NIO (NYSE:NIO), one of many largest producers of electrical automobiles on the earth, stands to considerably profit from the most recent coverage strikes out of China that search to alleviate the home car business’s chip-related travails.
In the identical day, State Administration of Market Supervision disclosed it’ll severely crack down on unlawful worth gouging of related car chip distribution firms – good for the entire of the auto business, however significantly EVs $NIO $XPEV $LI pic.twitter.com/J49irmvQpy
— Allie (@vivianjee) August 3, 2021
To wit, the State Administration of Market Supervision in China has now reportedly resolved to provoke a extreme crackdown in opposition to companies engaged within the worth gouging of car chips. Whereas particulars are murky in the intervening time, given the Chinese language politburo’s new-found activism, this declaration might go a good distance as a deterrent in opposition to this worth manipulation technique, thereby benefitting not simply conventional automakers in China but additionally its EV gamers, together with NIO, XPeng (NYSE:XPEV, and Li Auto (NASDAQ:LI).
After all, our common readers would concentrate on the truth that automakers all over the world are at the moment dealing with an aggravating chip scarcity, which is curbing the manufacturing of many OEMs. NIO, as the most important home producer of EVs in China, has been struggling on this difficult surroundings as properly. Consequently, as we speak’s declaration couldn’t solely enhance the pricing surroundings round car chips but additionally soothe the frayed nerves of buyers who’ve been reeling from an prolonged crackdown on China’s tech sector by its politburo.
Based on Roland Berger, the present chip disaster is not only a results of COVID-19 associated disruptions. In truth, based on the analysis home, there’s a structural mismatch between the automotive business’s “just-in-time paradigm” and the “lengthy manufacturing cycle occasions” of the semiconductor business. As an illustration, it at the moment takes 8 to 10 weeks to course of a wafer with a view to refill a depleted die financial institution. This surroundings has compelled OEMs reminiscent of NIO to intentionally curtail a few of their manufacturing, thereby producing unfavourable penalties for his or her bottom-line metrics. As an illustration, NIO delivered barely fewer EVs in July than it did in June, with the supply depend for the month totaling 7,931 EVs. Furthermore, based on Roland Berger, this disaster is more likely to persist properly past 2021:
We had famous in our earlier submit that NIO and different Chinese language tech heavyweights listed on the US inventory exchanges have been on a receiving finish of an prolonged wave of liquidation, with China’s dedication to curb the rising energy and inner affect of its tech firms being cited as the first impulse behind this souring sentiment.
Nevertheless, we consider that NIO stays largely immune to those threats, given its shut relationship with China’s politburo. As an illustration, NIO has entered right into a strategic partnership with the Heifei municipal authorities to assemble the large NeoPark, a 16,950-Acre industrial park that goals to localize the complete EV provide chain. Furthermore, again in 2020, NIO had obtained sizable liquidity injections from a consortium of state-backed funds, collectively often called the Heifei strategic buyers. In one other placing instance, NIO signed a strategic settlement on the 26th of July with Guoxing Auto Service Middle in Beijing. The settlement paves the best way for NIO to supply EVs to Chinese language authorities companies in addition to different quasi-official establishments.
At the moment’s improvement solely serves to focus on the will of Chinese language officers to guard the thriving home car business. Moreover, the lengths that the Chinese language state equipment has gone to make NIO a viable competitor to Tesla (NASDAQ:TSLA) solely serve to boost our confidence on this prognosis.