Why Shares of Chinese Electric-Car Maker NIO Are Surging Today

What's happening

Shares of Chinese electric-vehicle maker NIO (NYSE: NIO) were up sharply on Tuesday morning on news that the company has secured an agreement to build cars with self-driving systems developed by Intel (NASDAQ: INTC) subsidiary Mobileye. 

As of 11 a.m. EST, NIO's American depositary shares were up about 26% from Monday's closing price.

A blue NIO ES8, a seven-passenger upscale electric SUV.

NIO began mass-producing its upscale electric SUVs last year. Image source: NIO.

So what

NIO's deal with Mobileye has two parts:

  • NIO will integrate Mobileye's Level 4 self-driving system into upcoming models for consumer markets in China and "other major territories."
  • NIO will also work with Mobileye to develop and build a self-driving taxi that will be used exclusively by a Mobileye-owned "robotaxi" ride-sharing service. The taxi will be based on NIO's next-generation electric vehicle. 

NIO investors clearly hope that this deal represents a financial lifeline for the struggling company. After heavy spending in the second quarter, the company found itself in acute danger of running out of cash. Investor concerns grew after a hoped-for financing deal reportedly collapsed. A second deal, involving the sale of convertible securities to NIO's CEO and a key investor, appears to be on hold. 

Now what

As of this writing, we don't know the terms of the deal -- specifically, we don't know how much money NIO will receive or when it will arrive. That Mobileye, which has long-established relationships with most of the world's global automakers, chose NIO to make its robotaxis suggests that it got very favorable terms -- meaning that this might not be a financial bonanza for NIO when all is said and done. 

Long story short: This looks like good news for NIO investors, but whether it will be enough to keep the company going remains to be seen. 

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: short January 2020 $50 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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