Should You Follow the Top Investors on NIO Stock?



NIO (NYSE:NIO) stock is on fire. With a 222% rise in the stock year-to-date, investors are getting restless. Votes of confidence from big investors are reassuring.

Tencent (OTCMKTS:TCEHY) is one of the biggest investors in NIO, only second to William Li, NIO’s founder. It was one of the first backers of the EV (electric vehicle)-maker and plowed in millions for a 13.4% stake.

On June 20, NIO announced in an SEC filing that Tencent had raised its stake to 15.1%. Tencent spent $10 million to purchase 1.68 million NIO American depositary shares. On July 8, in another SEC filing, NIO reported that Tencent had further raised its stake in the company, to 16.3%. For long-term investors, the addition of such a stake in less than a month is noteworthy.

Did NIO’s consistent operational performance drive Tencent’s stake increase?

In NIO’s deliveries report for June, it revealed that its June sales beat its previous record, established in May. Also, with back-to-back months of record sales, NIO delivered its best quarterly sales performance in Q2 2020. This report cemented investors’ view that NIO’s strong sales growth numbers in April and May were not just a blip. This reassurance, along with momentum trading, led the stock to historic highs.

The recent operational momentum in NIO could be one reason for Tencent adding to its stake. Tencent’s ongoing investment in NIO demonstrates its conviction in the long-term value of the company.

Baillie Gifford’s stake in NIO

Another long-term investor in NIO is Baillie Gifford. This Scottish fund acquired an 11.4% stake in NIO in 2018, and increased its stake in January 2020 to 13.1%. In January, NIO’s condition was quite weak. The company was reeling, with a high cash burn rate and survival issues. Baillie Gifford’s philosophy, however, is to “think in decades. Not quarters.”

Baillie Gifford’s conviction in NIO

The fund’s conviction in NIO is proving to be correct—the stock has seen a turnaround and huge gains. Whereas Baillie Gifford thinks NIO could be worth $300 billion, its current market capitalization is close to $15 billion. Baillie Gifford’s other EV bet, Tesla (NASDAQ:TSLA), is also paying off very well, with a 260% year-to-date gain.

Should you follow the big fish on NIO stock?

NIO also attracted financing from the Hefei government in April, and more recently, from six Chinese banks. Usually, interest from top investors boosts retail investors’ confidence in the stock. However, investors should note that these big investors have a very high-risk appetite and funds at their disposal to stomach the volatility a stock like NIO entails. Meanwhile, NIO’s fundamentals remain strong. To learn more, read Could $20 Be the Next Stop for NIO Stock?

More From Market Realist