Over the past few years, investors have been pumping money into electric vehicle startups and other young green tech companies at a record clip, with many EV startups going public via the so-called SPAC deals. Also known as blank check companies, special purpose acquisition companies are companies that have no commercial operations and are formed with the sole intention to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company.
Unfortunately, last year, SPAC mania quickly went into reverse and changed into SPAC-lash, with newer pure-play EV upstarts such as Fisker (NYSE:FSR), Faraday Future Intelligent (NASDAQ:FFIE), Lordstown Motors (NASDAQ:RIDE), Nikola (NASDAQ:NKLA), Lucid Motors (NASDAQ:LCID), Nio (NYSE:NIO), XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI), Canoo (NASDAQ:GOEV) and Rivian Automotive (NASDAQ:RIVN) finding themselves on the receiving end.
But, the Chinese EV sector appears to have gone full circle, with stocks of U.S.-listed Chinese electric vehicle makers NIO, Li Auto, and XPeng climbing as much as 25% over the last two weeks. In contrast, the S&P 500 has gained a mere 4% over the time frame.
To be fair, the sentiment surrounding EV stocks, in general, has picked up since bellwether Tesla Inc. (NASDAQ:TSLA) published a solid set of Q4 2021 results in late January, reporting solid revenue growth and margin expansion.
Tesla posted a proper Q4 2021 earnings smasher, with Q4 Non-GAAP EPS of $2.54 beating by $0.16 while revenue of $17.72B (+65.0% Y/Y) beats by $1.08B. Earlier, Tesla had reported production of more than 305,000 vehicles and deliveries of over 308,000 vehicles vs. 263,422 consensus during the final quarter. The company delivered 180,570 electric vehicles in 4Q20.
But Tesla's Chinese rivals are proving to be worthy competitors on their own merit.
Nio saw January sales rise by about 34% to 9,652 units; Li Auto delivered 12,268 vehicles, marking a 128% increase year over year, while XPeng reported a 115% Y/Y jump in January deliveries to 12,922. The three stocks have witnessed heavy selloffs over the past year, with NIO crashing 60.1%; LI has declined 10.6%, while XPEV has lost 21.1%. All three companies currently trade at between 4x to 5.5x projected 2022 sales, modest valuations for fast-growing EV companies.
Nio could be off to the races after landing an Overweight rating from Barclays on a positive view of the Chinese electric vehicle upstart's potential on the world stage.
"We believe that the rapid adoption of EVs around the world and booming EV sales have presented China's EV makers a rare opportunity to not only take a sizable market share of the domestic auto market – the largest in the world with about 25-30% global share by units sold per annum – but also build a dominant position on the world stage," analyst Jiong Shao has noted.
Shao and team also pointed to upside with Nio's strategic partnership with Chinese EV battery maker CATL that produces purpose-built batteries for Nio with the latest technologies co-developed by the companies. In addition, Nio's battery swapping and battery leasing options are seen as highly innovative. Meanwhile, Barclays has assigned a price target of $34 to Nio, good for more than 40% upside.
Li Auto has been giving up some of its recent gains after reports out of China indicated on Tuesday that Chief Technical Officer Kai Wang is leaving the company. Morgan Stanley analyst Tim Hsiao says the development, if confirmed, will be a surprise and might trigger "transient market concern" over Li Auto's near-term technological development. However, the analyst says the development is still constructive on the stock.
XPeng has been moving higher thanks to its dual listing with the company's Hong Kong shares being added to the Shenzhen-Hong Kong Stock Connect program. XPeng has stated that inclusion in the program means that qualified Mainland China investors will have access to trade XPEV shares in Hong Kong. XPeng is the first smart EV company to achieve a dual-primary listing status on both the New York Stock Exchange and the Hong Kong Stock Exchange.
The long-term outlook for the Chinese EV space remains bright, thanks in large part to robust demand for electric vehicles in China as well as favorable regulation. EV penetration as a percentage of new-car sales in China stood at approximately 15% in 2021, compared to just 4% in the U.S. with margins expected to trend higher for these companies, driven by fixed cost absorption and better economies of scale.
By Alex Kimani for Oilprice.com
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