For the next generation of China’s technology giants, bet on electric cars and health care, banker says

Companies investing in electric cars and health care will see exciting long-term growth potential, says an investment banker from JPMorgan Chase & Co.

PUBLISHED : Monday, 15 January, 2018, 8:04am
UPDATED : Tuesday, 03 July, 2018, 8:22pm

Toutiao, Didi Chuxing and Meituan-Dianping have collectively occupied the spotlight as the next generation of Chinese internet giants, but companies ranging from sectors such as electric cars and health care also have exciting long term growth potential, according to one investment banker.

“China is placing itself at the forefront of the push by the auto industry to ‘go electric’, especially given the central government’s supportive policies,” said Brian Gu, chairman of Asia Pacific investment banking at JP Morgan Chase & Co. “To me, that creates a tremendous opportunity.”

Gu said the logical way to identify the next generation of tech giants is to look for younger companies that have achieved high valuations behind well-established names.

The well known names include Chinese news aggregation app Toutiao, e-commerce platform Meituan-Dianping, and Chinese ride-hailing app Didi Chuxing. Smartphone manufacturer Xiaomi and online payment services provider Ant Financial, part of Alibaba, also rank among companies that will develop into the next generation of technology giants.

Xiaomi and Ant Financial are expected to seek an initial public offering either in Hong Kong or New York this year.

Gu is optimistic about electric vehicles and smart cars as a long-term investment.

One reason is that China has offered various incentives to the domestic electric vehicle sector to help combat air pollution.

In 2016, China’s Ministry of Industry and Information Technology called for “partially autonomous” vehicles to account for 50 per cent of car sales by 2020, and “highly autonomous” vehicles to account for 15 per cent by 2025.

China ranks as the largest electric vehicle market globally, accounting for more than 40 per cent of electric cars sold worldwide and more than double the number sold in the United States in 2016, according to a report by the International Energy Agency.

“What future cars will look like is going to be very different from today. It will not only be a transport tool but also a connected personal device for productivity and entertainment,” said Gu.

“There are a couple of new tech names such as NIO and Xiaopeng Motors that are in a position to take the lead,” he said.

NIO, set up in 2014 by William Li and a group of internet entrepreneurs, is seen as a competitor to US based Tesla. It has already sold out its first batch of 10,000 pre-orders for the ES8 all-electric sport utility vehicle, which was launched on December 16. Nio’s ES8 is currently retailing for half the price of the Tesla model X.

NIO, which raised more than US$1 billion from investors including Tencent Holdings,

is considering an initial public offering in the US as soon as next year, according to Bloomberg.

Guangzhou-based Xiaopeng , in which Alibaba has 10 per cent stake, is another Chinese electric-vehicle start-up with ambitions to rival Tesla. Alibaba is owner of the South China Morning Post.

On January 9 at the consumer electronics show CES, Xiaopeng unveiled the G3, an all-electric sports utility vehicle. The vehicle features a 360-degree roof mounted camera that can take photos and videos, in addition to a pollution monitor.

Gu said traditional car manufacturers are less competitive than newcomers in the rapidly changing landscape for electric vehicles. Among the well established car makers, BYD Co has been manufacturing electric and hybrid cars in China for years.

SAIC Motor, the Chinese partner of Volkswagen and General Motors, produces electric cars in China. Geely Automobile has committed to having only electric and hybrid cars under the Volvo brand, which it owns, starting in 2019.

BAIC Group predicts annual electric vehicles sales in China will hit the 1 million mark in 2018.

Gu said health care will be another good bet in long run owing to wealth accumulation, improvements in living standards and urbanisation.

“China’s health care industry has to be big, since everybody cares about it. We will see rising spending that will lead to much bigger companies.

But the sector is relatively small at the moment, he said.