NIO shares are falling after the secondary placement, but the company raised $ 2.65 billion.

NIO capitalized on 919% year-over-year growth and raised $ 2.65 billion by selling 68 million ADS, more than originally planned but a 7.1% discount from Friday’s closing price. Here’s what this means for the company and investors.

Chinese electric vehicle manufacturer NIO (NIO) re-floated 68 million American Depositary Receipts (ADS) on Monday, each representing one common share of a Class A company.

The offer price was $ 39 per share, which represents a 7.1% discount from Friday’s closing price and an 18% discount from the 20-day moving average price. As a result, NIO raised $ 2.65 billion in investments.

NIO shares, which posted an incredible 919.4% year-to-date gain, were down 2.38% on Monday, pushing their last month’s losses to -15.16%.

What does this mean for investors?

The discount on the sale of a large stake in NIO (68 million – about 6% of the total outstanding shares) is not unusual.

Secondary public offering at such a price increase is quite reasonable, thus NIO “cashes out” its growth and lets the raised money into development. Plus, this is common practice and NIO was already selling stocks for $ 17 in August.

According to a NIO press release, “The company plans to use the net proceeds from the ADS offering primarily for research and development of next-generation autonomous driving products and technologies, expanding its sales and service network and market penetration, and general corporate goals.”

This is good for both the future of NIO and its long-term investors.

In November, NIO reported 146% revenue growth and a 2.5x increase in electric vehicle shipments from last year.

What are analysts saying about NIO?

Analysts at Goldman Sachs rated NIO shares with a “hold” rating and a target price of $ 59, 44% above Monday’s closing price of $ 40.98.

The Wall Street analysts’ average valuation of NIO shares is considered “moderate buy” based on 7 “buy” and 4 “hold” ratings, with an average target price of $ 49.

The electric car maker’s offer was increased from 60 million shares to 68 million, which means that the underwriters decided to purchase additional shares in NIO in excess of the original target. Thus, after the increase in supply, NIO’s underwriters – Morgan Stanley and China International Capital Corporation were able to acquire up to 10.2 million additional shares.

Deutsche Bank analyst Edison Yu believes that NIO made the decision on the secondary offer not so much with the need to replenish the balance sheet, but in order to use the current market conditions to their advantage.

“NIO doesn’t need money considering that it ended the 3rd quarter with nearly $ 3 billion in ‘cash and cash equivalents’ available. The company simply saw a favorable moment in this, given the growth of shares (+ 155% over the past 3 months versus + 10% for the S&P 500) and generally favorable investor sentiment, “Edison Yu.

Overall, the analyst believes that the “competitive dynamics” in the Chinese electric vehicle industry is “picking up” and Nio’s efforts to gain market share seem to be paying off.

Recently, NIO’s plans to enter foreign markets, in particular, to Europe, have been confirmed. According to media reports, Zhang Hui, CEO of Nio Germany, had a meeting (via video conferencing) last week with Wang Weidong, a commercial advisor to the Chinese Embassy in Germany, to discuss plans for the company’s expansion.

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