(June 25): Shares of Chinese electric vehicle (EV) makers crush global industry leader Tesla Inc, buoyed by consumer incentives from Beijing and massive investor buying.
U.S. certificates of deposit from Nio Inc, XPeng Inc and Li Auto Inc have jumped at least 64% each over the past month to be among the top gainers in Chinese stocks traded in the United States. The strong rally reflects improving sentiment after a months-long slump on concerns over high valuation and supply bottlenecks.
Their earnings easily beat Tesla’s 17% lead, with the divergence of China and US policy outlooks and investor jitters over how Elon Musk will fund a potential Twitter Inc deal weighing on the price. of the action of the electric vehicle giant.
China’s electric vehicle industry bottomed out during Shanghai’s lockdown — when not even a car was sold in the city in April and factories were forced to close or operate under heavy restrictions. Authorities have since unveiled a series of stimulus measures to revive the sector, including subsidies, higher quotas for car ownership in Shanghai and Guangdong, and a possible extension of the purchase tax exemption. for new energy vehicles.
“There are fund flows that are buying the dip and capturing the rebound in the sector,” said Andy Wong, fund manager at LW Asset Management Advisors Ltd in Hong Kong. However, near-term upside potential has narrowed following the recent surge, he noted.
Meanwhile, Tesla shares have seen huge swings and are down about 36% from their peak this quarter in April, even as the company made a remarkable comeback in terms of production in China. The U.S. automaker’s impending job cuts, uncertainty over Musk’s Twitter deal and his latest comments about new factories in Germany and Texas losing money are keeping the stock in check.
The market performance is also emblematic of the divergence in growth prospects and policies in China and the United States. Year-to-date, the Nasdaq Golden Dragon China index has outperformed the broader Nasdaq indicator by almost 18 percentage points as Chinese companies are expected to benefit from stimulus measures, while their US peers languish. under aggressive monetary tightening and fear a recession.
Yet after such dizzying gains in Chinese electric vehicle stocks, investors are looking for other catalysts that can sustain the momentum. Li Auto’s 14-day Relative Strength Index is at 84, well above the 70 level that signals to some investors that the stock is overbought. The readings for XPeng and Nio are also around 70.
Improving delivery figures offer some comfort as China’s economy gradually recovers from the damage inflicted by Covid-19 lockdowns. Li Auto, the largest market cap of the Chinese trio, delivered 11,496 units in May, up 176% from April and more than double last year’s level.
“Looking forward, we believe the catalysts should come from earnings and an improving economy,” as most of the good news for China’s auto sector had been priced in, Eason Cui, analyst at Sunwah Kingsway Capital Holdings Ltd, wrote in a note. earlier this month.