Nio to Make Secondary Listing on Hong Kong Exchange - Investopedia

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Chinese electric vehicle (EV) maker Nio Inc. (NIO) has received approval from the Hong Kong Stock Exchange (HKG) for a secondary listing of its Class A ordinary shares. The shares are expected to start trading at $0.00025 each on March 10, 2022, under the stock code 9866. Morgan Stanley Asia Limited, Credit Suisse (Hong Kong) Limited, and China International Capital Corporation Hong Kong Securities Limited are joint sponsors for the listing.

Key Takeaways

• Chinese EV maker Nio has received approval for a secondary listing by introduction on the Hong Kong Stock Exchange.
• The company has also filed for a similar listing on Singapore's stock exchange.
• Listing by introduction allows companies to improve their business in the country where they are listed.
• Nio's secondary listing may also be the company's response to the new and stringent audit requirements by the SEC for foreign companies.

Listing by Introduction

The new listing is not an attempt to raise capital through the issue of new shares. Rather, Nio shares will be listed by introduction. Companies whose shares are already widely held and who seek to improve their business prospects without diluting their shares may choose to list by introduction.

The action is also being seen as the company's response to new Securities and Exchange Commission (SEC) regulations for U.S.-listed Chinese stocks that require audits for three straight years. The regulations follow the Holding Foreign Companies Accountable Act that became a law last year and are expected to take effect from 2023.

Nio's shares will continue to trade on the New York Stock Exchange (NYSE) as well. Nio shares on the HKG will also be fully fungible with its American Depository Shares (ADS) trading on the NYSE.

Recent Stock Performance and 3Q Results

Nio shares on the NYSE are down by 34% this year, closing at $22.84 at market close on Feb. 28, 2022. The ADS have dramatically underperformed the MSCI China index and the S&P 500 so far this year.

In its third quarter earnings release, Nio reported 104.2% increase in total sales year over year and net loss per ADS of $0.28. While this is an improvement over its performance in Q3 2020, when the loss per ADS was $0.98, the company has been unable to break even. Nio announced 9,652 deliveries of smart electric SUVs and coupes in January 2022, a 33.6% year-over-year increase, although that number came down to 6,131 deliveries in February 2022, representing a 9.9% year-over-year increase.

Nio's Q4 and full-year earnings release is scheduled for March 24, 2022.

A Nascent Market

Nio makes three types of electric vehicles: the flagship ES8, a six-seater or seven-seater premium smart electric SUV; the ES6, a five-seater high-performance premium smart electric SUV; and the EC6, a five-seater premium electric coupe SUV.

The EV market is in its early stages, and Nio, a manufacturer of  premium smart electric vehicles, will have to show its ability to quickly adopt innovations and next-generation technologies in autonomous driving, electric powertrains, and batteries while also controlling its operating costs and improving its margins. As behemoths like Tesla, Inc. (TSLA) increase their presence in Asia, Chinese EV makers are under increased duress to compete on various fronts: technology, pricing, infrastructure, and ease-of-use.

Talks of listing on the Hong Kong Exchange have been around for a year. In March 2021, shares of three Chinese EV makers—Li Auto Inc. (LI), Xpeng Inc. (XPEV), and Nio—jumped on the news of new listings on the Hong Kong Stock Exchange that were to raise $5 billion in total. Then, as now, listing on the HKG is seen as a strategy to grow local business by getting investors' interest.

In a capital-intensive industry like electric vehicles, growing local presence through secondary listings as SEC regulations tighten may be a winning strategy, especially as Chinese EV makers seek to take on the likes of Tesla.

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