Investors Are Looking To China To Find The Next Tesla

By Tsvetana Paraskova

Tesla is not the only electric vehicle (EV) maker to have seen an explosive rally of its stock so far this year.  Shares in Tesla’s Chinese competitors have outperformed the global auto index as investor sentiment toward EV stocks has become increasingly positive over the past year, and as some of China’s electric car makers announced major financing milestones.

Despite the pandemic, the increase in EVs sales in China, the world’s largest auto market, was larger than the rise in the overall car market last month, although EVs are still a small portion of total vehicle sales in China.

Tesla and the race to become ‘the next Tesla’ are fueling a rally in the stocks of Chinese EV manufacturers, which in turn has given rise to increased fund-raising this year, including on the U.S. stock market, Joanne Chiu of The Wall Street Journal writes.

So far this year, Chinese EV stocks have outperformed the overall market and the global car manufacturing stocks index. The S&P index that tracks Chinese car and car parts makers has gained 30 percent so far this year. To compare, the global car and parts manufacturers’ index has risen by 8.5 percent so far in 2020, according to WSJ estimates of S&P Capital IQ data.

The rally in Chinese stocks comes as Tesla has seen an explosive gain in its stock price over the past year. As of the close on Thursday, shares in Tesla have soared by 287 percent year to date, and by 652 percent since August last year.

In the global EV market, including in China, Tesla is ahead of competitors and the one to beat. Some analysts believe that some Chinese EV makers, who vie to compete with Tesla on the world’s top car market, could be the ‘Tesla of China’.

Nio, for example, could be the ‘Tesla of China,’ Alexander Potter of Piper Sandler wrote in a note this week, as carried by Business Insider.

“With a fortified balance sheet and a well-established brand, we think NIO has a shot at earning the ‘Tesla of China’ moniker,” Piper Sandler said.

Ari Wald, head of technical analysis at Oppenheimer, told CNBC earlier this month about Nio that “The stock has consolidated since peaking in July and I think this consolidation, it’s allowing previously overbought conditions to recede.”

Nio’s American Depositary Receipts (ADR) traded in New York have surged by 232 percent year to date and by 374 percent from year-ago levels.

Earlier this week, Nio reported a surge in vehicle deliveries for the second quarter, at 10,331, nearly triple the vehicles it had delivered in the second quarter of 2019. Nio guided for even higher deliveries in the third quarter, signaling that the company believes demand for its EVs will continue to rise.

“We believe penetration of NEV demand in China could accelerate from here, more than doubling from 5% in 2019 to 14% by 2025,” J.P. Morgan analyst Nick Lai wrote in a note carried by MarketWatch, commenting on Nio’s performance.

After Nio listed ADRs in the United States in 2018, Li Auto became last month the second Chinese EV maker to raise money in an initial public offering (IPO) in the U.S. Li Auto, founded five years ago, raised US$1.1 billion by offering 95 million American depositary shares, or ADSs.

Li Auto plans to launch a full-size premium electric SUV in 2022, and then expand its product lineup by developing new vehicles, including mid-size and compact SUV models, the company said in an SEC filing.

Since their debut on the U.S. market at the end of July, Li Auto’s shares had increased by more than 30 percent.

This week, Chinese electric car start-up Xpeng Motors filed for an IPO on the New York Stock Exchange.

Another Chinese EV manufacturer, Kandi Technologies, said at the end of July it was formally launching “the most affordable electric vehicles (EVs) on the U.S. market,” with the compact model K27 priced at US$12,999 after federal tax credits and a vehicle “the size of a small SUV”, K23, at US$22,499 after federal tax credits.

Kandi’s shares on the NASDAQ have soared by over 100 percent in one month. The announcement of the offering on the U.S. market has fueled Kandi’s stock rally.

As Chinese EV makers race to compete with Tesla, both in China and outside China, some investors and analysts have realized that the EV revolution is gaining speed. Regardless of whether anyone can beat Tesla in sales numbers or brand awareness, the stock market looks to have grown fond of EV stocks.

By Tsvetana Paraskova for Oilprice.com