Nio Inc. (NYSE:NIO) hasn’t been the Cinderella story that many had originally hoped for since its IPO. There’s no denying that its debut on the US markets was exciting especially when it hit highs of nearly $14 a share. But that’s where the excitement tends to tailor off a bit. Over the last few months and recently, the last few weeks, shares of the “Chinese Tesla (NASDAQ:TSLA)” have dropped to all-time lows. In fact, last week Nio shares fell into penny stock territory.
Does this electric vehicle company really have what it takes to get out of the range of becoming a penny stock? If you were to ask someone, “What is a penny stock?” the basic definition is a stock that trades under $5 per share. Given that Nio had been briefly trading below $5 last week, it technically flirted with the penny stock price level. But why?
Nio Running On Fumes At The End Of Q1
In early March, investors saw Nio shares plummet from $10.16 on March 5 to an opening price of $8.26 the following day. What contributed most to this was the company’s latest earnings report. More specifically it was the corporate guidance offered for the future of Nio.
Though people like Jim Cramer say they “wouldn’t sell” Nio, Wall Street didn’t necessarily feel the same way. Bank of America Merrill Lynch (NYSE:NYSE:BAC) downgraded the stock from Neutral to Underperform.
The sequential slowdown in vehicle deliveries in January and February was mainly caused by accelerated deliveries made at the end of last year in anticipation of EV subsidy reductions in China in 2019, the seasonal slowdowns surrounding the January 1st and Chinese New Year holidays, as well as the current slowdown of macro-economic conditions in China, particularly in the automotive sector,” said Nio in a company statement.
A Light At The End Of The Test Tunnel For Nio
Though Q4 figures showed positive progress, there will be hurdles for Nio to get over. Let’s look at some of the highlights that could positively impact Nio considering the drab outlook guided by the company.
For starters, the company’s update on first-quarter deliveries came in above its original expectations. The company is expected between 3,500 and 3,800 ES8s delivered (compared to 7,980 in Q4). As of March 31, 2019, cumulative ES8 deliveries reached over 15,000 vehicles with 3,989 being delivered in the first quarter. This figure was higher by 339 vehicles compared to its guidance range midpoint of 3,650.
Additionally, the recent dip in price could have added more exposure to investors who simply do not have attention on stocks outside of the “penny stock” range. One article even states, “So, on the bright side, maybe this drop opened up new attention from investors who would have not seen the company, otherwise.”
Several milestones for the company continue to breed investor confidence. Financial results showed things like delivery to nearly 8,000 customers, which is about 1/10th of Tesla’s Q4 deliveries for its last period. This figure surpasses company expectations and compared to its initial guidance from the end of 2018, the trend has continued in exceeding anticipated growth figures.
Nio also hinted at an “affordable” auto: the ES6. This model is set for production later this year with a sticker of roughly $52,000.
A Clear Road For An EV Gold Rush
Due, in part to the recent changes in China’s standards for new energy vehicles, which will qualify for subsidies, the EV market is getting hot for big money raises. Furthermore, a particular deal struck at the time of the Nio IPO could bring an advantage. It happened to be that the Chinese electric vehicle maker blocked the eight top investment banks that did its IPO from working for rivals. They did this by placing in a year-long non-compete clause according to Reuters.
The top eight banks worldwide for equity sales in 2018, were Bank of America Merrill Lynch, Citigroup (NYSE:NYSE:C), Credit Suisse (SIX:SIX:CSGN), Deutsche Bank (DE:DE:DBKGn), Goldman Sachs (NYSE:NYSE:GS), JPMorgan (NYSE:NYSE:JPM), Morgan Stanley (NYSE:NYSE:MS), and UBS (NYSE:UBS) according to Refinitiv data. They all were also the banks that Nio had hired.
Though the Reuters source didn’t consent to be named, this could give Nio a strong lead. NIO’s rivals will essentially be blocked from raising public or private funds from these banks for 12 months following the IPO.
A Look At The Landscape
As the major global banks could be locked up for now, the landscape for EV in China continues to grow. Leap Motor, a smaller EV producer was seeking a private raise of about $372 million. Deutsche Bank and Chinese brokerage Huatai United Securities are acting as the advisors on the deal.
In January, Byton sought to raise at least $500 million to finance its growth according to Reuters. The company is only 3 years old but already has more than 50,000 customers and a valuation of more than $4 billion according to its CEO and Co-Founder, Daniel Kirchert.
Finally, WM Motor recently announced that it had closed its Series C funding round of $446.16 million (3 billion Yuan). The raise was led by Baidu (NASDAQ:BIDU). In total, the company has been able to raise around $3.4 billion (23 billion Yuan).