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Why NIO Stock Dropped Friday

By Howard Smith - Updated Mar 26, 2021 at 2:26PM

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The global semiconductor shortage is hitting the Chinese EV maker.

What happened

Over the last year, sales have been accelerating at Chinese electric-vehicle (EV) maker NIO (NIO -5.37%). On Friday, the company announced production will be affected by the global semiconductor shortage that has impacted other automakers.

Investors reacted by knocking NIO shares down. As of 1:25 p.m. EDT on Friday, shares were trading south about 8%. 

So what

NIO said the chip shortage will cause it to halt production for five days, beginning March 29. The planned downtime caused the company to lower first-quarter shipment projections to 19,500 vehicles, down from the previous estimated range of 20,000 to 20,500.

NIO ET7 luxury electric sedan

NIO ET7 luxury electric sedan, scheduled to be available early 2022. Image source: NIO.

Now what

NIO's growth has been accelerating. The company delivered almost 44,000 vehicles in 2020, more than twice as many as 2019. And even with the reduced delivery estimate due to the suspension, its first-quarter production level of 19,500 vehicles would represent more than 400% growth over deliveries reported in the 2020 first quarter.

That level of production would also still be higher than what Chinese EV competitor XPeng (XPEV -4.02%) expects for its first quarter. XPeng hasn't yet said it will be affected by the semiconductor supply problem but had previously told investors that it estimates first-quarter 2021 deliveries to grow about 450% year over year to 12,500 vehicles.

With NIO's stock price having grown almost 1,200% in the last year, news of the disruption in operations was bound to bring a negative response from investors. If the five-day outage is the extent of the damage, the company's overall valuation shouldn't really be impacted in the long run.

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
$15.77 (-5.37%) $0.90
XPeng Inc. Stock Quote
XPeng Inc.
$22.66 (-4.02%) $0.95

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