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NIO Battles Semiconductor Deficit, Cuts Q1 Output Guidance

·3 min read

The auto industry is currently facing a major crisis in the form of shortage in the supply of semiconductors. Various auto biggies are grappling with semiconductor supply deficit, which is hindering their business operations and forcing them to idle production lines across the world. Amid the global chip crisis, NIO Inc. NIO has temporarily shuttered operations in the JAC-NIO manufacturing plant in Hefei for five days beginning Mar 29. The shortage of semiconductor supply has also taken a hit on the company’s production in first-quarter 2021. NIO now anticipates to deliver 19,500 cars in the March-end quarter versus the prior guidance of 20,000-20,500 units.

During fourth-quarter 2020 earnings call, CEO William Li already warned that chip crunch will weigh on the company’s near-term production volumes. While the China-based electric vehicle (EV) maker has a production capacity of around 10,000 vehicles per month, Li estimated that constraints in battery and chip supply would curb output to 7,500 units a month.

Year to date, shares of NIO have tumbled more than 27%, wider than the industry’s 4.5% decline amid various headwinds. Vehicle deliveries for the month of February were 5,578 units, lower than January’s 7,225 units. As it is, the company has been bearing the brunt of operational inefficiency. Rising R&D and SG&A expenses are denting the firm’s margins. Further, NIO faces a tough competition from Tesla TSLA, which has been expanding presence in China. Moreover, many other China-based EV companies including XPeng Motors XPEV, Li Auto LI and WM Motors are heating up competition in China’s EV market.

While supply chain issues could play a major spoilsport for NIO in the near term, investors should not sell the stock in haste. If you have a long-term investment horizon, NIO can prove to be a lucrative stock and hence, you should retain it in your portfolio. The company seems to be well positioned to cement a strong long-term foothold in the rapidly growing EV industry. The firm’s strong standing with the government of China offers it with an added advantage. Its battery swap technology is a game changer and provides an edge to the firm over peers. The premium ES6 and ES8 models are enhancing the firm’s prospects. As such, investors should hold on to the stock or wait for a better entry point to invest in this Zacks Rank #3 (Hold) firm. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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