How do you pick the next Tesla stock winner in China’s booming EV market?
- Given how quickly electric vehicle companies’ stock prices have rocketed, a short-term correction seems likely. But, in the long term, the sector is supported by structural trends which underpin the case for investing. Here are three things to focus on
New-energy vehicle (NEV) companies have become a red-hot investment theme in recent months. Since the end of September, the benchmark NEV Power Battery index in the A-share market has surged almost 60 per cent. In the overseas markets, Chinese and global electric vehicle stocks have also soared. But is the rally sustainable?
Tesla exports first China-made cars to Europe with shipment of 7,000 Model 3 electric sedans
When customers think about switching from cars with internal combustion engines to battery-powered vehicles, the first thing they look at and worry about is range. A typical electric vehicle’s range of 400-500km (250-310 miles) per charge would only last a few days for a driver in China who commutes to work daily, for example.
There are two ways to address such concerns. The first is to improve battery technology, to upgrade cruising power and enable a car to run up to 1,000km (620 miles) per charge. The second is to make available more accessible and convenient charging services.
The second approach seems to be more realistic and popular for now, with some domestic carmakers taking it upon themselves to provide convenient battery-charging services. In the longer term, however, breakthroughs in battery and charging technology will be a stronger catalyst in company performance and thus its stock price.
Evolving customer demand is another factor to watch. Beyond range, electric vehicle customers have a variety of demands, ranging from autonomous driving to car-owner communities.
Compared to traditional carmakers, NEV makers are more accommodating of customer demands. They are also willing to cultivate and respond to new demands through marketing campaigns and online platforms, such as the recent interest in acceleration times. Electric-vehicle makers that are most responsive to customer demand and can best improve brand loyalty are potential winners.
Inside Chinese electric vehicle maker Xpeng's factory in Zhaoqing city
At the same time, local governments are encouraged to come up with their own policies, from increasing buying quotas to granting subsidies. The next step might be more stringent requirements on fuel efficiency and battery features in new cars, which could accelerate industry disruption.
According to the China Association of Automobile Manufacturers, NEV production and sales both reached 1.37 million last year, up 7.5 per cent and 10.9 per cent respectively from 2019. Despite such rapid growth, electric vehicles still make up only just over 5 per cent of China’s car market.
If China is to achieve its 2025 NEV target, average annual growth will need to exceed 40 per cent every year over the next five years, which implies enormous growth potential for electric vehicle makers.
Chaoping Zhu is a Shanghai-based global market strategist at JP Morgan Asset Management