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Why NIO Stock Is Up Today

By John Rosevear - Dec 7, 2020 at 2:26PM

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NIO said it won't be affected by a big looming problem for the auto industry in China.

What happened

Shares of Chinese electric-vehicle maker NIO ( NIO -11.19% ) were trading higher on Monday after the company said that it doesn't expect its growth plans to be affected by a looming shortage of automotive semiconductor components.

As of 2 p.m. EST, NIO's American depositary shares were up about 4.8% from Friday's closing price.

So what

A senior NIO executive told reporters from China's Financial Associated Press that the company has been prepared for a looming shortage of automotive semiconductor components, and that the shortage will have "no impact for the time being" on NIO's plans to expand production amid high demand. 

A NIO ES8, an upscale electric three-row SUV.

NIO won't be affected immediately by a looming shortage of automotive chips, an executive said. Image source: NIO.

That's good news for NIO investors. Shares of several automotive companies that do business in China fell on Friday after Volkswagen ( VWAGY -2.54% ) and two German auto suppliers, Continental ( CTTA.Y -3.94% ) and Bosch, warned that a shortage of semiconductor components could soon affect auto production in China. Several Volkswagen plants in China were reportedly idled due to chip shortages over the weekend. 

Manufacturing throughout China slowed early in 2020 during lockdowns imposed to slow the spread of the COVID-19 virus. But demand for new vehicles in China has rebounded sharply since those lockdowns. However, the production of automotive semiconductor components hasn't quite kept pace. 

Now what

Continental said in a statement on Friday that while semiconductor manufacturers have begun expanding manufacturing capacity, that added capacity likely won't be available for six to nine months. Auto investors holding NIO's shares should read the executive's comments in that context: While there's no problem for the time being, it's something to keep in mind. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

NIO Inc. Stock Quote
NIO Inc.
NIO
$32.15 (-11.19%) $-4.05
Volkswagen Aktiengesellschaft Stock Quote
Volkswagen Aktiengesellschaft
VWAGY
$28.45 (-2.54%) $0.74
Continental AG Stock Quote
Continental AG
CTTA.Y
$10.48 (-3.94%) $0.43

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