Chinese electric vehicle manufacturers’ delivery figures fell sharply in April as supply chains were hit hard by Zero-COVID policies.
Deliveries for Nio, Inc. (NYSE:NIO), Li Auto (NASDAQ:LI), and XPeng, Inc. (NYSE:XPEV) all reported that they have been hit hard by COVID lockdowns, with monthly delivery numbers diving from February. Indicating the size of the impact, both Nio (NIO) and Li Auto (LI) sales fell by 50% or more while XPeng (XPEV) was only slightly better.
“The COVID-19 resurgence in the Yangtze Delta region continues to cause severe industry-wide disruptions in supply chain, logistics and production since late March,” Li Auto (LI) president Yanan Shen commented. “Our Changzhou manufacturing base is located in the center of the Yangtze Delta region, which is home to over 80% of our parts suppliers, especially in Shanghai and Kunshan.”
The forecast of the entire industry being hit by the shutdown of the country’s largest metropolis is indeed reflected in its peers’ results. Nio (NIO) reported its supply chain has been “volatile” since late March and is still recovering from the shutdown in production.
The hits to productivity come shortly after a strong rebound for Chinese auto, education, and tech names as some signals from Beijing suggested a softer touch in terms of market intervention. In particular, the government appears eager to extend more slack in terms of subsidies to the COVID-impacted industry. Tesla’s (TSLA) big earnings beat also increased optimism, especially as Elon Musk emphatically called for a rapid rebound in Chinese production in the company’s 4/20 earnings call.
“Giga Shanghai is coming back with a vengeance,” he said. “So, I think notwithstanding new issues that arise, I think we will see record output per week from Giga Shanghai this quarter, albeit we are missing a couple of weeks.”
Shares of Nio (NIO) and Li Auto (LI) are not reflecting the same optimism, as the steep decline in deliveries drives some pre-market losses for each stock. To be sure, XPeng’s (XPEV) comparatively lower drop in deliveries, 42% from March, appears to be receiving a better reception with shares gaining in early action. Warren Buffett favorite BYD (OTCPK:BYDDY) has yet to report its April deliveries, but an update is expected within the week.
The delivery figures across China effectively amount to a retread of delivery figures marked a year ago. The road ahead is not overwhelmingly positive either, as the Zero COVID strategy remains endorsed at the upper echelons of state power ahead of the 20th National Congress of the Chinese Communist Party. Lower efficacy vaccines and an overall low vaccination rate among elderly citizens add to the incentive to retain strict lockdown regulations as a spate of deaths ahead of the meeting would reflect poorly on the party.
The trends bode poorly for Tesla (TSLA) and perhaps temper bullishness on Musk’s forecasts for record-breaking output. The production slowdown adds to a recall of over 10,000 vehicles in China due to software glitches. Shares of Tesla (TSLA) have declined nearly 25% in the past month, largely due to Musk’s purchase of Twitter.
The “technoking” offered his advice on investing over the weekend on that very platform, advising investors not to panic amid market declines.