Chinese electric vehicle makers are surging on the market relative to global industry leader Tesla, in large part because of Beijing’s consumption incentives, and investors looking to buy the dip.
Nio Inc., XPeng Inc. and Li Auto Inc. have seen the values of their depository receipts surge over the last month by a minimum of 64%, making them among the best performing Chinese stocks traded in the US. By comparison Tesla’s 17% advance, weighed down by Chinese Covid lockdowns, supply snafus, battery woes, and the distraction of a $44 billion Twitter takeover, looks anemic.
The Shanghai lockdown was crushing to Chinese EV companies. Not even a single car was sold in April in the city, as factories either shut down, or were only allowed strictly limited operation. Since then, Chinese officials implemented a slew of stimulus measure to revive the industry, including tax exemptions, subsidies, and higher quotas for car ownership in the region.
Andy Wong, fund manager at LW Asset Management Advisors Ltd. in Hong Kong said, “There are fund flows buying the dip and capturing the sector’s bounce.” However he has noted that as the recent surge has played out, upside potential has diminished.
Tesla meanwhile has experienced enormous volatility, presently being down 36% from a high in April, even as the firm has staged an astonishing comeback in its production in China,
Musk’s latest statements about his Texas and Berlin Gigafactories burning through money like furnaces as they deal with a lack of workable batteries, his Twitter deal, and his recent move to cut his workforce in response to a “super-bad” feeling about what is coming have all suppressed his stock price.
Meanwhile, part of the advantage for Chinese companies is a perception their government will support them with policies and stimulus to enhance growth, while US companies will have to contend with a clear economic slowdown as the Federal Reserve begins a policy of money tightening in an effort to control inflation. This explains why the Nasdaq Golden Dragon China Index is outperforming the broader Nasdaq by nearly 18%.
Still there are signs the run for China’s EV companies may be coming to a close. Li Auto’s 14-day relative strength index measures 84, a sign investors now feel the stock is overbought. XPeng and Nio are also reading roughly 70.
Still, China’s EV makers are delivering autos. Li Auto, the largest by market cap, saw deliveries in May up 176% from April, and more than double last years level as they moved out 11,496 units.
Regardless, after a great run, the Chinese auto companies may be easing back to earth. Eason Cui, an analyst with Sunwah Kingsway Capital Holdings Ltd., wrote in a note, “Looking forward, we think catalysts would need to come from earnings and the economy improving,” since all other good news for these companies has already been priced in.
