Chip Shortage Caught Nio Off Guard: Report

Nio shares came under pressure Friday following an announcement that the company was temporarily stalling production at its plant in Hefei, China, because of the global shortage in computer chips.

What Happened: As the Street speculates about the potential impact of the shortage on the near- and medium-term outlook for NIO Limited NIO, reports in Chinese media outlets suggest the impact of the chip crunch has been more than what the EV maker was bracing for.

The semiconductor shortage exceeded the company's forecasts on the situation, CnEVPost reported, citing the Chinese Securities Journal.

Nio is reassessing and coordinating with its suppliers, according to the report that cited an unnamed source from Nio.

Though production is expected to resume after five working days of shutdown, the long-term outlook for the supply of chips remains uncertain, the report said.

Related Link: What To Expect When Tesla Reports Q1 Deliveries

Why It's Important: Nio said its fourth-quarter earnings call in early March that it has sufficient chip supply for the time being but hinted at production getting hit in the second quarter.

For Nio to sustain the momentum it built up through 2020, it is essential that the company works to resolve the issue  quickly. Although this has evolved as an industry-wide issue, those companies that are nimble enough to circumvent the problem are likely to gain an advantage.

The shortage may also impact these companies' bottom line. Pressured by rising material costs and production constraints, chipmakers have hinted at raising prices that probably would ultimately be passed on to customers.

More clarity could emerge this coming week when Nio is expected to report its first-quarter deliveries. The company last week trimmed its vehicle delivery forecast from 20,000-20,500 to 19,500.

Nio ended Friday's session down 4.77% to $36.13.

Related Link: Is The Nio Sell-Off Overdone?

Photo courtesy of Nio.