NIO Shares Slip on the New Convertible Debt Issue and a Rare Downgrade as Citi Now Sees Limited Short-Term Upside Potential Amid the Launch of “Not Good Enough ET7”

Rohail Saleem

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

NIO (NYSE:NIO), the high-flying Chinese EV manufacturer, is under pressure today from a confluence of factors that seem to be weighing on the otherwise buoyant outlook of investors.

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NIO announced yesterday that it is now looking to issue at least $1.3 billion in convertible notes:

“[NIO] today announced a proposed offering (the “Notes Offering”) of US$650 million in aggregate principal amount of convertible senior notes due 2026 (the “2026 Notes”) and US$650 million in aggregate principal amount of convertible senior notes due 2027 (the “2027 Notes,” and, together with the 2026 Notes, the “Notes”), subject to market conditions and other factors. The Company intends to grant the initial purchasers in the Notes Offering a 30-day option to purchase up to an additional US$100 million in aggregate principal amount of the 2026 Notes and US$100 million in aggregate principal amount of the 2027 Notes. The Company plans to use the net proceeds from the Notes Offering mainly for general corporate purposes and to further strengthen its cash and balance sheet positions.”

Bear in mind that these notes may be redeemed by NIO before maturity. Upon maturing, however, the debt is converted into equity. Given the multi-year duration of this debt, there is no immediate dilution threat from this transaction.

Nonetheless, NIO’s downgrade by Citi presents a much more potent bearish influence. To wit, Citi analyst, Jeff Chung, downgraded NIO today from a ‘Buy’ to ‘Neutral’ designation while pegging a $68.30 stock price target. While explaining the rationale behind this move, Chung commented:

“[The ET7 is] good but not enough to make any critical changes from Tesla's challenge."

Based on this assessment, Chung noted that NIO might only witness a limited incremental effect of 3K to 4K units on sales beginning in Q1 2022. The analyst lowered the aggregate FY 2021 sales estimate from 92K units to 82K units. For FY 2022, Chung now expects NIO to sell only 144K units versus 162K previously expected.

As part of its NIO Day 2020 event, the company had removed the wraps from its ET7 sedan on the 09th of January 2021. With a range of over 1,000 km when equipped with a 150-kWh battery pack, the ET7 is expected to debut in Q1 2022 with a minimum price tag of around $70,000 (RMB 448,000) before the application of subsidies. If, however, users subscribe to the company's Battery-as-a-Service (BaaS) facility and rent the base 70-kWh battery pack for $151 per month, the ET7’s price would be slashed to $59,000 (RMB 378,000). For more details, head over to our dedicated coverage of the event here.

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