China electric cars: Tesla’s missed target draws investors to home-grown EV makers NIO, Xpeng and LiAuto in search of value
- NIO and Li Auto will post profit this year, while losses will widen at Xpeng, according to Morgan Stanley
- China’s EV start-ups are likely to see sales rise this year, but analysts warn intensifying competition, price cuts could quickly alter the landscape
Investor expectations of China’s three leading upstart electric vehicle (EV) makers remain as upbeat as ever despite Tesla’s lower-than-expected quarterly earnings.
“Consumers’ changing attitude towards EVs bodes well for the outlook,” said UBS analyst Paul Gong. “Tesla’s locally-built cars convinced more Chinese drivers that EV is a choice, hence bolstering the overall market. The second-generation of Chinese-made EVs, with advantages in cars’ performance and production costs, are worth expecting.”
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Vehicle number 10,000 rolls off the assembly line for Chinese electric carmaker XPeng
The forecasts for the Chinese start-ups, all of which are listed in New York, coincided with Tesla’s fourth-quarter earnings that fell short of market expectations. The US electric car maker said on Wednesday that its adjusted fourth-quarter profit was valued at 80 US cents a share, missing analysts’ consensus estimate of US$1.03.
Tesla’s lower profit could be attributed to the price cuts, said Ding Haifeng, a consultant with Shanghai-based financial advisory firm Integrity.
“It is an ominous sign for Chinese rivals that fiercer competition could dim the outlook and affect their earnings,” he said. “A sound market environment may not necessarily lead to better performance for every player.”
Tesla’s results pushed its shares 8.2 per cent lower to US$793.53 on Friday, setting off declines in the shares of New York Stock Exchange-listed Xpeng and NIO. Xpeng shed 3.6 per cent to US$48.18 and NIO eased 0.3 per cent to US$57. Nasdaq-listed Li Auto, however, bucked the trend, advancing 2.2 per cent to US$32.25.
China is the world’s largest new-energy vehicle market and was the lone bright spot in the global automotive market in 2020 as the Covid-19 pandemic hugely disrupted production and sales in Europe and the US.
New-energy vehicle (NEV) sales across the mainland rose 12 per cent in 2020 to 1.17 million units, buoyed by a strong rebound in the second half, heightening expectations of a big increase in deliveries this year. The China Association of Automobile Manufacturers (CAAM) has projected year-on-year sales growth of 40 per cent in 2021.
China’s New York-listed EV makers became investors’ new darlings last year as they priced in the huge growth potential of the market.
NIO skyrocketed 1,112 per cent to US$48.74 in 2020. Xpeng, which made its trading debut in August, chalked up a gain of 185.5 per cent to close at US$42.83 for the year and Li Auto that started trading in July surged 150 per cent to end the year at US$28.83.
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Tesla exports first China-made cars to Europe with shipment of 7,000 Model 3 electric sedans
Morgan Stanley expects the shares to climb further. It has set a target price for Xpeng at US$70, which is 45.3 per cent higher than its close on Friday. NIO has the potential to climb another 40 per cent to US$80, while Li Auto could rise another 52 per cent to US$49, the bank said.
Market observers, however, cautioned that heightened competition from established players could affect the upstarts.
“Since traditional OEMs [original equipment manufacturers] are now more serious about electrification, competition will become more intense,” said Gary Xu, a partner with KPMG China.