The Ups and Downs of Nio's $1.5 Billion Secondary Offering

As if more evidence were needed that electric vehicle (EV) stocks are the hottest thing going, Shanghai-based Nio Ltd. (NYSE: NIO) on Monday morning announced that it had priced a secondary offering of 88.5 million American depositary shares (ADS) at $17.00 apiece. The offering price was about 8% below Friday’s closing price of $18.50.

After a rocky start, however, shares traded up about 1% following the first hour of trading, but caution may have settled in later.

The secondary offering includes a greenshoe option on an additional 13.3 million ADSs. Net proceeds if the options are sold would be around $1.5 billion. Morgan Stanley, BofA Securities and China International Capital are the underwriters of the offering.

When Nio announced the secondary share sale last week, the company said it planned to offer 75 million ADSs. Demand pushed the number of shares on offer up, and the underwriters probably encouraged the company to sell the shares at a lower price in order to add some new investors into the Nio fan club.

The capital raise is going “mainly” to increase Nio’s stake in Nio China, a China-based entity created earlier this year to accommodate a $990 million investment by the municipal government of Hefei, site of Nio’s main manufacturing. According to a Monday press release, Nio is also repurchasing equity interests held by some minority shareholders of Nio China. At its inception in April, Nio China was 75.9% owned by Nio and 24.1% owned by the other investors.

Tesla Inc. (NASDAQ: TSLA) may have sucked some of the air out of Nio’s secondary offering. Monday is the first day of trading in Tesla following a five-for-one stock split. Tesla’s shares opened trading Monday at $440.12 and traded up around 8% after two hours of trading.

Workhorse Group Inc. (NASDAQ: WKHS) also announced a strategic deal with Japan-based giant Hitachi that, among other things, includes financing for dealers and customers of the electric van maker. Workhorse shares traded up about 7% at $17.56.

On the other side of the coin, Xpeng Inc. (NYSE: XPEV), which came public last Friday and jumped by 54% in its first day of trading, was down about 6% Monday morning. Another recent entry into the public markets, China-based EV maker Li Auto Inc. (NASDAQ: LI), traded down about 3% Monday morning.

Nio shares traded down about 1% just ahead of the noon hour in New York, at $18.35 in a 52-week range of $1.19 to $20.97. The consensus 12-month price target on the stock is $13.01.