Recent days have been tough for Nio (NYSE:NIO), but the Chinese electric vehicle company was turning things around on Thursday. In fact, NIO stock closed out regular trading up 2.75%. However, that all changed thanks to an after-hours announcement. So what do investors need to know right now?
Essentially, Nio announced that it is offering another 60 million American Depositary Shares (ADS). Additionally, the company says it will grant underwriters a 30-day option to purchase an extra 9 million ADSs.
Just like that, NIO stock took a turn south. This should be unsurprising, as investors have a tendency to panic at news of secondary offerings. The truth is that this will dilute existing shareholders, as Nio adds another 60 million shares to the market. And, at least in the short term, it will likely lead to a drop in the share price. But is there a specific reason for the negativity Thursday evening?
One reason could be that investors simply want more information about this offering. According to the press release, Nio will use proceeds for research and development, including for its next-generation autonomous driving platform. This makes sense, as during the third-quarter earnings call, CEO William Li identified self-driving vehicles as one of the company priorities for 2021 and beyond.
Importantly though, the press release offers very little detail beyond that. Nio already has $2.8 billion on its balance sheet. So where exactly will that money go? And is this a real reason to panic and sell NIO stock?
What Else to Know About NIO Stock
As you consider those questions, there are a few other things to keep in mind. The first is that investors are already approaching Nio with a bad case of the jitters. That is because, after flying higher, a series of bad headlines put pressure on the EV maker. Essentially, investors have been selling off NIO stock thanks to fears of delisting and Chinese regulation. Plus, a short-seller report targeting Kandi Technologies (NASDAQ:KNDI) has been hard on other Chinese automakers.
Perhaps then, investors are overreacting to the offering news. And what about that next-generation autonomous tech and its plans for 2021?
Just a few weeks ago, investors were cheering on Nio because of its lofty goals for the future. In recent months, Nio has beat on its delivery records, expanded production capacity and unveiled new battery tech. Looking to 2021, it is promising to further improve on those batteries, further boost its product and unveil new vehicles. And in just a few more weeks, the company will take the stage once again for Nio Day. During this hotly anticipated event, investors expect the company to share updates on its new vehicles, as well as its self-driving platform. If this offering really does raise the cash needed to deliver something impressive, will investors forgive NIO stock?
Weigh that question before you panic. NIO stock has been a favorite on Wall Street for some time now. This may just be a chance for the company to take advantage of recent investor interest and raise some funds.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.