Nio is surging thanks to a $1.9 billion cash injection from its parent company and investors

(Bloomberg) — Nio Inc. (NIO, NIO.SI) posted its biggest gain in nearly five months on Monday after the stock received a cash injection worth 13.3 billion yuan ($1.9 billion) from existing shareholders had announced.

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Singapore-listed shares of the loss-making Chinese electric vehicle maker rose nearly 16% as it financially strengthened its China unit through a mix of its own cash and funds from strategic investors.

A group of strategic investors – including Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment Co. and CS Capital Co. – have reached definitive agreements to commit 3.3 billion yuan in cash for newly issued shares of Nio Holding Co invest. The company is also known as Nio China, according to a company statement on Sunday.

Nio Inc. will invest another 10 billion yuan of cash directly into new shares in the unit. The transactions by all parties will reduce the parent company's ownership interest from 92.1% to 88.3%. The strategic investors – along with other stakeholders – will hold the remaining 11.7%, the company said.

“We believe this new investment will resolve the company's funding debate and improve near-term cash flow,” Morgan Stanley said in a research note on Sunday. “The investment from Nio China’s existing shareholders should further improve Nio’s balance sheet.”

While China has invested heavily in electric vehicles, strong competition at home and tariffs abroad have clouded the sector's prospects. Nio has tried to gain a competitive advantage with its charging network and research and development spending on battery swapping technology and even non-automotive areas such as semiconductors.

The cash injections would be made in two installments and would be completed by the end of the year, the statement said.

Nio Inc. will have the right to invest another 20 billion yuan by the end of next year to subscribe for more Nio China shares at the same price and under the same conditions.

With cash burn sparking concerns among analysts, the company, which has never been profitable, reported a second-quarter loss of 4.5 billion yuan. But quarterly sales rose to 17.5 billion yuan despite weak demand, slightly above analysts' expectations.

Hefei Jianheng and Anhui Provincial Emerging Industry Investment are affiliated to the municipal government of Anhui Province. Investors in the region are familiar with Nio, having struck a deal for a $1 billion investment in 2020, easing concerns at the time that the company was running out of money.

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In December, Nio also completed a deal to raise $2.2 billion from Abu Dhabi-backed CYVN Holdings LLC.

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