Chinese electric vehicle stocks fly again

Over the past few years, investors have been pumping money into electric vehicle startups and other green tech start-ups at a record pace, with many electric vehicle startups going public through the so-called SPAC deals. . Also known as blank check companies, special purpose acquisition companies are companies that do not engage in business activities and are formed for the sole purpose of raising capital through an offering. initial public offering (IPO) for the purpose of acquiring or merging with an existing company.

Unfortunately, over the past year, SPAC mania quickly reversed and turned into SPAC-lash, with pure-play EV newcomers such as Fisker (NYSE: FSR), Faraday Smart Future (NASDAQ: FFIE), Lordstown Engines (NASDAQ: RIDE), Nicholas (NASDAQ: NKLA), Lucid Engines (NASDAQ:LCID), Nio (NYSE: NIO), XPeng (NYSE: XPEV), Li-Auto (NASDAQ:LI), Canou (NASDAQ: GOEV) and Rivian Automotive (NASDAQ:RIVN) ending up on the recipient side.

But China’s electric vehicle sector appears to have come full circle, with shares of U.S.-listed Chinese electric vehicle makers NIO, Li Auto and XPeng surging as much as 25% in the past two weeks. On the other hand, the S&P500 gained just 4% over the period.

Positive feeling

To be fair, sentiment surrounding EV stocks, in general, has picked up from the lighthouse Tesla Inc. (NASDAQ:TSLA) released a strong set of fourth quarter 2021 results in late January, reporting solid revenue growth and margin expansion.

Tesla released a good Q4 2021 Earnings Breaker, with Q4 non-GAAP EPS of $2.54 beating $0.16 while revenue of $17.72 billion (+65.0% YoY) was beating $1.08 billion. dollars. Earlier, Tesla reported production of more than 305,000 vehicles and deliveries of more than 308,000 vehicles against consensus 263,422 in the last quarter. The company delivered 180,570 electric vehicles in 4Q20.

But Tesla’s Chinese rivals are proving worthy competitors on their own merit.

Nio saw January sales increase about 34% to 9,652 units; Li Auto delivered 12,268 vehicles, marking a 128% year-on-year increase, while XPeng reported a 115% year-over-year jump in January shipments at 12,922. All three stocks have seen strong selling over the past year, with NIO tumbling 60.1%; LI fell 10.6%, while XPEV lost 21.1%. All three companies are currently trading between 4x and 5.5x projected 2022 sales, modest valuations for fast-growing EV companies.

Nio may be off to the races after landing an overweight rating from Barclays on a positive view of China’s electric vehicle potential on the world stage.

We believe that the rapid adoption of electric vehicles globally and the surge in electric vehicle sales have presented Chinese electric vehicle manufacturers with a rare opportunity to not only capture a significant market share of the domestic auto market – the largest in the world with approximately 25 to 30% of world share. units sold per year – but also build a dominant position on the world stage“, noted analyst Jiong Shao.

Shao and his team also highlighted the benefits of Nio’s strategic partnership with the Chinese EV battery maker. CATL which produces batteries specially designed for Nio with the latest technologies co-developed by the companies. Additionally, Nio’s battery swap and battery rental options are considered highly innovative. Meanwhile, Barclays has assigned a price target of $34 to Nio, good for over 40% upside.

Li Auto gave up some of its recent gains after reports from China on Tuesday said technical director Kai Wang was leaving the company. Morgan Stanley analyst Tim Hsiao said the development, if confirmed, would come as a surprise and could trigger “passing market concern” about Li Auto’s near-term technology development. However, the analyst affirms that the evolution is still constructive on the title.

XPeng gained on its dual listing, with the company’s Hong Kong shares being added to the Shenzhen-Hong Kong Stock Connect program. XPeng said inclusion in the program means qualified investors from mainland China will have access to trade in XPEV shares in Hong Kong. XPeng is the first smart electric vehicle company to achieve dual primary listing status on both the New York Stock Exchange and the Hong Kong Stock Exchange.

The long-term outlook for China’s electric vehicle space remains bright, thanks in large part to strong demand for electric vehicles in China as well as supportive regulation. Electric vehicle penetration as a percentage of new car sales in China was around 15% in 2021, compared to just 4% in the United States, with margins expected to increase for these companies, driven by the absorption of fixed costs and better economies of scale.

By Alex Kimani for Oilprice.com

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