To rewind, NIO's 160 mln ADS IPO priced at $6.26, at the low end of the $6.25-$8.25 expected range, and opened for trading with only a modest pop near its open up to $6.48. But after the sluggish pricing and opening, shares ripped higher over the course of the next two sessions, eventually trading near the $14 level. This was despite the fact that Bernstein came out with an Underperform rating and $4.20 price target on the stock the day after its IPO launched.
However, the rally was short-lived as the stock whip-sawed back lower as short-term traders locked in those sharp gains. By the beginning of October, NIO was trading below its IPO price, seemingly destined to become a failed and forgotten IPO. Yesterday morning, with its quiet period expiring, that storyline was looking to be emergent as the initiations and analyst sentiment indications being released were quite mixed.
For instance, Goldman Sachs put a Neutral and $6.56 price target on the stock, commenting that the valuation looks fair when considering NIO's high level of cash burn and its production inefficiency. Citigroup also assigned NIO with a Neutral, but with a slightly better price target of $7.20, noting the company is unprofitable and that the stock seems fully valued. On the positive side, Morgan Stanley initiated the stock with an Overweight and an $8.50 target, stating that it expects NIO to capitalize on the rapid growth for electric cars in China and that NIO has a couple key competitive advantages, such as direct sales model and price comparison versus foreign competitors.
So, the news last night regarding Baillie Gifford & Co taking a substantial stake in the company could not have come at a better time for NIO. Furthermore, its ownership statement also brought some awareness to the fact that there is another prominent investor in NIO that investors may not have been aware of. Namely, Tencent Holdings (TCEHY) owns all of the Class B shares of NIO, giving it roughly 22% of total voting power in the company.
Having two major investors aboard may help ease some concerns from investors concerning the company's viability. NIO is, after all, burning a lot of cash, and it might not turn a profit for several years -- if ever. To put this into context, NIO suffered a staggering operating loss of $505 mln over the first six months of 2018. But today's news, combined with excitement regarding the upcoming launch of its second vehicle, the ES6, may provide a couple key catalysts for the stock at least in the near-to-intermediate term.