Tesla (TSLA) is currently the leading seller of electric vehicles globally and in China. And in 2019, the company sold 367,000 vehicles globally which was a 50% increase over the previous year. And this year, it’s projecting to sell 500,000.
It also has the largest market share in China, where it sold 42,000 vehicles in 2019 with the company projecting nearly 110,000 for 2020. This equates to a 23% market share in the Chinese EV market which is expected to grow in the coming years.
Chinese EV companies are also vying for a piece of the market as well…
Among them, NIO (NIO) is the clear leader. It’s successfully penetrated the market, created a product that consumers want, and is increasing production. As a result, its stock has been incredibly strong this year with a 581% YTD gain, and it has a current valuation of $37.5 billion.
However, there are two more Chinese EV companies that investors should watch – Xpeng (XPEV) and Li Auto (LI). These stocks could also have a similar upside to NIO, although they are pursuing different strategies to reach their goals.
Growth in the Chinese EV Market
The total Chinese EV market is going to rapidly grow in the coming years due to secular trends and government support. By 2025, the Chinese government is targeting that 25% of car sales will be EVs as part of its plan to reduce pollution. It’s pursuing this target through a combination of subsidies, tax credits, investment, and quotas.
The country has also added to their battery charging infrastructure. For consumers, EVs are heavily subsidized, additionally, there’s an expedited process for getting permits and licenses which can take many months for gas-powered vehicles.
As a result, these policies have created a boom in the Chinese EV space. Legacy car companies like VW, Toyota Motors (TM), and General Motors (GM) are expected to introduce electric models to the Chinese market in the coming years. Additionally, as of 2019, there were an estimated 500 EV startups in China with 60 having unveiled prototypes, although only 10 are in production.
NIO is the Leader Among Chinese EV Companies
Out of the Chinese EV companies, the most prominent and successful has been NIO. It’s led by a charismatic founder, William Li Bin, and it has the biggest ambitions and deepest pockets. So far, NIO is projecting sales of around 50,000 in 2020.
Several factors are working in NIO’s favor. It’s been consistently increasing production and has a growing backlog of orders. It’s also successfully been executing Tesla’s playbook by first introducing high-end, electric sports cars that created a buzz around the company. And, it’s now starting to sell lower-priced models. It also has differentiated itself from other car companies by offering luxurious lounges for owners to use while their vehicles are charging and a free battery swap service.
This spring, NIO also received a $1 billion cash infusion from the government of Hefei to increase its production capacity. Analysts are projecting that NIO will break-even in 2021 as its sales increase and cost per car comes down.
NIO’s shares surged another 25% last week on an upgrade from JPMorgan (JPM). The bank raised its price target on the stock to $40 from $14 and believes NIO will be a “long-term winner” within the Chinese EV market. It thinks that NIO can take up to 30% of the premium passenger EV market.
Xpeng (XPEV)
XPEV went public in late-August 2020, raising $1.5 billion. It also recently launched its newest vehicle, the P7, which drew comparisons to Tesla’s Model 3. However, while Tesla is going for engineering supremacy, XPEV is focused on delivering…
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