Nio Trades Lower On 60M Share Follow-On Offering: What EV Investors Need To Know

Chinese electric vehicle manufacturer Nio Inc – ADR NIO is tapping the capital market yet again, with the equity offering coming close on heels of capital raises by peers Xpeng Inc – ADR XPEV, Li Auto Inc. LI and Tesla Inc TSLA.

What Happened: Nio said late Thursday it has commenced the offering of 60 million ADSs, each representing one Class A ordinary share of its stock.

At Thursday's closing price of $45.22, the offering could be worth $2.71 billion.

The company has also provided for an incremental 9 million ADSs for underwriters to cover allotment.

Morgan Stanley MS and China International Capital Corporation Hong Kong Securities Limited are serving as underwriters for the offering.

The company said it plans to use the net proceeds for R&D of new products and next-generation autonomous driving technologies; sales and service network expansion and market penetration; and general corporate purposes.

Nio has planned a European expansion, and reports also suggest the company is working on an in-house self-driving chip. The company has sounded out intention to launch two sedans in 2021, with the first likely to be announced at the Nio Day event scheduled for January.

The company is planning to increase the number of Nio Houses and Spaces, and its battery-swapping stations.

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EV Manufacturers On Fundraising Spree:  Li Auto, Nio's Chinese peer, set the ball rolling by pricing a 47-million-share equity offering at $29 per share on Dec. 4, raising gross proceeds of $1.36 billion.

On Dec. 9, Xpeng priced its 48-million-ADS offering at $45, and in the process raised $2.16 billion in gross proceeds.

Tesla announced Dec. 8 an at-the-market equity distribution agreement with major investment banks to sell up to $5 billion in shares.

At least two factors are prompting the companies to raise financing through the equity route: a strong rally in shares amid the ongoing exuberance in EV stocks, and the huge capital needs of these companies to stay relevant in a capital-intensive and consumer discretionary industry.

Related Link: Nio's Li Talks China's EV Market Potential, Competitive Advantage At Beijing Event

Nio's Capital Raises: Nio largely relied on debt offerings for its capital needs for most of 2019 and in early 2020, when its stock was trading at depressed levels.

After its September 2018 initial public offering, when it raised $1 billion by selling 160 million ADSs at $6.26 each, Nio priced a 72-million-ADS offering on June 11, 2020 at $5.95, raising $428.4 million in gross proceeds.

In late August, Nio raised $1.51 billion by offering 88.5 million ADSs at $17 each. 

Nio's ADSs, which are listed on the NYSE, have seen a meteoric rise this year and have been one of the best performers year-to-date, thanks to an inflection in deliveries after the COVID-19 downturn and the efforts of the company to improve technology, costs and services.

The shares are up about 1,025% year-to-date. 

NIO Price Action: In premarket trading Friday, the stock was seen slipping 5.55% to $42.71. 

Related Link: Xpeng Prices Upsized 48M Follow-On Equity Offering At 8% Discount

Courtesy photo.