Investors are watching Chinese electric-vehicle maker Nio (NYSE:NIO) a bit more closely on Thursday. NIO stock reversed three days of declines on Wednesday with a near 4% gain.
So, why the closer look? For one, the company disclosed that the municipal government of Hefei, where Nio is headquartered, agreed in principle to jointly build a “world-class industrial campus to support the development and innovations of the smart electric vehicle industry and related supply chains led by NIO China.”
According to the SEC filing, the Hefei government and its associated parties plan to re-invest their returns from the equity investments in NIO China to support the further cooperation in Hefei.
And two? The parent company said entered into an agreement to purchase 3.305% of NIO China’s stake in it for 5.5 billion yuan ($850 million) from two of the minority strategic investors that invested in NIO China in April 2020.
Those disclosures follow a report earlier this week that Nio would be partnering with Red Star Macalline Group to build 60 charging and battery swapping stations. Chinese EV publication, cnEVpost, additionally reported that top Chinese investment bank CICC expects Nio to benefit from strong demand ahead of Chinese New Year.
City Previously Came to NIO Stock’s Rescue
In late 2019, Nio was reported to be in desperate straits, with the local Chinese media rife with reports of its imminent bankruptcy. It was hemorrhaging cash, ending December of that year with only $124 million in cash on the books, $706 million in assets and $1.36 billion in liabilities.
The city of Hefei and Anhui province came to the rescue in February 2020, lining up strategic investors that ultimately injected 7 billion yuan ($1.08 billion) in NIO China.
By the following June, investors started to get behind NIO stock again, pushing the share price up more than 1,550% by the end of 2020.
Overvaluation Could Now Be a Concern
From the depths of late 2019, Nio stock has come back to the point where as recently as yesterday, Faizan Farooque wrote on InvestorPlace that while NIO stock is a strong performer, overvaluation concerns are real.
“I would wait for shares to cool off before adding more NIO stock to my portfolio. For now, if you invested money in the Chinese EV market, it’s time to book your profits,” he wrote.
Several days earlier, Thomas Niel pointed out that the EV bubble is bound to burst soon, and you don’t want to be there when that happens.
The contrarian in this InvestorPlace bunch is contributor Lou Carlozo, who last week wrote that production is a differentiator for NIO stock. “Nio is putting out automobiles. Those mulling a NIO stock purchase should strongly take this into account. After all, there’s a wide gulf between selling the dream and selling the real deal on wheels.”
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.