Shares of Nio rose 4% on Tuesday after Citi upgraded the Chinese car maker to “buy” from “neutral,” citing a surge in demand for electric vehicles in China.
Citi lifted its 2021 sales estimate for electric vehicles in the country to an estimated 2.52 million units from 1.79 million units. For 2025, the firm also boosted sales estimates to 7.84 million units from 6.86 million units.
Citi said it expects that the uptick in the second quarter order backlogs will increase Nio’s revenue and market share in the second half of 2021.
Citi’s new price target of $58.30, raised from $57.60, represents a potential 50% upside from Friday’s closing price of $38.62. The bullish new target comes despite a rough year so far in 2021 for the electric vehicle maker, and the industry broadly, as supply chain and manufacturing constraints weigh on car makers’ delivery guidance.
“Based on the current production and delivery plan, the company will be able to accelerate the delivery in June to make up for the delays from May,” Nio said in a statement Tuesday. “The company maintains and reiterates the delivery guidance of 21,000 to 22,000 vehicles in the second quarter of 2021.”
Semiconductor chips are in almost everything these days.
As Glenn O’Donnell, a vice president at Forrester Research, put it, “if it has a plug or a battery, it is probably full of chips.”
The global chip shortage that is jamming up auto manufacturers is rippling across nearly every industry that makes or uses tech-enabled products.
In particular, analysts say the boom in cloud computing and cryptocurrency mining, as well as the embedding of smart features in everything from doorbells to dishwashers, has led to a gold rush in the sector.
But a combination of factors have pinched the supply as demand continues ramping up, leading to severe shortages that industry leaders and analysts say could drag out into 2023.
“We are looking at couple of years… before we get enough incremental capacity online to alleviate all aspects of the chip shortage,” IBM President Jim Whitehurst told the BBC. His company licenses microprocessor technology to the world’s leading chip makers.
Last week, Reinhard Ploss, CEO of German chipmaker Infineon, told CNBC his industry has never seen conditions like these, but that two years to normal seemed “too long.”
Other firms have painted even rosier forecasts – Taiwan Semiconductor Manufacturing Company (TSMC), the largest chip maker, said it expects to catch up with auto industry demand next month, and Cisco CEO Chuck Robbins, told the BBC the shortage would wind down later this year.
Analysts, however, are skeptical.
“Because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023,” O’Donnell wrote on a Forrester blog. “We see nothing but boom times ahead for chip demand.”
“It’s not just autos. It’s phones. It’s the internet of everything. There’s so many goods now that have many more chips than they ever did in the past,” he said. “They’re all internet enabled.”
New production is coming online, with a $20 billion spend from Intel and a $28 billion investment from TSMC, but that does little to solve the immediate challenge facing the market right now.
Nobody is literally filling trash bags or gas cans with semiconductors, but Credit Suisse’s director of global economies and strategy, Wenzhe Zhao, said last week that inventory hoarding along the production chain is making a tight supply situation even worse.
For now, Forrester’s O’Donnell recommends tech buyers be patient, pay more, pick an alternative product or service, or make do with older tools until things return to normal.
Semiconductors are so important that they can even create national security issues when drones, fighter jets, and other critical military components are affected.
That’s one of the reasons why President Biden met with 20 top executives on Monday to discuss what can be done to fix the chip industry’s supply constraints and make sure something like this doesn’t happen again in the future.
President Biden has committed to helping the industry fix the semiconductor shortage with his new infrastructure bill. The $2 trillion infrastructure and jobs package will include some $50 billion for semiconductor research and production.
Still, despite help from the US government, experts say the global chip shortage is set to drag on. Below, Insider details how long four experts expect the crisis to continue and what it could mean for markets.
In an interview with Insider on April 6, Baird’s Ted Mortonson said he believes the global chip shortage will continue through the rest of the year.
The tech sector strategist said rising demand from the cloud sector, the 5G rollout, telecommunications firms, EV makers, and more is one of the main reasons for the shortage and noted that new capacity will need to come online to offset demand.
Mortonson highlighted semiconductor firms’ recent investments into capacity including Taiwan Semiconductor Manufacturing Co.’s $100 billion investment over the next three years that the company says will “increase capacity to support the manufacturing and R&D of advanced semiconductor technologies.”
However, the strategist said that despite new initiatives, much of the additional capacity won’t come online until the end of the year. Mortonson also noted that most semi companies have instituted “non-cancellable orders” and that lead times range from 15 weeks to over 50 weeks in some cases.
Mark Fields, former Ford CEO and senior advisor at TPG Capital
Mark Fields sat down with CNBC on April 9 to discuss the effects of the global chip shortage on the auto industry. Fields said auto manufacturers lost about 3 million units due to COVID in 2020 and he expects the chip shortage may be just as destructive.
“Through the first quarter, through various forecasts, it looks like about 700,000 units were lost…you can just do the simple math and you could see that the losses could approach the level of the Covid losses for last year,” the advisor said.
Fields also said automakers are trying to maximize their production value by focusing on selling their highest margin vehicles, but that it’s really a “game of whack-a-mole” given the breadth of supply constraints.
Fields added that the situation for automakers should get better in the second half of 2021, but the industry won’t fully recover until well into 2022.
Ganesh Moorthy, chief executive officer at Microchip Technology
Ganesh Moorthy, the CEO of Microchip Technology, spoke with CNBC on Monday about the chip shortage and said it’s the worst crisis he’s seen in the industry in 40 years.
The “imbalance between supply and demand has never been this acute in all my history in this industry,” the CEO said.
Moorthy also said that he believes supply constraints will last through the year and “most likely” continue into next year.
The CEO added that the chip shortage has been “brewing for some time” and said that it started with tariffs during 2018 which caused demand to fall. In response, Moorthy says many chip manufacturers leaned out inventory and idled some factories in response.
Then when the pandemic hit, a swath of new stay-at-home trends caused demand to skyrocket, leading to the shortage.
Moorthy said that it “takes six months of cycle time from when we say go to when production comes online full force,” so he expects the lack of supply to continue moving forward.
Anand Srinivasan, Bloomberg Intelligence analyst
Anand Srinivasan, an analyst with Bloomberg Intelligence, spoke with Yahoo Finance on Monday and said that the chip shortage could persist well into the second half of 2021.
The analyst said investors shouldn’t just be worried about their auto industry holdings due to the semiconductor shortage either.
“In the grand scheme of a $440 billion industry the auto business is only 8%, 9% of semiconductors,” the analyst said.
Srinivasan is “more worried about other areas where the impact could be larger and it affects a lot more people.”
He said a variety of products will be affected by the shortage but argued the two industries he’s most worried about are PCs and smartphones, which make up some 70% of semiconductor demand.
The good news for investors is that Srinivasan believes that the lack of supply will stretch out demand, rather than hurting it. “You’re not going to go out and buy a bicycle because you couldn’t get your Audi A4,” the analyst said.
This means that although production might be hurt in the short-term, over the long haul strong demand will remain, according to the analyst.