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EV Stocks on Fundraising Frenzy: What Investors Should Know

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The electric vehicle (EV) market is one of the hottest industries at the moment. Despite the coronavirus pandemic, the EV market is getting more electrified than ever. There is an enormous amount of optimism in the space, which retail investors are cashing in on by aggressively buying EV stocks.

Fueling demand for electric cars is pushing up the share price of popular EV stocks, prompting automakers to raise additional capital via equity financing in a bid to drive further growth. EV makers are tapping the capital markets to capitalize on the impressive rally in shares amid the e-mobility hype. Also, the move will help the capital-intensive firms strengthen their financials to solidify their position in the industry.

LI & XPEV’s Post-Listing Offerings

Li Auto (LI - Free Report) and Xpeng Motors (XPEV - Free Report) debuted on the U.S. stock market in second half of this year. Since their IPO, shares of Li Auto and Xpeng have witnessed triple digit gains. Banking on this strong upsurge, the companies announced plans to raise more capital via stock offerings this December.

On Dec 4, Li Auto priced a 47-million-share equity offering at $29 per American depositary shares (ADS), raising more than $1.36 billion. The proceeds will be utilized for research and development of electric and driverless technologies, future line-up of vehicles and general corporate purposes.

Following in its footsteps, Xpeng priced its 48-million-stock offering at $45 per ADSwith a 30-day option to increase up to 55.2 million ADSs. Gross proceeds from the offering were $2.5 billion. The amount will be used for research and development of its EVs and data technologies, sales and servicing expansion efforts, strategic investments and other corporate purposes.

Tesla’s $5B Share Offering

On Dec 8, Tesla (TSLA - Free Report) announced its plans to raise up to $5 billion via equity offering in a bid to fortify its balance sheet. Per the company’s filing with the Security and Exchange Commission on Dec 9, Tesla wrapped up the sale of its $5-billion stock offering within a day. Importantly, this was the firm’s second capital raise via equity financing in the last three months. Earlier in September too, it announced a $5-billion capital raise, leveraging its impressive share price gains.

The company’s capital raise via stock offering is a timely move as Tesla is investing heavily in the development of new gigafactories. As it is, the company’s operating expenses have been on the rise amid high R&D costs and battery cells manufacturing. The move will help the firm shore up its cash position as it aims to maintain its lead in the EV market with the competition intensifying.

Tesla is all set to enter the elite S&P 500 club on Dec 21, thus becoming the largest entrant ever on the prestigious index.  Shares of this red hot EV maker have risen around 630% on a year-to-date basis. Tesla currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NIO Follows Suit

NIO Inc. (NIO - Free Report) is the latest to jump on the bandwagon to raise more capital via a new stock offering. The EV maker announced last Thursday that it intends to sell 60 million new ADSs with a 30-day option to increase up to 69 million ADSs if investors’ demand for the new shares remains strong. The following day, the stock declined more than 7% on share dilution risks to close the session at $41.98 per ADS. NIO is set to raise at least $2.5 billion via its offering for which Morgan Stanley and China International Capital Corporation Hong Kong Securities Limited are serving as underwriters.

The company aims to use 60% of the proceeds from the offering, primarily for research and development of new products and driverless technologies. Around 30% will be directed toward expansion of sales and service network while the remaining 10% will be allocated to general corporate purposes. The company is set to enter the sedan market and plans to launch two back-to-back models, the first one likely to be unveiled at the NIO Day event on Jan 9, 2021. NIO is also making efforts for international expansion, starting with Europe and is also planning to increase the count of NIO Houses and its battery-swapping stations.

Notably, NIO mostly raised capital via debt financing. However, it is opting for stock offerings of late, taking advantage of its meteoric share price rises. Toward the end of August, NIO raised $1.5 billion via its stock offering of 88.5 million ADSs at $17 per unit. Shares of NIO have had a crazy run so far in 2020 with the stock skyrocketing 944% compared with the auto sector’s growth of 75% in the same time frame.

EV Revolution to Rev Up

The prospects of e-mobility shine bright on the back of climate change concerns, favorable government policies and advancement in technologies. According to S&P Global forecast, EV sales in the United States are likely to jump to 6.9 million units by 2025 in comparison to 1.4 million unit sales forecast in 2020.Automakers are also fast changing their gears to electric as they are realizing the strong potential of green vehicles. In the coming years, the race for EV supremacy will only get fiercer.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

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Li Auto Inc. Sponsored ADR (LI) - free report >>