Nio Stock Forecast: news of NIO issuing $1 billion in convertible debt hits share price
- NIO stock sinks almost 15% on convertible note announcement, trades below $9.
- The company is attempting to sell up to $1.15 billion in senior notes.
- The notes could be converted into ADS shares before they mature in 2029, 2030.
- Nio will announce September deliveries on October 2.
Nio (NIO) stock spiralled nearly 15% lower during Tuesday’s session following the Chinese electric vehicle (EV) company’s announced sale of $1 billion in senior convertible notes. Based on the Nio stock price action, it is safe to assume the market thinks most of these notes will be converted into American Depositary Shares (ADSs), thus diluting existing shareholders.
NASDAQ 100 futures, as well as the Dow Jones and S&P 500 futures, are also down over half a percent during the US session on Tuesday.
Nio stock news: Senior notes mature in 2029, 2030
Nio management says it will use the proceeds of the sale to pay down existing debt and strengthen its balance sheet. At the end of the second quarter, Nio had approximately $3.9 billion in debt – about 20% higher than six months prior.
Senior notes amounting to $500 million are due in October 2029, while the other half is due in October 2030. In addition to the $1 billion, each allotment allows buyers another month to purchase up to $75 million in senior notes. Combined, this would take the total note offering, and thus future dilution, up to as much as $1.15 billion.
The press release states, Nio “intends to grant the initial purchasers in the Notes Offering an option […] to purchase up to an additional $75 million in aggregate principal amount of the 2029 Notes and up to an additional $75 million in aggregate principal amount of the 2030 Notes.”
With a market cap circa $20 billion, this possibility of dilution should reduce existing shareholder ownership by about 5% (or maybe a little more). There is a sizable chance, however, that little of the debt sale gets converted to equity. Nio is allowed to repurchase the senior notes prior to maturity for cash instead of handing out new ADSs.
EV stocks FAQs
Electric vehicles or EVs are automobiles that use rechargable batteries and electric motors to accelerate rather than internal combustion engines (ICEs). They have been around for more that 100 years, but battery technology research & development was meager for much of the 20th century. Lithium-ion battery technology became advanced enough to produce EVs at scale in the late 1990s and 2000s, and sales have been steadily increasing since then Tesla’s Roadster was unveiled in 2008. EVs are viewed as a means of reducing carbon emissions since battery electric vehicles (BEVs) themselves produce zero emissions. Other vehicles called plug-in hybrid electric vehicles (PHEVs) utilize both battery electric power and ICEs as a backup.
EVs are growing from a small base, but they rose from 9% of global new auto sales in 2021 to 14% of the total in 2022. This was a 65% YoY growth rate, and the industry delivered 10.2 million EVs worldwide in 2022. Projections show this number climbing above 16 million in 2023. Across the world, market shares differ greatly among nations. Nearly 88% of Norwegian new car sales in 2022 were EVs. On the other hand, the United States, where much of the modern innovation in EVs was forged, had less than 8% of new vehicle sales go to EVs in 2022. The largest EV market in the world, China, saw 30% of the market go to EVs that year.
We know you’re thinking Elon Musk, but he’s probably more like the father of the mass-market, contemporary EV. All the way back in 1827, a Hungarian priest named Anyos Jedlik invented the electric motor and used it the following year to power a vehicle of sorts. French scientist Gaston Planté invented the lead-acid battery in 1859, and German engineer Andreas Flocken built the first true electric car for the public in 1888. EVs made up about 38% of all vehicles sold in the US around 1900. They began losing market share rapidly after 1910 when gasoline-powered vehicles grew much more affordable. They largely died off until new research programs in the 1990s led to gradual private sector investment in the 2000s.
China’s BYD is by far the largest manufacturer of EVs in the world. In 2022 it sold 1.8 million EVs and in the second half of the year made up 20% of the global market. The asterisk given to BYD is that the vast majority of these vehicles are hybrids. Tesla’s 12% market share is often treated as more significant than BYD, because it only sells BEVs and is the most famous EV brand in the world. Volkswagen, BMW and Wuling then round out the top five. As a new sector with heavy investment though, many startups have flooded the market. These include China’s Nio, Li Auto and Xpeng; a Swedish-Chinese manufacturer called Polestar; and Lucid and Rivian from the US.
Nio stock forecast
Nio stock has traded down to $9.73 in Tuesday’s premarket. This is a price level it has not traded at since August 29. Since NIO stock is already trading below the 100-day Simple Moving Average (SMA), the only nearby support level is $9.50. That level has served as support going back to late 2022.
It is likely that NIO stock will fail to rise for a while as shareholders and the market digest the company’s prospects. The next chance that NIO may see a surge in buying is Monday, October 2, when the company releases data on deliveries for September. If NIO exceeds 57,000 deliveries for the third quarter, then NIO stock will likely be off to the races. One way to play that would be to purchase October 6 call options at the $10 strike price.
NIO daily chart