Nio Rising In Pre-Market Following Tencent Stake Disclosure

Nio (NIO) is rising 5% in Monday’s pre-market trading, after a filing revealed that Tencent (TCEHY) has further boosted its stake in the Chinese electric vehicle company.

In June 2020 Tencent snapped up a further 1,680,000 American depositary shares (ADSs) representing 1,680,000 of Nio’s Class A Ordinary Shares through Huang River for an aggregate purchase price of $10 million.

Following this latest transaction Tencent, the world’s largest video games company, now owns 15.1% of Nio. Shares in Nio have exploded over 80% year-to-date and, as a result, analysts have a cautious Hold consensus on the stock’s outlook. That’s with a $5.55 average analyst price target (24% downside potential).

However Merrill Lynch’s Ming-Hsun Lee is taking a bullish stance, and has just reiterated a NIO buy rating while ramping up the price target from $5.50 to $7.30.

According to Lee, Nio is now enjoying stronger orders and should benefit from China’s favorable EV purchase subsidy scheme. The analyst expects Nio to show vehicle gross profit improvement in Q2, as well as better free cash flow.

Encouragingly, the company recently revealed that it delivered 3,436 vehicles in May 2020, representing a strong 215.5% growth year-over-year. (See Nio stock analysis on TipRanks).

Previously, Tencent invested $510 million in Nio before its 2018 initial public offering (IPO). Upon completion of the IPO, Tencent invested $32.9 million in Nio, which it followed in February 2019 with a $30 million subscription for convertible senior notes due 2024. These can be converted into 3,154,077 ordinary shares based on the initial conversion price.

In September 2019, Tencent acquired S$50 million in aggregate principal amount of the convertible senior notes due 2020 and US$50 million in aggregate principal amount of the convertible senior notes due 2022. These are convertible into 16,778,523 shares and 16,025,641 shares respectively.

Finally, in April 2019, Tencent acquired 140,749 ADSs representing 140,749 shares by way of a distribution from Sequoia Capital China Growth Fund III, L.P.