– By Graham Griffin
Chinese competitor Nio Inc. (NYSE: NIO) from Tesla Inc. (NASDAQ: TSLA) has announced that it will close its plant in Hefei for five consecutive days due to the continuing scarcity of semiconductors.
Nio had production problems due to the lack of availability of the chips used to power its vehicles. The company expects first quarter vehicle deliveries to drop to 19,500, instead of the 20,500 deliveries it expected.
Nio’s stock was hit by the news, dropping to $ 34.51 per share with a market capitalization of $ 54.07 billion on March 16. There is currently not enough data to display a Peter Lynch chart or the GF value line.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 1 out of 10. Currently, there is a severe warning signal issued for a Sloan index indicating poor earnings quality. The company has struggled profitably over the years with a negative operating margin and a weighted average cost of capital that far exceeds the return on invested capital.
Other major vehicle producers Ford Motor Co. (NYSE: F), General Motors Co. (NYSE: GM) and Honda Motor Co. Ltd. (NYSE: HMC) have also seen their own struggles with production, as demand vehicles increased during the pandemic. Ford was partially assembling its ever-popular F-150 pickup trucks before announcing that it would stop producing for several days.
GM and Honda also announced that they will continue to reduce production of new vehicles in the coming weeks, in the hope that semiconductor manufacturing will keep up with demand.
The chip shortage was driven by pandemic outages that affected sectors outside the automakers. The shortage was complicated by the dramatic increase in demand for consumer technology, as people work from home.
Technology giants Microsoft Corp. (NASDAQ: MSFT) and Sony Corp. (NYSE: SNE) immediately sold out their newest video game consoles during the 2020 holiday season, as the pre-release production numbers did not meet expectations. Both predicted that production figures will fall short of demand for most of this year and expect sales difficulties at the same level as the automotive industry.
Disclosure: The author has no shares mentioned.
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This article first appeared on GuruFocus.