Nio Surges After Reports of Large Investment

Alan Penny

16 January 2020

3 min read

  • Potential funding on its way
  • Nio tries to calm excitement
  • Massive volatility

Nio is considered to be the “Tesla of China” as they are a major electric vehicle producer in the Chinese mainland. Nio has been struggling for quite some time and it has suggested that they might have inadequate cash reserves for operational needs during the year 2020. This is a death knell for a growing company, as technology companies burn through cash quickly. However, there are signs of life coming out of the mainland.

a death knell for a growing company, as technology companies burn through cash quickly

Sina Finance has reported that a state owned entity known as GAC Group is preparing to invest $1 billion into the maker of luxury electric SUVs. In the statement, Nio called the report speculative, saying financing and strategic talks with the group remain preliminary so no definitive agreement has been reached. However, that has not stopped stock speculators from jumping in and trying to get a leap on what will certainly be a flood of money coming into the company if this does in fact turn out to be true.

In December, Nio reported a beat of earnings expectations but mentioned that its cash balance of just $274.3 million was not going to be adequate for continuous operation. It also added at the time that it was seeking external equity or debt financing to carry on. Part of the cash crunch came even as Nio had outperformed the stock market for China auto sales, especially in EV sales. There was a 25% jump in December, after seeing sales crater in the first half of 2019.

Nio now plans to launch a smaller electric SUV as the locally made model three sedans from Tesla hit the Chinese market. Nio has been around since November 2014 but has a long history of losses. It is considered to be one of the bigger “Chinese unicorns” that stock traders continue to trade.

Massive volatility

Nio chart

Nio shares jumped 14% to close at $4.29 after the report came out. It also had raced upwards of 50% on December 30 on the earnings beat. Nio has been heavily shorted, so with a large increase in short interest out there, it causes for volatile snaps to the upside as short-sellers have to cover their position. This leads to Nio being one of those companies that could very easily bring in large profits on good news.

Further driving price higher, China signaled that it will ease subsidy cuts which have weighed heavily upon electric vehicle sales.

Nio closed just below the psychologically important $4.50 level after Wednesday, and looks primed to see more buying pressure, or at least short covering to drive the price even higher. Volume has been extraordinarily high over the last couple of weeks, signaling that there is more of a move coming. That being said, you should keep in mind that this company is highly speculative although it certainly has one of the better markets to invest in as far as potential customers.

Written By
Alan Penny

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