Nio (NYSE:NIO) announced this morning that it was gradually resuming the production of its electric vehicles (EVs). This was after a pause that was announced three days ago due to the continuing Covid-19 situation in China. The Covid-19 restrictions in the last few weeks resulted in work stoppages at a number of Nio’s suppliers. This restricted the supply of new auto parts.
Supply chain issues aren’t exclusive to Nio. Tesla’s (NASDAQ:TSLA) Shanghai manufacturing facility has been offline since late March. Shanghai has been the epicenter of the latest Covid-19 outbreak. Nio’s facility in Xinqiao, about 300 miles from Shanghai, was less affected.
As I mentioned in my previous article, NIO stock has had difficulty meeting analyst expectations for deliveries due to these supply chain issues. The demand for the company’s products is there, but production constraints have limited the number of vehicles sold.
I believe these disruptions for sure would impact second quarter 2022 results. Despite only halting production for a few days, management has not given any indication that all bottlenecks have been cleared. Analysts currently estimate Nio will deliver roughly 32,000 vehicles. I expect these estimates to be trimmed a bit in the coming weeks.
The more concerning long-term effect of these supply chain issues, though, is inflation. Chinese EV manufacturers have announced price hikes across the board to offset the rising costs. Nio is no exception. The company announced that it is implementing a 10,000 yuan ($1572) price hike for all three of its SUVs. EV price hikes are being implemented by many companies, so I doubt Nio would be losing market share from this move. However, this could have a cascading effect by starting to affect the actual demand for Nio’s vehicles.
These long-term headwinds are the main reason why we haven’t really seen a pop in NIO stock after the announcement. Unfortunately, the market now is mostly concerned with broad macroeconomic themes. Inflation hits all companies equally bad. As of this writing, NIO stock is down roughly 4% this morning.
On the date of publication, Joseph Nograles held a long position in NIO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
