<p>It is quite unfortunate and frightening that the coronavirus outbreak continues to make headlines and dictate the stock market trend. As the virus spreads outside China, fears of a global pandemic and its impact on GDP growth scare markets. Nine (NYSE: NIO) has, however, been strong with a lot of positive news. The nine stock reached a low value of $ 1.19 in October 2019 and is currently higher by 245% to $ 4.11.
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In the midst of the positive news about financing, I believe that the Nio shares will correct and provide an attractive entry opportunity. At least in the short term, the positive financing news for the cash-strapped company is discounted in the price.
As vehicle deliveries will remain weak in the coming months, the Nio share may develop lower. The initial tension regarding securing financing will also be offset by concerns about significant share dilution.
Securing financing also does not mean that the company can stop the combustion of cash and increase vehicle deliveries during intense competition. Tesla (NASDAQ: TSLA), Ford (NYSE: F), General Motors (NYSE: GM) and Volkswagen (OTCMKTS: VWAGY) are just some of the big names in China’s electricity market.
A total of 400 companies compete in the EV market. It remains to be seen if Nio can compete in terms of launches of new models that offer attractive features in addition to reasonable pricing. The marginal pressure is likely to continue due to the competitive factor.
Funding gives hope in the fight for survival
One of the biggest concerns for Nio was to secure financing so that the company can continue to function as a continued company.
During the first two weeks of February 2020, Nio announced a total of $ 200 million in new issues of short-term convertible banknotes. This comes as a relief to investors. At the same time, the conversion of these banknotes will dilute equity.
Major news from a financing perspective was the announcement of an agreement with the Hefei municipal government. Under the agreement, “the Hefei Government expects to provide resources and financial support for the long-term growth of the NIO in Hefei.”
The nine-share rose by 30% on the same day as the agreement was announced. However, there is still much to know about the terms of the agreement. In any case, there is significant dilution on the cards and it will affect the shares.
Positives that can trigger renewed stock upwards
The concerns discussed above will lead to the Nio shares declining in the foreseeable future. At the same time, NIO is fighting for survival and growth. The following are some important positives.
Nio first started production of the new EC6 electric SUV after the financing news. The new model is likely to compete with the Tesla Model 3. Delivery of the EC6 will begin in September 2020 and may increase delivery growth in 2021.
Second, in November 2019, Nio and Mobileye entered into a partnership to bring level four autonomous vehicles. This partnership is aimed at China as well as international markets for growth. It is important to note that Mobileye is an Intel (NASDAQ: INTC) company. With the launch of autonomous cars aimed at 2022, Nio has an additional growth trigger. It is important that it serves as a path for global expansion with robust technology support from Mobileye.
My final view on Nio Stock
The Chinese economy and the global economy are in a period of high uncertainty. If coronavirus continues to spread in more countries, the negative effect on growth will deepen. Specifically for Nio, it is certain that vehicle deliveries will be weak in the coming months. This can reduce the Nio stock lower in addition to the dilution fear.
But with the framework agreement with Hefei’s municipal government, Nio has ensured that the company survives. It is worth noting that China will target 25% of electric cars on the roads in 2025 from 4% in 2018. Therefore, there is plenty of room for growth for EV companies.
Overall, Nio is well positioned from a financing perspective. Once the current headwind has been navigated, the focus will shift to margin improvement and continued delivery growth. With EC6 to be launched in September 2020, the Nio share will probably have a renewed upward trigger.
Faisal Humayun is a senior research analyst with 12 years of industry experience in credit research, equity research and financial modeling. Faisal has authored over 1,500 share-specific articles focusing on the technology, energy and raw materials sectors. At the time of writing, he had no position in any of the above-mentioned securities.