NIO shares rally as Chinese unit secures $1.9 billion capital injection

Shares of Hong Kong-listed NIO (HK:9866) rallied after the Chinese subsidiary secured a capital injection of 13.3 billion yen ($1.9 billion) from its parent company and other investors. The investment comes at the right time as the company expands its charging infrastructure and battery swapping technology. Following the news, NIO shares rose 22% in Hong Kong trading, while Singapore-listed shares were up 20% at the time of writing.

NIO is a Chinese automotive company known for its premium smart EVs (electric vehicles).

NIO Inc. invests in China unit

As part of this investment, Nio Inc. will invest 10 billion yen in cash in new shares of NIO Holding, also known as NIO China. In addition, a consortium of strategic investors including Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment Co. and CS Capital Co. will invest 3.3 billion yen in cash for newly issued NIO Holding shares.

After the investment, the parent company's shareholding in this entity will decrease from 92.1% to 88.3%. In the meantime, these investors and other stakeholders will collectively hold the remaining 11.7% of NIO Holding.

The company further stated that these investments will be made in two installments and are expected to be completed by the end of this year. In addition, Nio Inc. has the opportunity to invest an additional 20 billion yen by the end of 2025 to acquire additional shares in Nio China.

Deutsche Bank remains optimistic

Deutsche Bank analyst Wang Bin expects these investments to have a positive impact on NIO's share price. It's important to highlight that some investors remain concerned about the company's cash burn and huge losses in recent quarters. Therefore, they expect Nio to raise capital in the next three quarters, leading to possible share dilution.

However, Bin now believes these investments will help allay concerns about possible immediate share dilution.

Analysts at Morgan Stanley also said the new investments would address the company's financing arguments and improve near-term cash flow.

Is NIO a good stock to buy?

On TipRanks, the 9866 stock has a Moderate Buy consensus rating based on one Buy and two Hold assignments in the past three months. At HK$44.83, the average price target for NIO shares implies a downside potential of 7.09%.

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