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Auto sales in China fell 47% in April due to the country’s no-coronavirus policy. Difficult New (New York Stock Exchange:NIO) and their peers in the auto industry when their workers are stuck at home rather than in factories. This is one of the reasons why NIO stock lost nearly 21% of its value last month. However, if you are a shareholder of Nio, there is an upside: you may manufacture and sell internal combustion engine (ICE) vehicles. ICE vehicle sales fell more than 50% in April, while electric vehicle (EV) sales last month fell 36% from 465,000 in March to 299,000 in April. As the headline states, Nio contributors are in luck because they make electric cars, not powered cars. Here’s why.
The CEO of Automobility, a Shanghai-based investment advisory firm, recently discussed key issues affecting the global auto industry. In addition to Covid-19, the supply chain is a top priority for Bill Russo, who previously led Chrysler Northeast Asian Business.
Russo believes that electric car companies will move toward vertically integrating their businesses. This is not good news for Fisker (New York Stock Exchange:FSR) or Magna International (New York Stock Exchange:MGA), its manufacturing partner for the Fisker Ocean SUV.
“If you want to scale that offer and that offer is taken up by a consumer electronics customer — which happened during Covid, they can’t scale it,” Russo told Forbes contributor Russell Flannery. Where you have the ability to control the purchase and sale of these components. Batteries and power strips are the main battlegrounds for securing your place in the future of this industry.”
So how does Nio work on the vertical integration front? The International Institute for Management Development (IMD) has a future readiness index for the auto industry that rates companies based on their “readiness for deep, long-term secular trends.” While Nio is only 18th on the list – Tesla (NASDAQ:TSLA) is number one – the pace of innovation is up. IMD notes that while Nio doesn’t focus on manufacturing, its software expertise puts it second only to Tesla.
“NIO and BYD are built on capabilities of the future, not the past. Whether or not there is a shortage of semiconductors, they are busy preparing for the next battlefield. Conventional automakers must be on high alert,” IMD wrote in December.
Although things look bad now, NIO stock is down 57.3% year-to-date and is trading at its lowest level since August 2020 – it’s doing what is necessary to be relevant 10 years from now. While Nio is relatively new to the EV game, IMD sees it as a potential candidate to become the next Tesla. This is much better than becoming the next big ICE player.
At the date of publication, Will Ashworth did not (directly or indirectly) hold any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, and are subject to InvestorPlace.com’s posting guidelines.
The post by Nio contributors Lucky to Make Electric Vehicles debuted on InvestorPlace.
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