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Why Shares of Chinese Electric-Car Maker NIO Are Flying High Today

What's happening

Shares of Chinese electric-car maker NIO (NYSE: NIO) were sharply higher on Wednesday morning after a Chinese business-news outlet reported that the cash-strapped company had secured new financing from a major automaker. As of 12 p.m. EST, NIO's American depositary shares (ADS) were up about 16% from Tuesday's closing price.

So what

According to a report from Chinese business-news site Sina Finance that cites a person familiar with the matter, NIO will soon receive a cash infusion of about $1 billion from Guangzhou-based GAC Group (OTC: GNZUF). (At press time, neither NIO nor GAC had confirmed -- or denied -- the report.)

NIO's best-seller is the ES6, an upscale five-passenger electric SUV. Image source: NIO, Inc.

GAC is one of China's big domestic automakers. It has significant joint ventures with Honda Motor and Fiat Chrysler Automobiles, among others. If GAC has in fact decided to make a major investment in NIO -- and as of now, neither company has confirmed the report -- then NIO's future is bright.

That's an important development. In its 15 months as a public company, NIO has seen rising sales and strong customer loyalty, but its rapidly declining cash has called its future into question. As of Sept. 30, the company had just $274.3 million remaining, down from $1.123 billion on March 31.

Now what

If this report is accurate and if the deal closes, then it's extremely bullish for NIO -- but I think that auto investors should tread a bit carefully here. Note that an earlier bailout deal fell through at the last minute because of concerns about the company's viability. Use caution with this one.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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