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: NIO sees supply chain, production ‘back to normal’ in June

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Shares of NIO Inc. were hit hard Thursday after a disappointing outlook for the current quarter, as a COVID-19 resurgence wreaked havoc on the supply chain, but the China-based electric vehicle maker provided a glimmer of hope that business will soon return to normal.

The stock
NIO,
-7.70%

sank 7.3% in midday trading, putting it on track to snap a three-day win streak. The selloff comes after the stock had rocketed 39.3% during a 10-session stretch through Wednesday, in which it rose nine times.

NIO had said before the open that it expected revenue for the second quarter, which ends this month, of between RMB9.34 billion to RMB10.09 billion, below the FactSet consensus of RMB11.65 billion. Deliveries were expected to decline to between 23,000 and 25,000 vehicles, from a record 25,768 vehicles in the first quarter.

And after vehicle gross margin contracted to 18.1% in the first quarter from 21.2% in the same period a year ago, NIO said a continued surge in battery prices will keep pressure on margins in the second quarter.

The disappointing outlook comes as the company said it experienced supply chain “volatilities” and delivery challenges resulting from the “recent COVID-19 resurgence,” which also led to a delay in launching the ES7 model SUV.

On the bright side, demand remained “robust,” and there were signs that the supply-chain challenges were easing.

“Starting in June, while the supply chain and the vehicle production have basically returned to normal, our vehicle deliveries have also gotten back on track in Shanghai and several other important markets,” said Chief Executive William Li, according to a translated FactSet transcript of the post-earnings conference call with analysts. “We will continue to work closely with other supply chain partners to further improve the overall supply chain production capacity and accelerate vehicle deliveries.”

The company said it has taken “a series of countermeasures” to mitigate rising material costs and to improve margins, such as adjusting product prices.

“With the deliveries of a new product, higher revenue per vehicle and increasing production output, we expect the vehicle margin to start bouncing back from the third quarter,” Li said.

Also helping fuel hopes for a sales recovery, the China Passenger Car Association said passenger-car sales in China totaled 1.35 million vehicles in May. While that was down about 17% from a year ago, it was up 30% from April. And as COVID-19-related lockdown measures in Shanghai were gradually lifted, vehicle production in May rose 6.5%.

For the first quarter ended March 31, NIO reported net losses that narrowed to RMB1.27 billion ($200.5 million), or RMB1.12 a share, from RMB4.95 billion, or RMB3.14 a share, in the same period a year ago. Excluding nonrecurring items, the adjusted per-share loss was RMB0.79, beating the FactSet consensus of RMB0.94.

Total revenue grew 24.2% to RMB9.91 billion ($1.56 billion), above the FactSet consensus of RMB9.90 billion.

NIO’s stock selloff was also a part of broad weakness in the U.S.-listed shares of China-based companies. The Invesco Golden Dragon China exchange-traded fund
PGJ,
-6.65%

tumbled 6.7% in midday trading, with 72 of 80 equity components seeing activity trading lower. In comparison, the S&P 500 index
SPX,
-0.43%

declined 0.5%.

Among some rival China-based EV makers, shares of Xpeng Inc.
XPEV,
-6.47%

dropped 6.5% and Li Auto Inc.
LI,
-1.44%

slid 1.2%. Meanwhile, share of Tesla Inc.
TSLA,
+2.31%
,
which generated 24.8% of its first-quarter revenue from China and 25.7% of its 2021 revenue from China, rallied 2.3%.

Also weighing on shares of China-based companies Thursday were conflicting reports about plans by China regulators regarding an initial public offering of financial-technology company Ant Group Co. Regulators had put a halt to an IPO of Ant in late 2020.

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