avatar
2021-02-04 22:44:44
Jacob Fisher

Editor

2021-02-04 22:44:44

Exclusive:Some Big Government Investors Are Cashing Out Of NIO Stock. Why That’s Good News.

NIO and the local government where the Chinese electric-vehicle maker is based signed an agreement Thursday that will cost NIO some money as early investors cash in. But cash out the door isn’t all that investors should be thinking about.

NIO and the local government where the Chinese electric-vehicle maker is based signed an agreement Thursday that will cost NIO some money as early investors cash in. But cash out the door isn’t all that investors should be thinking about.

The details are a little complicated.

For starters, NIO (ticker: NIO) and Hefei—a municipality in China’s Anhui province, where NIO’s Chinese headquarters is located—struck a deal back in early 2020. The first, preliminary announcement regarding the arrangement, which supplied cash to the company for manufacturing and development support, came in February 2020.

Investors cheered. That was back before most EV stocks took off. NIO shares were trading for about $4 at the time.

In April, deal terms were firmed up. NIO put its Chinese business in to a new entity and ended up owing about 76% of the legal entity. The strategic investors—including the local government—ended up with about 24%. The strategic investors put in some cash.

Fast forward to February 2021, and NIO appears to be buying some of the 24% back. NIO is spending about $2.4 billion and will end up owning about 90% of the entity formed back in April 2020.

The details of all the corporate entities, government entities and ownership stakes are, frankly, complicated. And NIO wasn’t immediately available to comment further on how it all works.

But what Thursday’s announcement boils down to is NIO investors taking some money off the table. NIO stock has gone from $4 to roughly $60 over the past year. It’s hard to blame any investor for taking some profits with returns like that.

These corporate comings and goings aren’t affecting shares all that much. NIO shares are opened higher, but are now down about 0.6% in midday trading Thursday. S&P 500 and Dow Jones Industrial Average, for comparison, are up 0.7% and 0.9%, respectively.

NIO stock is lagging, but the government sale demonstrates another thing. NIO doesn’t need government funds today like it did in 2020. The EV market has changed a lot since then.