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Why NIO Stock Is Higher Today

By John Rosevear - May 24, 2021 at 2:05PM

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NIO's new deal with its manufacturing partner has a bullish clause.

What happened

Shares of NIO (NIO 7.93%) were moving higher on Monday after the Chinese electric-vehicle maker said that its manufacturing partner had agreed to double its production capacity to build up to 240,000 NIOs per year. 

As of 1:15 p.m. EDT, NIO's American depositary shares were up about 5.7% from Friday's closing price.

So what

Some background: NIO doesn't own a factory; its vehicles are manufactured under contract by a joint venture with government-owned automaker Jianghuai Automobile Group, or JAC, in a JAC-owned factory in the industrial city of Hefei, near NIO's headquarters. 

NIO said on Monday morning that it has signed a new three-year contract with JAC to continue that arrangement through (at least) May of 2024. As part of the deal, JAC has agreed to increase the production capacity of the factory to 240,000 vehicles per year, or 20,000 per month -- double its current capacity. 

The 100,000th NIO, an ES8 SUV, is shown rolling off a factory production line under a commemorative banner.

The JAC-owned NIO factory built its 100,000th vehicle in April. NIO and JAC said they have agreed to continue the relationship for three more years. Image source: NIO.

NIO and JAC didn't say when that capacity increase will be in place, but the announcement is likely why NIO's stock is trading higher today. 

Now what

Auto investors who follow NIO know that the company has been working since late last year to increase output at JAC's factory amid fast-rising demand for its stylish electric SUVs. The company was able to increase the production rate from about 5,000 vehicles a month to 7,500 per month in early January and has pushed it higher since. 

At a ceremony to mark the 100,000th NIO built at the factory in early April, CEO William Li Bin said that the factory can now build about 10,000 NIOs per month. But, Li said, production has yet to hit that figure because of an ongoing global shortage of automotive semiconductors. 

NIO and most other affected automakers now expect the chip shortage to last into 2022, though supplies are expected to improve somewhat in the second half of this year. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.

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