Investing.com — China's electric vehicle industry, which has faced a tough time, is seeing a change in investor sentiment.
As the industry enters its typical peak day period, there is a renewed sense of optimism driven by a combination of macroeconomic factors, emerging sector trends, and strategic moves by key players.
“Market sentiment showing early signs of improvement in September due to seasonal 4Q sales likely to be better than expected,” Morgan Stanley analysts said.
This is fueled by the introduction of another trade-in subsidy from local governments, ranging from RMB 10,000 to 15,000, which is expected to encourage car purchases without requiring mandatory scrapping.
Additionally, the anticipated release of highly anticipated electric vehicles such as Onvo L60, Zeekr 7x, XPeng (NYSE:) P7+, and Denza Z9 created buzz.
The outlook for the sector is also supported by positive market volatility and volatility in growth/value factors, consistent with expectations of a rate cut. Despite these positive signs, concerns about weak consumer spending in China remain.
The recent success of Xpeng's M03 has set a precedent, encouraging investors to keep a close eye on the upcoming launch of high-end models.
Onvo L60, Zeekr 7x, and Xpengng P7+ are seen as potential triggers for the stock's performance. The anticipation surrounding this launch reflects the eagerness of investors to identify stocks ready to benefit from new market entrants.
Although overseas sales have faced challenges in recent months due to high costs and inventory adjustments, global markets remain an important area of focus. Discussions with original equipment manufacturers (OEMs) suggest that international growth is important, especially given the risk of market saturation within China.
“Importantly, we think that global strategic convergence is the key to dealing with the world's conflicts,” analysts said.
Price competition continues to shape market dynamics. Although automakers are using reasonable pricing strategies, the price war is expected to continue. OEMs are likely to engage in price competition for key models, such as BYD's Han and Xpeng's M03.
Additionally, luxury brands may revisit price competition following the third-quarter sales decline. The development of intelligent driving technology and urban navigation assistance (NOA) remains a focus point.
The scheduled release of Tesla's robotaxi, despite the delay in full self-driving (FSD) functionality, serves as a signal for the industry. Chinese players are accelerating their development of L2+ and urban NOA technologies in response to Tesla's efforts.
Among the stocks drawing investor interest are BYD (HK: ), NIO, Xpengng, Li Auto (NASDAQ: ), Zeekr, Geely, and Great Wall Motor.
BYD, often seen as a safe haven amid market volatility, continues to attract attention. Analysts expect BYD to achieve sales of 4 million units this year, with projected growth of 20-25% next year.
The focus is on improving the car's profitability, which is expected to be RMB 10,000+ per unit in the second half of the year.
Despite its strong presence in major markets, BYD's performance in high-end and international markets remains under scrutiny.
NIO has recently seen an increase in investor interest, especially with the expected launch of the L60. This event is expected to trigger a short volatility squeeze and potentially strong returns.
However, the recent rally in NIO shares may already be in the near-term plans. Future performance will depend on the successful ramp-up of production and the successful conversion of pre-orders into actual sales.
Xpeng's stock has received more attention, with confirmed orders showing an increase. The company's target of 20,000 deliveries in September, including 8-10,000 units of the M03, appears to be within reach.
The success of the M03 and the upcoming launch of the P7+ are expected to drive investor interest. Xpeng's Tech Day on October 24 is expected to provide significant updates to its autonomous driving and powertrain technologies.
Li Auto's guidance for monthly sales of 45-50,000 seems achievable, supported by a strong weekly run rate. The company's strong quality control and cost management is expected to improve profits in the second half of the year. Investors are looking for updates to Li Auto's BEV lineup and additional PHEV models to drive sales growth.
Zeekr has also attracted more investor interest, focusing on its valuation relative to its startup peers. The upcoming launch of the Zeekr 7x is expected to be a significant boost, along with a strong backlog of the Zeekr 009. September deliveries are expected to reach 20,000, strengthening the orderly pipeline.
Geely is gaining popularity as a beta play due to its attractive valuation, strong sales performance, and fair exposure in other countries. The successful launch of the Galaxy E5, with a weekly operating average of over 2,500 units, boosted investor confidence.
However, achieving a meaningful rebalancing would require significant surprises in earnings forecasts.
Great Wall Motor has seen increased interest from funds heading south, driven by strong earnings visibility and a resurgence in exports. The performance of the Tank series will be key to the company's third quarter results. While the NEV transformation is still an important issue, the diversification of new markets and the increase in market share in China are important for a potential rebalancing.
