Share Dilution

NIO Stock slips on the stock offering.

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A Nio Eve car is presented at the 19th Shanghai International Automobile Industry Exhibition in April.

Hector Retamal / AFP via Getty Images

Chinese electric vehicle maker is sell stocks to raise funds, exploiting the US market for cash despite the recent volatility in Chinese stocks listed here.

NIO shares (ticker: NIO) were down about 3% in pre-market trading, while futures on the

S&P 500

and

Dow Jones Industrial Average

both have declined slightly.

NIO’s shares are weak because the company is diluting the holdings of existing shareholders with its sale of roughly $ 2 billion in new US certificates of deposit, or ADRs – mostly US stocks in foreign companies. NIO’s market cap is around $ 67 billion, so the sale represents a dilution of around 3%.

The sale is a little reminder to investors that NIO is a new business that still needs external funds to finance its growth. NIO is however well capitalized. It ended the second quarter with more than $ 7 billion on its balance sheet, which it uses to boost its auto production capacity and invest in its vehicle lineup.

The fact that NIO is raising money may not be as surprising as where the company decided to get the money. Two of NIO’s Chinese peers listed in the US –

XPeng

(XPEV) and

Li Auto

(LI) – both recently decided to raise funds by selling shares in Hong Kong.

NIO sticks to its one stock exchange listing, in the United States, NIO was not immediately available for comment when asked if he was considering a second listing on another exchange.

A second listing allows a company to access another pool of investors and capital. Additionally, NIO’s capital raising comes as China’s regulatory crackdown on some Chinese stocks, such as

Have I got

(DIDI), which has chosen to raise funds in the United States, has caused volatility for investors.

The Golden Dragon China Index, which tracks shares of Chinese companies listed in the United States, is down more than 40% from its 52-week high in February. The index rebounded about 22% from its 52-week mid-August low.

On Wednesday, NIO stock was down around 17% so far in 2021, which is not entirely a surprise. Shares have risen by around 140% in the past 12 months and are up more than 1,100% in 2020.


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