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Industry data shows that China’s new car market is now 40% electric and hybrid. That contrasts with just 7.2% across the United States, JL Warren Capital’s Junheng Li said in a note, adding that penetration is expected to reach only 12.5% over the next two years. Ford and GM are backing away from their electric car plans. New Treasury rules taking effect Jan. 1 make many US EVs ineligible for federal tax credits because the cars still rely on China-made batteries. In China, where Beijing clearly wants to support its electric car industry, the market is expected to not only grow but also become more competitive for existing and new entrants. More than 100 new EV models are expected to be launched next year, HSBC China auto analysts said in a Dec. 20 report. “Among EVs, we prefer BYD and Li Auto for their consistently strong monthly sales volumes and better profitability compared to peers,” the analysts said. HSBC has given buy rating on both the stocks. Earlier this month, analysts raised their price target for US-listed Li Auto to $56. That’s up nearly 70% from where shares closed Thursday. Li Auto sells premium priced cars that come with fuel tanks to charge the batteries, which is a big attraction for range-conscious consumers. The startup’s deliveries have grown to more than 40,000 cars per month, far exceeding its competitors – and its own expectations. Of China’s 13 major automakers, Tesla is the only company other than Li Auto that is on track to exceed its 2023 sales target, JL Warren’s Li said. Shares of Lee Auto reached a record high in August but have since pared their gains. “The market reaction is mainly driven by increased concerns over rising marginal discounts and competitive pressure, particularly due to new model launches from peers such as the AITO M7/M9,” HSBC analysts said in a Dec. 13 note. “However, we believe that these impacts have been largely priced in.” “We expect Li Auto’s growth to be sustained over the coming 12 months, supported by a strong product cycle,” the report said. Li Auto plans to begin deliveries of its first battery-only model in February, and aims to launch three more in the second half of 2024. Expected government support on the consumption front also makes so-called new energy vehicles a relatively favored sector for the year. Further, said Ding Wenjie, investment strategist for global capital investment at China Asset Management Company. Chinese automakers, including Li Auto, are turning to technology ranging from electric to driver-assistance to differentiate their products. Huawei is set to reveal details about its latest Aito car, the M9, on Tuesday. Aito is a new energy vehicle brand co-developed by Huawei, which provides the technology while another company, Ceres, builds the vehicles. It’s a business model that Huawei is adopting with at least four automakers in China. “With more than 10,000 Huawei-backed EVs expected to be launched in 2024 and customers’ renewed interest in smart driving with its full-stack ADS solution, Huawei is poised to become a key player in China’s smart car ecosystem,” Jefferies analysts said in their 2024 report. “It is well positioned to accelerate growth.” Autos Outlook, published earlier this month. “We prefer Changan Auto and Foryu Corp in the Huawei value chain,” the report said. Foryu is an auto parts company, while Changan Automobile is a state-owned manufacturer of cars. In addition to the existing business partnership with the telecom giant, Changan announced a joint venture with Huawei in November. “Given Huawei’s technological leadership, we believe Changan will benefit from this collaboration in the long term,” HSBC analysts said in a Dec. 13 report on the automaker. At the moment, Changan’s electric car brands are seeing sales growth, but not enough to shake it up. HSBC maintained its Hold rating and 18.50 yuan price target. Changan’s Shenzhen-listed shares closed at 17.07 yuan on Thursday. — CNBC’s Michael Bloom contributed to this report.