks in the form of high-margin technology licensing revenue from Lotus.

Additionally, if Lotus debuts as the $15 billion-plus initial public offering that is being contemplated, then depending on how big a piece of Lotus that Nio will receive for its investment, Nio could reap millions, or even billions, more in value from its equity interest in Lotus.

In short, there are all sorts of reasons for Nio investors to be smiling today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Nio Stock Quote
Nio
NIO
$13.13 (8.60%) $1.04

*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.