Nio drops after cutting its 3rd-quarter vehicle-delivery outlook due to supply-chain pressure

Nio
  • Nio shares fell Wednesday after the electric-vehicle maker reduced its third-quarter delivery guidance.
  • The Chinese automaker cited “continued uncertainty and volatility of semiconductor supply” as a reason for cutting its outlook.
  • Nio expects to deliver 22,500 to 23,500 vehicles in the third quarter, down from its previous range of 23,000 to 25,000 units.
  • See more stories on Insider’s business page.

Nio shares declined as much as 5% on Wednesday after the Chinese electric-vehicle maker lowered its third-quarter outlook for deliveries because of semiconductor supply constraints.

The company now expects to deliver 22,500 to 23,500 vehicles in the third quarter, down from its previous outlook of 23,000 to 25,000 units.

The global automotive industry has been plagued by a chip shortage and supply constraints for more than a year, prompting other car manufacturers including Toyota Motor and Ford Motor to reduce production at their factories.

Nio also said Wednesday it delivered 5,880 vehicles in August, representing year-over-year growth of 48.3%.

“While the company’s new order reached an all-time high in August driven by the increasing demand, the vehicle production, especially the manufacturing of the ES6 and EC6, was materially disrupted by supply chain constraints resulting from the COVID-19 pandemic in certain areas in China and Malaysia,” it said.

After seeing torrid gains to start 2021, Nio’s stock is now down nearly 20% year-to-date.

nio stock chart 9-1-21
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There is a fundamental misunderstanding of inflation and its spread throughout sectors of the economy proves it is not isolated or transitory, Mohamed El-Erian says

Mohamed El-Erian, Chief Economic Adviser of Allianz appears on a segment of "Mornings With Maria" with Maria Bartiromo on the FOX Business Network on April 29, 2016 in New York City.
Mohamed El-Erian.

  • Mohamed El-Erian said there is a fundamental misunderstanding of inflation because few people have lived through it.
  • “I always laugh when people say, oh, it’s isolated, it’s transitory,” El-Erian told CNBC on Monday.
  • He also disagreed with the Federal Reserve’s view that inflation is transitory.
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Economist Mohamed El-Erian in an interview Monday took aim at assessments of inflation that describe rising prices as “transitory,” stating that there is a fundamental misunderstanding of what inflation is and how it is already spreading throughout the economy.

“I always laugh when people say, oh, it’s isolated, it’s transitory,” Allianz’s chief economic adviser told CNBC. “I think there’s a fundamental misunderstanding about inflation today because … most people haven’t lived through it for a long time and certainly most traders on Wall Street haven’t traded through it.”

El-Erian pointed to the surge in used cars prices to their highest in more than 60 years, which has been followed by an increase in prices of new cars, and a rise in the price of rental cars. This, he said, shows inflation is not contained.

“There is a logic to these inflation chains. They take time, and most people, unfortunately, haven’t seen them,” El-Erian told CNBC. “So they think everything’s isolated. Actually, it’s not. It’s interconnected.”

El-Erian, who is also the president of Queens’ College, Cambridge University, countered the longstanding narrative of the Federal Reserve that inflationary pressures are temporary.

The central bank slashed rates to historic lows at the start of the pandemic to stimulate economic activity and has signaled its intention of keeping interest rates unchanged until 2023.

Fed Chair Jerome Powell has repeatedly said that inflation will pass as the economy settles into a new normal. However, updated rate-hike projections six weeks ago signal that the central bank could see inflation posing a larger risk than initially thought. Powell is expected to issue a new statement this week, on July 28 at 2 p.m. ET.

“I don’t expect fireworks, El-Erian said. “The Fed has adopted a new framework that is backward-looking. They’re no longer forecast-based; they’re outcome-based.”

El-Erian also maintained that inflation will continue to run higher.

“The big question for me is not whether inflation will be higher than what the Fed expects,” he told CNBC. “It is whether the system is wired loosely enough to adjust to that – and that’s what we going to learn.”

The Consumer Price Index rose 0.9% between May and June, much more than the consensus estimate of 0.5%.

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Nio rises as Citi upgrades the car maker and says the stock could soar 50% on demand for electric vehicles in China

GettyImages 1232435708
A Nio EVE EP9 All-Electric Supercar is on displayed during the 19th Shanghai International Automobile Industry Exhibition at National Exhibition and Convention Center on April 21, 2021 in China.

  • Nio rose Tuesday after Citi upgraded the Chinese EV maker to “buy” from “neutral.”
  • Citi raised its price target to $58.30 from $57.60, implying potential upside of 50%.
  • In May, Nio’s vehicle delivery was adversely impacted for several days due to a semiconductor supply shortage.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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.”

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The chip shortage that’s wreaking havoc on supplies of cars, computers, and more could last another 2 years, experts say

FILE PHOTO - A researcher plants a semiconductor on an interface board during a research work to design and develop a semiconductor product at Tsinghua Unigroup research centre in Beijing, China, February 29, 2016.  REUTERS/Kim Kyung-Hoon
A researcher plants a semiconductor on an interface board during a research work to design and develop a semiconductor product at Tsinghua Unigroup research centre in Beijing

  • Semiconductors are an increasingly important component of products from laptops to lightbulbs.
  • Surging demand and disrupted supply have led to a severe lack of chips for a variety of industries.
  • Industry leaders and analysts are forecasting at least another year of shortages.
  • See more stories on Insider’s business page.

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.

Read more: Auto Chip Crisis Is Threatening Recovery From the Pandemic

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.”

Plurimi Investment Managers CIO Patrick Armstrong told CNBC he expects another 18 months of shortfalls.

“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.

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The global chip shortage is set to drag on. 4 experts predict how long it could last and how it could affect markets

Semiconductor microchip stock image

Semiconductors are some of the most critical components for the technology the underpins much of modern life.

Smartphones, PCs, electric vehicles, and even your fancy new refrigerator all use the chips to operate. When the supply of these vital products falls, it can become a big issue.

Over the last year, the semiconductor shortage has caused car companies to halt production, made getting graphics cards for PCs headache, and it’s led companies like Apple to face significant supply constraints in its rollout of new products.

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.

Ted Mortonson, Baird technology desk sector strategist

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.

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