Deutsche Bank gives a positive reading on New China's new financing

The new investment from Nio China reduces the risk of immediate dilution for Nio shares and is positive for Nio's share price, according to Deutsche Bank.

Nio (NYSE: NIO) announced earlier today that Nio China has secured new investment from investors from Hefei, Anhui Province, which Deutsche Bank considers favorable for the stock price.

“We view the above-mentioned CNY3.3 billion fundraising in Nio China as positive, as this move reduces some investor concerns about the immediate dilution of stocks on NIO's list,” analyst Wang Bin's team said in a research note sent to investors today.

“In other words, we expect the stock price to react positively to 'Nio China's' fundraising,” the team said.

Nio announced today that it has entered into definitive agreements with three strategic investors in Hefei to invest in Nio China, in which it has a controlling stake of 92.1 percent.

The three existing strategic investors will invest a total of CNY3.3 billion (US$470 million) in cash to subscribe to the newly issued shares in Nio China.

Meanwhile, Nio will invest a total of CNY10 billion in cash for newly issued shares in Nio China.

Upon completion of the investment transaction, Nio will own a controlling stake of 88.3 percent in Nio China, and the strategic investors, along with other existing shareholders, will own the remaining 11.7 percent stake in Nio China.

Nio is also entitled to invest an additional RMB20 billion to subscribe for additional shares in Nio China by December 31, 2025, at the same price and under the same terms as the investment transaction.

Wang's team believes the move is favorable for Nio's stock price due to the lower risk of immediate dilution for the stock.

The team noted that over the past eight quarters, Nio's losses have averaged about CNY5.2 billion per quarter and has CNY15.1 billion of net cash on its balance sheet.

As a result, some investors expect Nio to raise capital in the next three quarters, which has had a negative impact on Nio's valuation multiples as investors worry about potential dilution.

The team said the newly announced financing alleviates some investor concerns about immediate equity dilution in Nio.

($1 = 7.0111 Chinese yuan)

BREAKING: Nio announces $470 million investment in Nio China from strategic investors