Chinese EV maker Nio halts production on chip shortage

The company's plant in Anhui province will cease operations for five working days starting from March 29

People looking at a Nio ES6 EV car at the Beijing international automotive exhibition in September last year. Reuters

Electric vehicle maker Nio will temporarily halt production at one of its factories in Anhui province because of a semiconductor shortage, becoming the first high-profile Chinese car manufacturer to succumb to the chip snarl that has silenced the factory lines of auto companies globally.

Nio’s plant will cease operations for five working days starting from March 29, the company said in a statement on Friday.

“The overall supply constraint of semiconductors has impacted the company’s production volume in March,” Shanghai-based Nio said. “The company expects to deliver approximately 19,500 vehicles in the first quarter, adjusted from previously released outlook of 20,000 to 20,500 vehicles.”

Auto makers the world over have expanded and extended production cuts that first began in late December to cope with a worsening global shortage of semiconductors. The coronavirus pandemic caused a surge in chip orders that are needed for smartphones, TVs and computers as people try to make extended life at home more bearable, leaving less capacity for a stronger-than-expected rebound in vehicle demand.

Recent weather-related disruptions of petrochemical supplies in the southern US and a fire at a chip making plant in Japan have exacerbated the shutdowns.

The company’s shares climbed more than 1,100 per cent in 2020, pulled higher by excitement around the prospects for growth in China’s EV market, which is the world’s biggest.

The investor enthusiasm for electric cars comes as Nio, along with Chinese rivals Xpeng and Li Auto consider second listings in Hong Kong, according to people familiar with the matter.

As of January, Nio had delivered 82,866 electric cars in China since its first model came to market in June 2018. Its high-end sport-utility vehicles have proven a hit with wealthy consumers, helping to push Nio’s gross margin to 17.2 per cent in the fourth quarter.

But Nio posted a wider-than-expected loss in the quarter, a year after a government cash injection saved the company from bankruptcy.

Chief Executive William Li flagged at the release of the company’s latest results earlier this month that production capacity may be constrained by the global chip shortage.

While monthly capacity has risen to 10,000 units, production will remain at 7,500 “due to supply-chain limits, including the chip shortage,” he said earlier this month.

“Though we believe we are able to meet expected demand for the second-quarter, there’s indeed a higher risk.”