Tesla’s missed target draws investors to home-grown EV makers NIO, Xpeng and LiAuto in search of value

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Xpeng is expected to post a 126 per cent jump in revenue to 13.95 billion yuan this year, but still end up losing money. Photo: Iris Ouyang

Investor expectations of China’s three leading upstart electric vehicle (EV) makers remain as upbeat as ever despite Tesla’s lower-than-expected quarterly earnings.

The outlook for NIO, Xpeng and Li Auto remains positive, with one investment bank expecting two of the start-ups to achieve profitability which could push their shares even higher, spurred by mainland drivers’ rising penchant for green cars, Beijing’s ambitions to become a global leader in electric cars and ample funds flowing into the sector.

“Consumers’ changing attitude towards EVs bodes well for the outlook,” said UBS analyst Paul Gong. “Tesla’s locally-built cars convinced more Chinese drivers that EV is a choice, hence bolstering the overall market. The second-generation of Chinese-made EVs, with advantages in cars’ performance and production costs, are worth expecting.”

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According to a report by Morgan Stanley last week, NIO is likely to post a profit for the first time and double its revenue this year. The investment bank expects the start-up to rake in sales of 33.6 billion yuan (US$5.2 billion), up from an estimated 16.8 billion yuan last year. It also expects a small profit of 6 million yuan, compared to a loss of 4.4 billion yuan in 2020. On Monday, NIO reported a 352.1 per cent rise in January sales, delivering a record 7,225 vehicles.

The bank also expects Li Auto to turn a maiden profit in 2021. A profit of 980 million yuan is forecast compared to an estimated loss of 541 million yuan in 2020, while revenue is expected to jump 92 per cent year on year to 17.96 billion yuan.

Xpeng, which is forecast to post a 126 per cent jump in revenue to 13.95 billion yuan this year, would see its losses widen to 4.23 billion yuan, from an estimated 3.56 billion yuan in 2020, the bank said. The Guangzhou-based carmaker said on Monday that deliveries in January jumped 470 per cent from last year to 6,015 vehicles. It sold 3,710 P7 sedans and 2,305 G3 SUVs.

The forecasts for the Chinese start-ups, all of which are listed in New York, coincided with Tesla’s fourth-quarter earnings that fell short of market expectations. The US electric car maker said on Wednesday that its adjusted fourth-quarter profit was valued at 80 US cents a share, missing analysts’ consensus estimate of US$1.03.

Tesla’s lower profit could be attributed to the price cuts, said Ding Haifeng, a consultant with Shanghai-based financial advisory firm Integrity.

“It is an ominous sign for Chinese rivals that fiercer competition could dim the outlook and affect their earnings,” he said. “A sound market environment may not necessarily lead to better performance for every player.”

Tesla’s results pushed its shares 8.2 per cent lower to US$793.53 on Friday, setting off declines in the shares of New York Stock Exchange-listed Xpeng and NIO. Xpeng shed 3.6 per cent to US$48.18 and NIO eased 0.3 per cent to US$57. Nasdaq-listed Li Auto, however, bucked the trend, advancing 2.2 per cent to US$32.25.

Under Beijing’s “Made in China 2025” industrial master plan, 20 per cent of all new cars hitting the streets by 2025 will be new-energy vehicles. That would translate into more than four million such new cars on the road by then.

China is the world’s largest new-energy vehicle market and was the lone bright spot in the global automotive market in 2020 as the Covid-19 pandemic hugely disrupted production and sales in Europe and the US.

New-energy vehicle (NEV) sales across the mainland rose 12 per cent in 2020 to 1.17 million units, buoyed by a strong rebound in the second half, heightening expectations of a big increase in deliveries this year. The China Association of Automobile Manufacturers (CAAM) has projected year-on-year sales growth of 40 per cent in 2021.

Tesla, however, remains the runaway leader in the mainland’s premium EV segment as it delivered nearly 140,000 Shanghai-made Model 3 cars in 2020. The company began delivering the model in January last year.

China’s New York-listed EV makers became investors’ new darlings last year as they priced in the huge growth potential of the market.

NIO skyrocketed 1,112 per cent to US$48.74 in 2020. Xpeng, which made its trading debut in August, chalked up a gain of 185.5 per cent to close at US$42.83 for the year and Li Auto that started trading in July surged 150 per cent to end the year at US$28.83.

Morgan Stanley expects the shares to climb further. It has set a target price for Xpeng at US$70, which is 45.3 per cent higher than its close on Friday. NIO has the potential to climb another 40 per cent to US$80, while Li Auto could rise another 52 per cent to US$49, the bank said.

Market observers, however, cautioned that heightened competition from established players could affect the upstarts.

“Since traditional OEMs (original equipment manufacturers) are now more serious about electrification, competition will become more intense,” said Gary Xu, a partner with KPMG China.

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