The electric vehicle boom shows no signs of slowing down, but that doesn’t mean the shares of companies within its sector won’t hit roadblocks. Chinese electric vehicle producer Nio (NYSE:NIO) just proved exactly that. Upon news breaking that the company had filed a prospectus with the U.S. Securities and Exchange Commission to offer up $2 billion in shares, NIO stock quickly began to fall.
What Happened With NIO Stock
In filing this prospectus, Nio seeks to sell $2 billion in American depository shares. In an at at-the-market offering of this type, shares are priced at the current market rate. As Nio’s shares were at $40.59 at close of market on Tuesday, that is the price at which they will be offered, enabling the sale of roughly 50 million shares of NIO stock.
After hitting a high for the month yesterday at just over $41 per share, NIO stock began to sharply decline. The company has been in the red since markets opened today and as of this writing, is down by roughly 5.89%, marking a decline of 8.9% since yesterday.
In the after hours that followed the announcement, shares continued to decline. When Wednesday’s premarket began, they were down 3% from the previous market close.
According to the company, the capital raised by selling these shares will be used for “general corporate purposes and to strengthen its balance sheet.”
Why It Matters
Last year saw Nio attempt to cash in on the electric vehicle boom when companies spanning continents such as Tesla (NASDAQ:TSLA) and Xpeng (NYSE:XPEV) began offering up shares as interest in the sector increased. This period saw NIO stock sold for $39 per share, raising a total of $2.65 billion.
Maneuvers such as this can often benefit the company doing the offering. When capital is lacking, offering up shares in this way can allow for the leveraging of investor interest, ultimately allowing the company to fund any initiatives it deems most necessary. Sometimes this can mean expansion, creating an opportunity for potential growth in the future.
As we’ve seen, though, in the short term, this often means dilution. As a result, existing investors don’t always look favorably on companies offering up shares in this way.
What Comes Next for NIO Stock?
Despite the recent declines, investors who hold NIO stock would be wise to take a bullish approach to this company. Nio has offered up shares in at-the-market offering multiple times and both times shares have rebounded while the company has raised necessary capital.
There is plenty of reason to believe that this trend will continue this time around. InvestorPlace’s Vandita Jadeja flagged this dip in NIO stock’s prices as an excellent time to buy, stating:
“Nio has strong fundamentals and an impressive lineup of products. I believe this dip is temporary and NIO stock will soon hit new highs. All EV makers are dealing with the chip shortage and once this issue is resolved, there is no stopping the growth of Nio.
It is one of the best EV stocks today and this dip is the perfect buying opportunity for those who are keen on investing in the EV industry.”
Nio is a company with abundant potential for growth in an industry that is rapidly growing. Its actions indicate a long-term plan for growth, likely meaning positive long-term results for shareholders.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
