uploads///NIO stock versus Tesla

Why NIO and Tesla Stock React Differently to Capital Raise


Mar. 6 2020, Updated 7:31 a.m. ET

  • On Thursday, NIO (NYSE:NIO) announced a private placement of $235 million in convertible notes. The company has raised capital for the third time this year. The company also entered into a preliminary agreement with the municipal government of Hefei, Anhui Province.
  • Tesla (NASDAQ:TSLA) raised over $2 billion by selling shares last month. While Tesla stock surged after it announced the capital raise, NIO fell.
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NIO stock

On Thursday, NIO announced a $235 million private placement of short-term convertible notes. The notes wouldn’t bear any interest and would mature on March 5, 2021. Beginning on September 5, 2020, the noteholders can convert the notes into NIO stock at a conversion price of $3.50 per share. The price is almost at a 6% discount over NIO stock’s closing price yesterday. Notably, NIO stock fell 3.9%, while Tesla stock fell 3.3% on Thursday. The price action could be due to the broader market sell-off. The Dow Jones Index fell by almost 1,000 points yesterday. However, markets have reacted differently to NIO and Tesla’s capital raise.

How did Tesla stock react to the capital raise?

Last month, Tesla announced a $2 billion capital raise through equity issuance. The company announced the offering at a slight discount to the prevailing stock price and eventually raised $2.3 billion. The announcement was somewhat surprising. Only two weeks ago, CEO Elon Musk categorically denied any need to raise capital. Meanwhile, Tesla stock closed with gains on February 13 after it announced the capital raise. While the stock was trading on a negative note in pre-market trading that day, it eventually ended the day with 4.8% gains. Last year, Tesla stock jumped after it increased the size of its stock and bond offering. In contrast, NIO stock fell in February after it announced the issuance of short-term convertible notes.

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NIO’s survival versus Tesla’s growth

NIO is fighting for survival. The company is on its third capital raise this year. In aggregate, it has raised $435 million from the issuance of convertible notes. NIO has also entered into a preliminary agreement with the municipal government of Hefei, Anhui Province. According to the terms, NIO would get $1.43 billion.

Meanwhile, Tesla is on a high growth trajectory. The company has posted a net profit for two consecutive quarters. Also, Tesla generated positive free cash flows last year. Tesla expects to sell over half a million cars this year. Last year, the company delivered 367,500 electric vehicles globally.

Comparing the two stocks

NIO stock has fallen 7.5% year-to-date, while TSLA stock has risen by more than 73%. Critics have blamed Tesla for its frequent losses and cash burn. However, NIO’s record has been even more dismal. Tesla took about 15 years to accumulate $5 billion worth of cumulative losses. NIO achieved the feat in four years. Producing and selling electric vehicles hasn’t been easy even for established automakers. Tesla has moved up the learning curve. As a result, the company is spending capital wisely.

Electric vehicles

While some short-sellers might not agree, Tesla has a strong lead in the electric vehicle industry. The company’s battery technology, software, and charging infrastructure put it in an enviable place in the electric vehicle industry. New models and factories would enhance Tesla’s reach. Also, Tesla has Musk at the helm. With a charismatic CEO, the company doesn’t need to do marketing. Musk’s Twitter activity provides the company’s marketing.


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