For 3 years what could have gone wrong, went wrong – now we come to June 2022.
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A few months ago, I predicted March 2022 could be a "pivotal month" for Nio – Boy was I right but not in the way I thought!
My logic was that end of EV Battery supply constraints in late March from CATL plus orders & production of ET7 would lead to a new era of Nio prosperity from April 2022.
What happened was that Nio sales "pivoted" to zero in Nio's two largest markets, Shanghai & Beijing, leading to pretty horrible delivery numbers for April & May 2022.
To summarize the last 3 years pretty much what could have gone wrong for Nio (NYSE: NIO, HKG: 9866, SGX: Nio), did go wrong as follows:
1. Undercapitalized at IPO – In September 2018 Nio raised $1 billion on NYSE. Clearly not enough money with chances of bankruptcy far greater than chances for success. On any other financial exchange, Nio would not have been able to raise even $1 billion & then could have gone bankrupt. With such little capital & global aspirations, there was no room for setbacks.
2. Battery fires/ product recall – Well there was a setback almost immediately. In 1H 2019 Nio ES8 SUVs experienced numerous EV battery spontaneous fires resulting in the recall of 5000 EVs. Of course, the premium/luxury brand status took a near-fatal blow.
3. Cash crunch – By end of 3Q 2019, the IPO money was almost gone, addressing the battery replacements & product recall, with just $274 million cash on hand.
4. Nio EV owners chip in – Given Nio's financial turmoil, support came from the Nio community who bought more Nios, referred Nio to their friends, volunteered at Nio functions & did what they could to promote Nio & support William Li in 4Q 2019 & 1Q 2020.
5. No money to pay employees January 2020 salaries on time – Nio had no money to pay Jan 2020 salaries on time. They were paid six days late.
6. Nio Giga-Press order handed on a plate to TSLA – Given Nio financial problems, an Nio Giga-Press order was handed on a plate to TSLA which became the centerpiece of Giga Shanghai.
7. Covid outbreak 1Q 2020 – To compound Nio financial woes, there was Covid outbreak in 1Q 2020. Auto companies responded by reducing auto chips orders in 2Q 2020 & onwards.
8. Auto chip shortages – Throughout 2H 2020 & 2021, auto companies faced auto chips shortages impacting Nio production capacity along with the rest of the auto world.
9. JAC plant capacity constraints – Even if supply chain problems were resolved, the JAC plant had numerous bottlenecks limiting capacity to 20 jobs per hour ("jph"). By mid-2022 that has been increased to 60 jph.
10. EV battery supply constraints – in 2H 2021 up to late March 2022, Nio faced EV battery supply constraints.
11. Product line constraints – Until March 2022, Nio had no premium luxury sedan to offer for sale despite its primary sales market being Shanghai which arguably is the largest market in China for premium luxury sedans.
12. Technology constraint – Up to March 2022, Nio was unable to offer EVs with SiC power-train technology which impaired Nio range, efficiency, weight & performance & therefore Nio's competitive edge vis a vis TSLA. All these issues are addressed by ET7, ET5 & ES7.
13. Digital cockpit constraint – Local Chinese companies like XPEV & LI were able to offer a better digital cockpit user experience than Nio, better navigation systems & perhaps even better autonomy. All of these matters are largely addressed by the NextGen Nio platform plus prior gen model upgrades.
14. Covid outbreak in China March 2022 – Just when Nio had overcome its battery supply, and JAC plant capacity problems in March 2022, there was an outbreak of Covid in Shanghai (Nio's largest market), Jilin & Changchun (major Nio auto supply areas) & lockdown in at least 45 major cities plus logistical constraints of truck movement from suppliers to assembly plants. The irony is that the recent supply parts shortage was not parts emanating from a multi-billion $ factory but rather low-end easy-to-produce parts which also should be easily able to be overproduced to catch up with demand – So March 2022 became a pivotal month for all the wrong reasons.
For one reason or another, there has been good reason for Nio EV supply/ capacity constraints to persist for the past 3 years.
For the past one year, at least, there have been no demand problems for Nio EVs.
That brings us to June 2022.
Nio has already mentioned "phase by phase" improvement in jobs per hour to 60 jph by mid-year 2022.
Now Nio makes hardly seen extra comments to its May delivery numbers stating:
- Plans to further ramp up production to a higher level (not possible without increased supply)
- Accelerate the delivery recovery (not possible without increased production)
- Strong order flow (talk of highest orders in May 2022 by Nio executive)
So why not 30 June days of robust 60 jph production with overtime?
Nio guided 25,000 to 26,000 for Q1 2022.
Why not Q2 guidance of numbers greater than that with June deliveries of 15,000 to 20,000?
That would be a big shock to the Nio bears that have dominated the Nio stock price for past 15 months.
After 3 years of every problem in the book.
Can we finally hope & expect a June 2022 month with no major supply/ production problems
With NeoPark completion; ES7 launch, ET5 sales, existing model upgrades; 4-country European expansion, ET7 sales growth reminding us of the huge global potential of Nio.
Nio has product line; premium luxury status second to none.
We just now need to have a few no problem months starting June 2022.
Not an Auto Analyst, Nor Financial Advisor JMHO DYODD
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