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NIO Shares Tumble More Than 6% on News of $2B U.S. Stock Sale

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NIO Inc. (NIO - Free Report) recently announced an at-the-market offering to sell up to $2 billion of American depositary shares. Following the announcement of this offering, the company’s shares dropped more than 6% yesterday to close the trading session at $38.14.

If successfully completed, NIO’s deal would be the biggest U.S. equity offering by a Chinese company since Didi Global raised $4.4 billion from U.S. investors in June.

An at-the-money stock offering approach to fundraising is adopted by a company when it believes its stock is fairly priced and does not expect it to rally much higher in the near term. In fact, raising capital in the equity markets through this method is a common practice for public companies that are still in the early stages of development.

NIO, often dubbed as the Tesla (TSLA - Free Report) of China, is a relatively younger entrant in the electric vehicle (EV) space, racing to become a leader in the design and manufacture of EVs.

This May, NIO renewed its agreement with Jianghuai Automobile Group Co., Ltd. (“JAC”) and Jianglai Advanced Manufacturing Technology (Anhui) Co., Ltd. (Jianglai), for the joint manufacturing of NIO vehicles for another three years. Also, the JAC factory will continue to build the ES8, ES6, EC6, ET7, and potentially other NIO models in the pipeline for another three years, through May 2024. The Chinese start-up car manufacturer expects to roll out new models and plans to double its production capacity with a new plant under construction. Hence, there is definitely a requirement for capital by the company.

NIO plans to use the injection of money through the stock sale to strengthen its balance sheet as well as for other corporate purposes. Moreover, the stock offering is expected to boost NIO’s cash holdings amid supply-chain disruptions.

However, NIO already had $7.5 billion of cash and cash equivalents, restricted cash and short-term investments on its balance sheet as of Jun 30, 2021. This has raised concerns about the company and left investors speculating why another $2 billion would be needed by NIO when it already has such a fat amount in hand. Further, existing shareholders, who will experience dilutions, are likely to sell their shares in fear of the company’s unknown capital needs.

The Shanghai-based start-up had previously revealed intentions of pursuing a second listing in Hong Kong, similar to what was done by its rivals Li Auto (LI - Free Report) and XPeng (XPEV - Free Report) . However, the latest fundraising is most likely to further delay NIO’s Hong Kong listing process.

NIO’s fundraising push comes amid the global semiconductor dearth grappling the entire auto sector. NIO has been quite outspoken about its supply-chain woes. Last week, the company slashed its delivery outlook for the third quarter, due to the continued uncertainty and volatility of chip supply.

Nonetheless, NIO, one of the most prominent EV makers in China, seems to be well positioned to cement a strong long-term foothold in the rapidly growing EV industry. The company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In other news, Intel’s self-driving unit, Mobileye, plans to test an autonomous ride-hailing service in Munich, Germany next year. NIO’s ES8 model, integrated with Mobileye’s self-driving system, was featured at a recent mobility event, where Intel made this announcement.  Intel plans to operate the service with Sixt, a German car rental company, and Moovit, an Israeli public transit app maker acquired by Intel.

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