Deutsche Bank Neo gives positive read on China's new financing

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

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

“We view the aforementioned RMB 3.3 billion fundraising in Nio China positively, as the move alleviates some investors' concerns about an immediate stake reduction in NIO List Co,” analyst Wang Bin's team said in a research note sent to investors today.

“In other words, we expect share prices to respond positively to 'Neo China' fundraising,” the team said.

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

Three existing strategic investors will invest a total of RMB 3.3 billion ($470 million) in cash to subscribe for newly issued shares in Neo China.

At the same time, Nio will invest a total of RMB 10 billion in cash for newly issued shares in China.

After the investment transaction is completed, Nio will hold a controlling 88.3 percent stake in Nio China and strategic investors along with other existing shareholders will hold the remaining 11.7 percent stake in Nio China.

Nio also has the right to invest an additional RMB 20 billion to subscribe for additional shares in Nio China by December 31, 2025 at the same price and on the same terms as the investment transaction.

Wang's team believes the move is favorable to Neo's share price as the risk of immediate share dilution is reduced.

Over the past eight quarters, Nio has averaged losses of about RMB 5.2 billion per quarter and has net cash of RMB 15.1 billion on its balance sheet, the group noted.

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

The newly announced financing allays some investors' concerns about an immediate equity dilution in Nio, the team said.

($1 = RMB 7.0111)