Today, investors in Nio (NYSE:NIO) and NIO stock are seeing gains of more than 5% as risk assets take off today.
Indeed, EV stocks are seeing a green day overall, bucking the trend of an otherwise disappointing string of down weeks. A variety of factors are at play in this bearish sentiment. Global chip shortages have hit EV stocks hard. Indeed, the valuations of these hyper-growth plays are heavily reliant on production numbers increasing dramatically over time. Negative catalysts like parts shortages are enough to drive investors toward other growth options.
Additionally, waning U.S.-China relations have been negatively affecting Chinese stocks for some time. As the front-runner in the Chinese EV space, Nio is often looked to as the “Tesla of China.” Accordingly, geopolitical risks are accentuated with NIO stock right now.
That said, Nio’s rise today is among the biggest single-day movers of its EV peers. Today’s move appears to be a result of a key announcement the company made regarding its production capacity.
Let’s dive into what the company announced, and why NIO stock is soaring today.
NIO Stock Surges on Production Capacity Hopes
That aforementioned chip shortage is something Nio has commented on previously. As with other EV manufacturers, Nio has provided forward guidance warning of potential production issues as a result of this shortage.
However, of late, these concerns appear to be assuaged, at least to some degree.
Today, Nio announced the renewal of joint manufacturing arrangements with two key manufacturers in China. These agreements provide for expanded production capacity for Nio. The capacity increase has the potential to double Nio’s output over the near to medium term. With the new agreements, Nio says it will have an annual capacity of up to 240,000 vehicles. That compares to its current target of 10,000 vehicles per month, or 120,000 per year.
Indeed, for investors in NIO stock, the timing of this announcement couldn’t be better. Hopes of ramped-up production amid heightened Chinese EV demand is highly bullish for this stock. One of Nio’s core issues investors are pricing in right now is the ability to produce cars fast enough to avoid giving up market share to competitors. This announcement appears to have calmed the nerves of such investors today.
This agreement also expands the potential scope of the models Nio’s manufacturers will produce. The press release stipulates other NIO models in the pipeline will be provided with potential capacity. Investors bullish on Nio’s product pipeline certainly have a lot to like from this announcement.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.