What Lies Ahead For The Top 3 Chinese EV Stocks

Chinese EV

In no other country in the world has electric mobility led to such a boom in start-ups as in China. Experts estimate that more than 500 EV start-ups have been launched in the Middle Kingdom in recent years.

Beijing Forces Wave of Consolidation

The problem is that most of these young companies have not yet produced a single electric vehicle. The central government in Beijing is therefore pushing for far-reaching consolidation. Last year, the Minister of Industry, Xiao Yaqing, complained that there were simply too many start-ups in the EV sector in the People’s Republic.

The government now wants to counteract this by drastically cutting the once-high subsidies for the development and construction of electric cars. The calculation: Young companies without significant production would then no longer be able to stay afloat. They would either have to close their doors or be swallowed up by a larger EV company.

China’s Young EV Triumvirate

So if you’re looking to invest in China’s young EV market, you should definitely pay attention to those companies that are already in the market producing vehicles. These have the chance to grow disproportionately in the next few years due to the politically forced consolidation.

Three of these promising companies go by the names Nio (NIO), XPeng (XPEV) and Li Auto (LI). All three start-ups achieved gigantic growth figures in sales last year. And all three companies also want to take off in Europe. They’re hoping to stir up the market there with their relatively inexpensive electric cars.

Growth Story Gets Cracks – And Western Regulatory Threats

But now the growth story of Nio, XPeng and Li Auto has begun to show slight cracks. The focus is on the sales figures for February 2022. Deliveries for all three manufacturers are down from the January level.

Nio, for example, managed to sell 6,131 vehicles in February. In January, it had been 9,652. Xpeng sold 6,225 electric vehicles last month (January: 12,922). Li Auto delivered 8,414 electric cars (January: 12,268).

The three have also come under selling pressure in recent months due to the threat of delisting. This is the case with many US-listed Chinese stocks. In March, the SEC targeted five Chinese companies for removal from US exchanges for failing to meet auditing requirements. 

Nio, XPeng and Li were not on the list. But investors have an understandable wariness that they could be in the regulator’s crosshairs in the future. 

Are Investors Overreacting? 

All of this bad news has caused disgruntlement among investors. All three shares fell after the February sales figures were announced. Nevertheless, compared to the same month of the previous year, all three sales figures  increased. Nio by 9.9%, Xpeng by 180% and Li Auto by 265%.

The operating growth potential of these Chinese newcomers is therefore definitely intact, in part because the slump in sales last month was mainly due to external factors.

For example, the festivities surrounding Chinese New Year took place in the People’s Republic at the beginning of February. During this week, Chinese workplaces are generally shuttered. And so Nio, XPeng and Li Auto explain the slump in sales precisely with these public holidays. In addition, there were COVID-19 outbreaks in Suzhou, for example, where Li Auto operates a production facility.

In any case, the three companies are optimistic that they will be able to significantly improve their sales figures again in March. This could well boost the shares in the coming weeks, also because the companies are not as badly affected by Putin’s war of aggression against Ukraine as, for example, Western car companies.

In Conclusion

Nio, XPeng and Li Auto have what it takes to revolutionize the Chinese electric car market. Of course, the absolute sales figures of these companies are still relatively low. But that is likely to change in view of the upcoming wave of consolidation.

In addition, the central government in Beijing is likely to have a strategic interest in ensuring that the Chinese e-car market is also dominated by Chinese companies. Currently, the foreign company Tesla is the market leader there. This is likely to be a thorn in the side of the Communist Party.

And last but not least, China’s electric startups are creating additional growth potential for themselves by expanding into Europe. XPeng, for example, recently signed a cooperation agreement with European car dealers to sell vehicles in Sweden and the Netherlands.

Nio, on the other hand, wants to bring its innovative battery exchange technology to Europe in addition to its electric cars. Here, it recently launched a partnership with Shell. If these three firms stay in the good graces of Western securities regulators – which is a big “if” – they could have a bright future in the years ahead.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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