NIO (NYSE: NIO) and other Chinese EV stocks including Xpeng Motors (NYSE: XPEV) and Li Auto (NYSE: LI) are trading higher today after they released their July delivery reports. While Chinese (electric vehicle) companies provide monthly delivery reports Tesla provides a quarterly report.

Tesla provides annual delivery guidance. Despite the COVID-19 lockdowns in China, which hurt its production, the Elon Musk-run company maintained its guidance of a 50% CAGR growth.

Coming back to NIO, the Chinese EV company delivered 10,052 cars in July, which was 26.7% higher than the corresponding month last year. However, the deliveries fell from June when it delivered 12,961 cars, which was 60.3% higher than the previous month last year. It was the best month for NIO since it went public in 2018. In the second quarter, its deliveries rose 14.4% to 25,059.

NIO is not the only Chinese EV company to have reported a month-on-month fall in deliveries and Li Auto and Xpeng Motors also reported a fall in their July deliveries as compared to June.

Li Auto 10,422 cars in July, 21.3% higher than the same month in 2021 but lower the13,024 June deliveries. The company achieved the milestone of producing the 200,000th car in July.

Xpeng Motors delivered 11,524 cars in July which was 40% higher than July 2021. It had delivered 15,295 cars in June. As has been the case for the last few months, Xpeng Motors outsold both Li Auto and NIO. Xpeng Motors’ cumulative deliveries reached 220,000 at the end of July as compared to 227,949 for NIO. Xpeng Motors has been fast catching up with NIO on cumulative deliveries and looking at the recent trend, might soon surpass it as well.

Supply chain issues

NIO has been among the worst affected EV companies by the supply chain crisis. While announcing the July deliveries it said, “the production of the ET7 and the EC6 in July 2022 was constrained by the supply of casting parts. The Company has been working closely with supply chain partners and expects to accelerate vehicle production in the following months of the third quarter of 2022.”

NIO is ramping up its production capacity and last year entered into an agreement with its production partner JAC Motors to double the annual production capacity to 240,000 cars. However, the ramp-up has been held back by supply chain issues. While the chip shortage for gadget companies has eased and we now have an overcapacity, automakers continue to face chip shortages.

Short-seller Grizzly Research had accused NIO of accounting fraud and said that the company used transactions with Wuhan Weineng, an unconsolidated related party entity, to increase its revenues.

Initially, NIO had dismissed these findings and said, “The report is without merit and contains numerous errors, unsupported speculations and misleading conclusions and interpretations regarding information relating to the Company.”

Later it announced an independent committee “consisting of independent directors Mr. Denny Ting Bun Lee, Mr. Hai Wu, and Ms. Yu Long, to oversee an independent investigation regarding the allegations made in the Short Seller Report.”

Wall Street analysts are however overwhelmingly bullish on the company given its strong brand and backing from China. In June, Morgan Stanley analyst Tim Hsiao advised buying NIO stock and called it a “tactical idea.”

NIO to open a plant in Hungary

Chinese EV companies see Europe as a key market and both NIO and Xpeng Motors are expanding in the market. So far, NIO makes its products in China and then exports them to Europe. It has now announced a plant in Hungary which would produce power products for the European market.

Europe could be the next battleground for EV companies. While Tesla is ramping up capacity at its Berlin Gigafactory, Volkswagen is looking to grow its already dominant market position in the continent.

Ford and General Motors are also ramping up their EV production and the former predicted EV production run rate of 14,000 for July. By the end of next year, Ford expects to have an EV production capacity of 600,000 cars.

Apple is also rumored to be contemplating a foray into electric cars and autonomous vehicles. The company reported its earnings for the June quarter on Friday which were better than expected. It also lost less than $4 billion dollar sales in the quarter due to supply chain issues, which was below its guidance.

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