Why Are Chinese EV Stocks NIO, XPEV, LI Up Today?


  • Chinese EV stocks shot up higher on Tuesday following strong performance metrics.
  • Industry sales reflect double-digit growth in March and Q1.
  • The context of lowered expectations must be recognized.
Chinese EV stocks - Why Are Chinese EV Stocks NIO, XPEV, LI Up Today?

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Electric vehicle manufacturers Nio (NYSE:NIO), XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) moved higher on Tuesday following various positive developments in China’s automotive sector. Nevertheless, Chinese EV stocks still face challenges amid the backdrop of lowered expectations.

According to a Seeking Alpha report, sales of electric-powered passenger vehicles in the world’s second-biggest economy — and the largest automotive market in the world — increased by 10.5% year-over-year in March to 1.03 million units. In the first quarter, sector sales rose 14.7% YOY. Notably, new energy vehicles, including all-electric models and plug-in hybrids, accounted for 41.5% of overall passenger car sales in March.

Given this development, Chinese EV stocks popped higher. Also undergirding sentiment were government initiatives that included revising new car loan rules. Here, Nio introduced new financing offers in its home market. In addition, Nio opened a new technology center in Germany, representing a significant step in its global ambitions.

Mainly, the aforementioned Chinese EV stocks have continued to build momentum off positive delivery numbers. Nio delivered 11,866 premium smart electric SUVs and smart electric sedans last month, representing 14.3% YOY growth. For Li Auto, the company delivered 80,400 vehicles in the first quarter, translating to a 52.9% leap in deliveries. Finally, XPeng deliveries increased 20% to 21,821 vehicles in the three months ending March 31.

Chinese EV Stocks Are Still Not Out of the Woods

Despite some recent encouraging numbers, Chinese EV stocks face a credibility challenge. Since the start of the year, NIO incurred about a 45% loss. XPEV suffered a similar blot of red ink, slipping almost 43%. Within this group, LI happens to be the best performer, although it’s also down about 9% during the aforementioned period.

One major development that cannot be ignored is that China has beaten everyone to become the top leader in EVs. It’s not just about sales, where consumers have eagerly bought up electric-powered transportation. Rather, manufacturing has blossomed as well. Per Bloomberg, Chinese brands account for about half of all EVs sold globally.

Still, Chinese EV stocks have also struggled against a sector-wide price war. With this and other industry headwinds, analysts have lowered expectations. Therefore, the numbers need to be taken with this context in mind.

For example, the 14.7% growth in EV sales in Q1 represented the slowest pace seen since Q2 of last year. Moreover, the deceleration in positive growth presents profitability concerns, especially amid the aforementioned price war.

Why It Matters

Although Chinese EV stocks are attempting to regain credibility in an ugly environment, analysts overall remain optimistic. Both NIO and XPEV feature a moderate buy consensus view. LI represents the standout, commanding a unanimous strong buy rating.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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