Key points:
- Will Nio announce increased production numbers?
- Or will production difficulties limit production?
- Nio being something of a bellwether for China's EV industry
Nio (NYSE: NIO) may or may not beat previous production numbers of its EVs this month. A production beat would likely boost the stock, a miss would beat it back. That may look obvious, but the NIO stock price has been strengthening the past few days looking forward to numbers, while over the month it's been weak. This is the interaction of two different effects – both of which impact upon those production numbers.
The downside risk here is that China's covid lockdown policies will have significantly impacted upon production capabilities. We may or may not agree with closing down entire cities for a handful of ‘rona cases but that is what they do there. That clearly has effects upon anyone trying to manufacture in such places. So, what will be the effect upon July production of that side of policies?
On the plus side Nio is building out production facilities – there's more to come shortly in Hungary for example – and there is significant Chinese government support for EV manufacture. Nio has also been producing at capacity and selling all production, which is good, leading to them having announced expansions in their ability to produce on some models.
Also Read: The Best Electric Car Stocks to Buy
As with everyone in the auto industry though Nio has been struggling with gaining access to supplies. Back last autumn we pointed out that results and deliveries had suffered from chip shortages at NIO. Perhaps that has been solved by now but there are other possible problems. There have been rumours of a bottleneck in the casting plant placing a limitation on how many cars NIO can actually finish at present. Again on the other hand the company has announced back in June that production was likely to increase by 50% that month. So the actual production outcome is going to be interesting – what is the influence of all of these different factors upon Nio stock?
But it is also possible that the bloom is going to come off the whole electric vehicle industry for a reason that not a lot of people have grasped as yet – rising interest rates. The standard calculation is that an EV is cheaper over a considerable period of time – or mileage, whichever measure you prefer. But that comes at a higher capital cost and a lower fueling cost. That's fine, of course, even if we might think that often enough the numbers are more than a bit fudged – for example, once governments start taxing EVs the numbers will change. However, all of those net present value calculations depend upon interest rates. For some of the petrol not bought to make the numbers work will be in 5 years time, the higher capital cost of the EV becomes higher with each raise in the interest rate.
What we don't in fact know is the elasticity of demand for EVs – they're just too new for us to be able to know what. But we're probably about to find out. Because those rising interest rates are going to change the affordability calculations. Nio stock might well be one of the harbingers of those changes.