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Electric Vehicle Startup and Tesla Challenger NIO Forced to Suspend Production Due to Chip Shortages

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【Summary】The ongoing semiconductor shortages continues to affect the world’s automakers, which have been forced to idle factories or scale back vehicle production due to not having the required chips. The latest automaker forced to halt production is China’s NIO Inc., which is one of China’s biggest competitors to Tesla.

Eric Walz    Mar 26, 2021 4:00 PM PT
Electric Vehicle Startup and Tesla Challenger NIO Forced to Suspend Production Due to Chip Shortages

The ongoing semiconductor shortage continues to affect the world's automakers, which have been forced to idle factories or scale back vehicle production due to not having the necessary chips. The latest automaker forced to halt production is China's NIO Inc., which is one of China's biggest competitors to Tesla.

Nio is one of China's rising EV startups and is often referred to as the "Tesla of China" along with its rival Xpeng. Both companies offer fully-electric vehicles that cost around half the price of a Tesla model in China.

Nio said it would halt production for five working days at its plant in Hefei and cut its first-quarter delivery forecast by as much as 1,000 vehicles. Nio now expects to deliver 19,500 vehicles in the first quarter, down from a 20,000 to 20,500 range previously. 

During the month of November 2020, Nio reported it delivered 5,291 vehicles, its highest monthly sales numbers ever. The record number of deliveries represented a 109.3% year-over-year growth. Nio's market cap now exceeds $56 billion, making the company more valuable than U.S. automaker Ford, which is valued at $8 billion.

The government in China has been trying to assist automakers like Nio to better deal with the ongoing chip shortages.

At the beginning of March, China's Ministry of Industry and Information Technology (MIIT) issued a handbook to the country's automakers that included a list of common automotive semiconductors and their demand to help automakers better manage their supplies.

The manual lists of over 1,000 items that are in high demand by Chinese automakers, including 568 products from 59 semiconductor companies covering a total of 10 categories, including computing chips, control chips and power chips. With the new guide, the MIIT is aiming to better facilitate the communication between automakers and chip suppliers. 

Research firm AutoForecast Solutions estimates that the chip shortages have cost the global auto industry 130,000 vehicles in lost production. A majority of the lost production is in North America, with 74,000 units lost, followed by Western Europe, with 35,000 lost.

A week ago, U.S. automaker Ford Motor Co. announced it was idling two of its assembly plants in Louisville, Kentucky, and Cologne, Germany due to the global semiconductor shortage that's affecting automakers around the world. 

In addition to the temporary shutdowns, Ford said it would partially assemble some F-150 pickup without certain parts until its can source the needed components from its suppliers. 

The F-150 pickup is the company's best selling vehicle and one of its most profitable models. Ford warned of lower profits in 2021 of $1 to $2.5 billion due to the chip shortages.

Ford's rival General Motors (GM) expects the chip shortage will lower its full-year profit by $2 billion. Meanwhile, GM and Japan's Honda both said this week they would continue to idle plants in North America for the coming weeks.

Ford was also forced to suspend production at its Louisville, Kentucky plant in early January due to the chip shortages, which employs roughly 3,800 hourly workers.

Swedish truck maker Volvo AB said on Tuesday that the chip shortages would have a "substantial" impact on its second-quarter earnings. The company said it would implement stop days across its sites globally beginning in April.

What Caused the Chip Shortages?

The chip shortages can be at least partially blamed on the global pandemic, which led to declining auto sales and production output from electronics suppliers beginning in the second quarter of last year. 

The pandemic also led to automakers to curtailing orders for semiconductors and chips used in vehicle production. At the same time, demand for chips used in popular electronic devices such as laptops and game consoles had spiked, as more people were forced to work remotely and were stuck at home.

But as auto sales rebounded sooner than expected in the latter part of 2020 vehicle automakers ramped up production and increased their chip orders, which led to widespread shortages for automakers in China, the U.S., Japan and Europe. However, analysts have said that sanctions against Chinese technology companies have also played a role in the recent shortages.

The recent chip shortages have been called "extreme" and industry analysts predict that the automotive supply chains won't stabilize until later this spring at the earliest.

Shares of Nio, which are listed on the New York Stock Exchange, were down almost 5% on Friday, closing at $36.13.

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