Why Nio Stock Plunged Today

Key Points

• Nio posted record monthly EV deliveries in August.

• Its two new brands are quickly gaining sales volume.

• Nio shareholders are being diluted by a fresh capital raise.

• 10 stocks we like better than Nio ›

Nio (NYSE: NIO) stock is crashing today. American depositary shares (ADS) of the Chinese electric vehicle (EV) maker plunged nearly 11% after the company announced a fresh capital raise. Shares recovered some of that drop, but were still down by 9.5% as of 11:43 a.m. ET.

Nio is seeking to take advantage of a recent surge in its stock to raise $1 billion in an equity offering.

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Image source: Nio.

Nio set a monthly record in August

Nio reported strong monthly EV sales in August, with a record 31,305 vehicles delivered. The majority of those deliveries came from Nio's two new brands, Onvo and Firefly. Those brands are aimed at more of a mass-market consumer than its legacy Nio vehicles.

Investors had been anticipating strong sales, and pushed Nio stock higher leading up to that delivery report, as well as Nio's second-quarter report released on Sept. 2. Shares had soared by 30% before today's drop.

The company said it is taking advantage of that surge to issue new shares "to invest in the research and development of core technologies for smart electric vehicles, develop future technology platforms and vehicle models across its brands, expand its battery swapping and charging network, further strengthen its balance sheet, and for general corporate purposes."

Shareholder dilution will result from the new offering. Nio is also pricing the newly issued shares at $5.57 per ADS after it closed yesterday's session at $6.28. The company is willing to create the short-term pain to help it in the long run, though.

Nio reported a net loss of nearly $700 million in the second quarter. The company plans to ramp up volume of the new brands, though, which could improve its financial condition. In the meantime, the fresh capital will help bolster its cash position at the expense of existing shareholders.

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Howard Smith has positions in Nio. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.