There’s a chance Nio (NYSE:NIO) stock may survive after all. I wasn’t a believer for a while. The Chinese electric vehicle company almost ran out of cash last year. I have written several articles about this topic for InvestorPlace.
On March 5, Nio announced it had signed definitive agreements with several unaffiliated Asia-based investment funds. The agreements were to raise $235 million. The funds raised are for short-term convertible notes.
More importantly, the company said the deal was to close by March 11, 2020.
There was no follow-on press release on March 11, stating that the deal closed. But this is par for the course with Nio. It usual for most other companies to highlight closings.
Moreover, on Feb. 25, Nio secured some sort of funding from the local Hefei government in China. The Hefei government expects to provide resources and funding support for the company in Hefei.
The amount of the funding was not announced, so this was a bit nebulous. Nio committed to keeping its headquarters in Hefei as a result.
Intel May Need Nio To Survive
I also suspect that Intel (NASDAQ:INTC) , which owns Mobileye, has an interest in making sure that it survives. Mobileye signed a “strategic collaboration” with Nio in November 2019 to make highly automated and autonomous vehicles (AV).
These AVs will be for consumer markets in China and other markets. The carmaker will integrate Mobileye’s L4 self-driving system for the consumer AV market. The launch is targeted for 2022. It is the first such deal for Mobileye.
For example, Mobileye will purchase an exclusive robotaxi variant to use for its own robotaxi fleet. The agreement marks the first large-scale automaker partner supplying vehicles to Mobileye.
In effect, Intel cannot effectively allow Mobileye’s venture with Nio to crumble. This is possibly one of the reasons why the Asian funds were likely willing to fund the company on a short-term basis.
Moreover, a Seeking Alpha author recently wrote an article about the Mobileye deal with Nio. He says it provides an excellent argument against those who are shorting Nio stock.
What Should Investors In Nio Stock Do?
Nio released its earnings for 2019 on March 18. According to its earnings release, “Balance of cash and cash equivalents, restricted cash and short-term investment was RMB 1,056.3 million (US$151.7 million) as of December 31, 2019. The Company’s cash balance is not adequate to provide the required working capital and liquidity for continuous operation in the next 12 months.”
Wei Feng, NIO’s chief financial officer, said in the release, “We made several private placements of convertible notes in February and March 2020, in an aggregate principal amount of US$435 million, which supported our daily operations and business development. On February 25, 2020, we entered into a collaboration framework agreement with the municipal government of Hefei, Anhui Province, who expects to provide resources and funding support for NIO to establish NIO China headquarters in Hefei for our long-term growth. The parties are working on the legally binding definitive documents to be signed.”
Lacking more concrete details on the agreement with Hefei, investors have to decide for themselves whether they think Nio stock is likely to survive without going into bankruptcy or insolvency. As mentioned, I have previously written about this possibility.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers get a two-week free trial.
