What happened
A drought in China's Sichuan province is straining local electric grids and threatening both electric vehicle (EV) charging stations and suppliers based in the region. Shares of Nio (NYSE: NIO) fell as much as 3% on Thursday on concerns about how the issue could ripple through the country's automotive industry.
So what
Nio is one of the Chinese electric vehicle market's top success stories, both in terms of selling automobiles in China and Europe and building a strong brand in its home country. But the company's operations reportedly could soon be under pressure due to the hot, dry Chinese summer.
Low water flows through Sichuan in central China have cut into hydroelectric power production in the region, forcing the closure of some manufacturing operations. Among the factories impacted is a massive battery plant run by Toyota Motor and Contemporary Amperex Technology (CATL), which supplies batteries to Nio and other electric vehicle manufacturers.
Production at a key facility has been suspended through at least Aug. 20. Overall, CATL has about 100 gigawatts of existing and planned battery manufacturing capacity in the region.
Though it is too soon to know for sure how the slowdowns will impact Nio sales, according to local Chinese media reports the power disruption has led Nio and other automakers to limit their charging services in the region.
Now what
Nio hosts its annual general meeting on Aug. 25, and the subject of vehicle production for the rest of the year is sure to come up then. For now, the power issues in China are if nothing else a reminder to investors about how fragile this nascent industry is as production capacity continues to ramp up. Investors might also be concerned that if charging stations become unreliable, Chinese consumer interest in electric vehicles could be impacted.
Nio shares are off 37% year to date on investor concerns about growth stocks in a weakening economy, and news earlier in the week that Nio rival Li Auto is slowing production is likely weighing on the stock as well. While the long-term trajectory for Nio remains positive, there are a lot of questions right now about the company's ability to meet near-term growth expectations.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio Inc. The Motley Fool has a disclosure policy.
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