NIO Gets a Lifeline, Coronavirus Hits TSLA Stock

  • NIO (NYSE:NIO) stock rose more than 13% on Tuesday, while Tesla stock (NASDAQ:TSLA) closed in the red. Tesla has closed with losses for two consecutive trading days.
  • NIO’s increased capital lifted its stock. Meanwhile, the coronavirus scare and analysts’ downgrade have hit Tesla. Despite this week’s sell-off, Tesla has risen 23% for the month and 91% for the year. NIO has only risen 9.5% year-to-date.

NIO gets a lifeline

Chinese electric vehicle producer NIO rose during trade on Tuesday. While the stock made an intraday high of $5.19, it eventually closed at $4.4—up 13.4% from the previous day’s closing. Tesla stock fell 4.0% on Tuesday. NIO announced a preliminary agreement with the municipal government of Hefei, Anhui Province. Under the terms, the company plans to raise $1.43 billion—a lifeline for the cash-starved company. Last year, NIO admitted that it would have to raise capital to survive. Before the agreement, NIO raised capital through convertible notes twice this year. The coronavirus has amplified NIO’s struggles. As a result, the company had to delay salaries, according to reports.

China is the largest electric car market

The agreement with the Hefei municipal government would provide NIO with the required cash to continue its operations. China’s electric car sales have fallen since mid-2019 when China lowered subsidies for electric cars. Tesla’s China Gigafactory is ramping operations. The Gigafactory will likely give a tough fight to domestic electric car makers. Local production would help Tesla bring down car prices more in China. The country is the world’s largest market for electric cars. China is also crucial for Tesla.

Tesla stock falls

Meanwhile, Tesla stock fell 4.1% on Tuesday. The stock fell sharply on Monday amid a broader market sell-off. NIO also fell 4.9% on Monday. Fears of the coronavirus spreading spooked investors. The Dow Jones Index has fallen by 1,900 points this week. Jefferies, which had a “buy” rating on Tesla stock, downgraded it to a “hold” on Tuesday due to valuation concerns. Notably, Tesla’s valuations have risen this year. Investors poured in money amid the electric vehicle growth frenzy. The analysts polled by Thomson Reuters have given Tesla a mean consensus target price of $502. The target price represents a potential downside of 37% over its closing price on Tuesday. Only 23% of the analysts have a “buy” or higher rating on Tesla stock.

NIO’s target price and analysts’ rating

NIO’s mean consensus target price of $3.4 represents a potential downside of 23%. Only 14% of the analysts have given the stock a “buy” or higher rating. Meanwhile, 64% of the analysts have rated the stock as a “hold” or some equivalent, while the remaining analysts have a “sell” or lower rating. For now, NIO seems to have won the battle to survive. Will the company really be China’s Tesla? We’ll have to wait and see.