Chinese electric vehicle manufacturer Nio Inc – ADR (NYSE:NIO) has been in trouble for quite a few months, and NIO stock has performed quite abysmally during the period as well. The company had been struggling from spiraling losses, and despite the recovery of the electric vehicle market, NIO struggled to recover.
Received A Cash Injection
The company had also been fast running out of cash, and just in the nick of time, it received a cash injection of as much as $989 million. While that is a major boost for NIO, it should also be pointed out that the stock might not recover anytime soon.
The company is expected to continue to generate losses, and the coronavirus pandemic has also come as a blow to the electric vehicle market. The new investment in the company has come from a number of investors who are based in the city of Hefei in China. NIO has also entered into an agreement with the Hefei Municipal Government by way of which it will need to move its headquarters to Hefei and also partner with local vendors. Considering the fact that in its most recent quarter, it made a loss of $397 million, NIO needed to wrap up the deal quickly.
While the new investment may have given NIO some breathing space, it is hard to see how it is going to boost the company’s stock. The losses are expected to continue, and in addition to that, the new capital is only going to last for a short span of time. Last year, a fund had invested $1.411 billion into the company, but the money had not lasted. Hence, it is a safe assumption that the money is not going to last, and NIO would need another cash injection in order to stay afloat as a business. Moreover, the fact that Tesla has now opened up a plant in Shanghai is not good news for the company either.
Last but not least, there are many other electric vehicle companies in China, and the competition is intense. Hence, it is unlikely that the stock is going to recover soon.