NIO Denies Plan to Raise Capital. The Stock Is Moving.

NIO’s U.S.-listed American depositary receipts, or ADRs, were off more than 5% in premarket trading after speculation that the company was going to raise up to $3 billion. Stocks often drop on large capital raises. More capital raised means more shares outstanding which means current investors own a little less of the company than they did before the capital raise.

The $3 billion raise isn’t likely. NIO (ticker: NIO) denied the reports in a news release. “In light of the unusual market activity in the Company’s American depositary shares today, the Company would like to clarify that the Company currently has no reportable capital raising activity, other than the recent convertible notes offering that was completed on Sept. 25, 2023,” reads part of the statement. “The Company is committed to maintaining transparent and timely communication with the public market.”

NIO priced the convertible note offering on Sept. 19 and shares dropped 17.1% that day.

NIO isn’t generating free cash flow yet and is using about $250 million each quarter to build its business. It ended the second quarter with about $2.5 billion in cash on its balance sheet. Wall Street projects cash burn will fall to about $125 million a quarter by 2025.

NIO’s ADRs are now down about 4.3% in premarket trading at $$8.16 apiece, while

S&P 500

and

Nasdaq Composite

futures are down 0.3% and 0.4%, respectively.

The shares should recover from the $3 billion rumor. How long it takes and how much of the 4%-plus investors get back depends on how worried investors are about coming capital raises.

How long and how much will also show investors how speculation can move stocks.

Coming into Monday trading, NIO shares are down about 13% year to date. Shares are off about 52% over the past 12 months. Higher interest rates and falling new car prices in China have hurt investor sentiment.

Write to Al Root at allen.root@dowjones.com