Originally posted on EVANNEX
By Charles Morris
You may not have seen a Chinese EV on the street yet, but the companies behind them have been burning up US stock markets. Xpeng’s stock price has roughly doubled since the company joined the NYSE in August; Li Auto’s has tripled since its July debut; and NIO, which went public in the US in 2018, has seen its share price soar by around 1,000% since the beginning of the year.
The list of the world’s most valuable automakers has been reshuffled like a deck of cards—NIO, with a recent market cap of $62 billion, and Xpeng, at $39 billion, are each worth more than Ford ($36 billion), and Li Auto ($29 billion) has surpassed Nissan ($21 billion).
Michael Dunne is the editor of the media outlet ZoZo Go, which focuses on China’s auto market, with a special emphasis on EVs and autonomous vehicles. Lately, investors and journalists have been beating a virtual path to his door, asking, “What the Hell is going on with these Chinese EV stocks?”
His answer: “Who the Hell knows?”
The rapid growth of these companies may look like a bubble, but on the other hand, there are compelling reasons to expect great things from some of these companies. China is the world’s biggest auto market, and it’s going electric. Furthermore, China is on the verge of becoming an auto exporter. Chinese automakers have dreamed of selling their wares in North America and Europe for decades, and electrification is giving them an opportunity to start doing so. A shipment of Xpeng EVs recently arrived in Norway, followed by two shipments of Model 3s from Tesla’s Shanghai Gigafactory. This is the beginning of a major shift.
Some of these companies have appealing stories. Some see Xpeng founder He Xiaopeng as a Musk-like figure—someone you don’t want to bet against. Dunne, who notes that He made his first $5 billion before he turned 35, takes a closer look at Xpeng in a recent episode of his Winning in Asia podcast.
Wall Street is getting charged about EVs (Image: Tesla)
As Dunne sees it, China is building two separate EV industries—one, led by BYD, Wuling and Chery, is focused on producing low-cost, utilitarian vehicles for the domestic market. Another crop of EV-makers, including NIO, Li Auto, Polestar and Xpeng, consists of younger companies that are delivering more advanced (and more expensive) vehicles that incorporate the latest tech, and are aimed at conquering global markets.
These are the companies that have captured the imagination of the media and investors, largely because of their perceived similarity to a certain California carmaker. As Dunne points out, NIO, Li Auto and Xpeng are following Tesla’s playbook in several ways—they are “essentially tech companies that are equipping cars with state-of-the art capabilities in autonomy, connectivity and electrification.”
Like a smartphone or a computer, the modern automobile is increasingly seen as a hardware/software “stack.” The companies that provide the software and services layers of the stack seem to have the most fun (and to have the best chance of securing future income streams). Companies that define themselves solely as hardware manufacturers risk ending up as providers of a low-margin commodity product.
Certainly, one reason for the Chinese stars’ rocketing share prices (skeptics might say the only reason) is the Tesla Effect. As Dunne points out, Chinese EV stocks only started blasting off following TSLA’s rise into the stratosphere. A lot of investors missed out on that party, and they see Chinese EV stocks as the next big thing.
As is always the case when emotions, and stock prices, are running high, investors are ignoring a number of risks. The Chinese EV startups are, well, startups—they’re vulnerable to all kinds of potential problems as they navigate the complex processes of ramping up production, organizing supply and delivery chains, and satisfying Europe’s finicky regulators. There are also geopolitical issues lurking in the background—the US house recently passed a bill that would require Chinese companies to submit to audits by US auditors or face losing their listings on US stock markets.
Today’s starry-eyed investors are forgetting (or never knew—maybe they should read a certain book) that Tesla had several near-death experiences along its road to glory, and was saved by what can only be described as several large slices of good luck. Several other would-be EV-builders that started up around the same time Tesla did later went belly-up (Coda, Better Place), while others (Fisker, Aptera) managed to survive, but have yet to deliver a vehicle, or any profit to investors.