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With Apple reportedly out of the electric car game and Tesla losing market share in some Chinese cities, the best EV stock play is arguably now located in China. The country is the world’s largest auto market, with new energy vehicle penetration at least 30%. Most of those cars come from domestic brands. Morgan Stanley analysts said in a February 28 report that Tesla China lost market share in January, primarily in China’s larger cities, “despite price cuts” announced that month, with last month’s sales falling. The distribution was observed. The report said Xpeng and Nio lost share in all regions, while BYD made gains in major cities but suffered losses in less developed regions, where it saw increased competition from state-owned players. Li Auto’s market share declined, and Morgan Stanley analysts are watching whether new models will provide a boost. The automaker on Friday announced its first fully battery-powered car, a multi-purpose vehicle called the Li Mega. All of Li Auto’s cars so far are SUVs which are technically hybrid as they come with a fuel tank to charge the battery. That product strategy addressed consumers’ category concerns, and propelled Li Auto to thousands of vehicle deliveries a month, making it a best-seller among its startup peers. Earnings Top Expectations The U.S. and Hong Kong-listed company last week reported earnings that beat FactSet forecasts — and prompted some analysts to raise their price targets. “Following our upgrade earlier this month, Li Auto delivered impressive earnings/guidance, solidifying its position as a top-tier China OEM,” Deutsche Bank analysts said in a report in late February. He rated the stock a Buy and raised his price target from $9 to $50 per share. That’s up nearly 9% from where shares closed Thursday at $45.88. Part of their thesis comes from the automaker’s high gross profit margin, which came in at 23.5% in the fourth quarter, above the expected 21%. Li Auto management said they expect gross margins to fluctuate between 10% to 25%, but generally to be above 20%. “Despite the ongoing price war, gross margins are proving more resilient than feared,” Deutsche Bank analysts said. Li Auto shares have risen more than 20% so far this year. Deliveries in February were relatively low at 20,251 cars, which the company attributed to the week-long Lunar New Year holiday that month and the upcoming launch of new models. But the startup still predicts the possibility of 50,000 car deliveries in March. Analysts at Bank of America Securities last week raised their forecasts for Li Auto’s sales volume and earnings per share – increasing their price target by $9 to $57 per share. BofA rates the stock a Buy. Li Auto plans three more battery-only cars on the market, and it is starting deliveries of its new Li Mega this month. New competition? But even with its premium price, the company is not immune to the intense competition in China’s electric car market. Aito, a new energy vehicle brand developed by Huawei, claimed it delivered 21,142 cars in February – more than Li Auto – and said its new M9 SUV had more than 50,000 orders. The brand sells cars at slightly lower prices than Le Auto, and does not offer any MPVs yet. Ceres, the auto maker behind the Aiton, said on Friday it produced more than 32,000 cars in February, nearly 250% more than a year earlier. Shanghai-listed Ceres shares are up 21% so far this year. Chinese smartphone company Xiaomi is also targeting its 20 million premium users with its upcoming car, its president Weibing Lu told me last month. Top officials are paying attention. Chinese President Xi Jinping on Thursday called for more support for new energy vehicle development, especially by building charging infrastructure. Separately, the White House said Thursday the US is launching an investigation into whether Chinese vehicle imports could pose a national security threat. While the US remains a difficult market for Chinese automakers, their electric cars are in Europe and moving into other markets. China competed with Japan for the most car exports globally last year. Having long stuck to a China-first strategy, Li Auto said last week it would begin overseas deliveries by the end of this year, after establishing local sales and services in the Middle East and Central Asia. Nio, which delivered just over 8,100 cars in February, said last week it had entered into a technology license agreement with Forceven, a subsidiary of Abu Dhabi-owned CYVN Holdings. Nio already sells cars in Norway and other parts of Europe. The company is set to release fourth-quarter earnings before U.S. markets open on Tuesday. — CNBC’s Michael Bloom contributed to this report.
