Just out of the “NIO Day” event over the weekend, Chinese electric vehicle (EV) manufacturer NIO (NYSE: NIO) announced that it plans to issue convertible debt to raise $ 1.3 billion. Investors liked what they heard over the weekend when the company announced plans for its first luxury sedan, new long-range battery and updates to its battery-changing program.
NIO is trying to seize the moment with plans to issue $ 650 million each in 2026 and 2027 convertible senior notes. NIO said it plans to use the funds “primarily for general corporate purposes and to further strengthen its cash and balance sheet positions”.
NIO ET7 luxury sedan. Image source: NIO.
Once the price of the new notes is established, NIO said it will privately negotiate agreements with the holders of its 4.50% outstanding convertible notes due in 2024 to exchange a portion for American depositary shares (ADS).
NIO previously reported that it more than doubled its vehicle deliveries in the fourth quarter of 2020 compared to the prior year period, with more than 17,000 EVs delivered. The announcement of its first luxury sedan puts the company in a more competitive position with Teslain (NASDAQ: TSLA) Model S.
Investors applauded the news of the NIO Day presentation today, but the shares fell after news of the debt issue. In the announcement, NIO warned shareholders that the offer and possible subsequent exchange of the 2024 notes “could decrease (or reduce the size of any increase) in the ADS market price”.
Investors should not fear a capital increase if management is trusted to use the money to grow the business wisely. But the NIO is currently valued at $ 90 billion, which leaves little room for anything but stellar execution.