It seemed like things could go wrong for Chinese electric vehicles in 2020. Now it seems like nothing can go well. And despite calls from analysts to buy stocks, these once-high stocks simply won’t rise.
The recent trading action is either a huge opportunity for the EV bulls, or it shows the bears may have been right and Chinese EV stocks like NIO and XPeng just got too expensive. But while investors stay on the sidelines, Wall Street analysts are doubling down on those shares.
(ticker: NIO) in 2020 are up about 1,100%. Its growing shipments and new product launches have helped convince investors that electric vehicles are the future of personal transportation and that NIO will be a long-term winner in the market. As a result, the shares were trading about 16 times their estimated 2021 sales earlier this year.
By comparison, TSLA shares started trading this year at about 12 times what it was estimated in 2021.
However, NIO shares have dropped about 20% since the beginning of the year. And they’re struggling to break out of this funk.
This week, for example, should have been good for all EV stocks. Tesla’s first-quarter shipments, which were reported on April 2, exceeded analysts’ expectations, showing that demand for electric vehicles is still strong and that the global shortage of car microchips may be less of an issue than anticipated. At the beginning of this week, the sector showed gains on the news, but this quickly faded away. Then the sale of convertible bonds was announced by
(LI) on Wednesday reduced shares of all three Chinese electric vehicles.
Although stocks rebounded on Thursday, NIO shares were still down about 3% in a week, up from about 2% in a week.
Dow Jones Industrial Average
an increase of 1%. Peers NIO
(XPEV) and Li Auto lost about 4% and almost 9% over the week, respectively. Tesla shares are up about 3%.
There are many issues that can shake the credibility of these stocks. First, higher interest rates have influenced the valuation of many fast-growing stocks.
Another problem is the lack of car chips. During the global pandemic, the global semiconductor industry was caught off guard as it ramped up production of new generation chips and reduced production of old ones. As a result, cars are in short supply and many automakers are closing factories in anticipation of an improvement in the supply situation.
Raising capital from companies, including
(QS) and Lee – also affects trade. Investors don’t like it when their shares are diluted by new stocks. In addition, capital increases by any company are a small signal that the company’s management is happy with the current share price. Management teams, like investors, don’t like to sell cheap.
Even Tesla’s success could pose a new challenge for Chinese EV makers. Part of Tesla’s success has been strong sales of its new Chinese-made Model Y crossover. With so many EVs entering numerous markets around the world, growth is a little harder than 2020.
One group that isn’t worried about Chinese EV stocks, however, is brokerage analysts. They are very optimistic and have raised their target prices for all three stocks in 2021.
The average NIO price target for analysts is now around $ 61 per share, up 32% from today. This represents an increase of almost 60% over recent levels. XPeng and Li’s target prices rose less sharply, but analyst average target prices for the two companies suggest an increase of about 50% and 60%, respectively.
Such high expectations for stocks to rise are not typical of Wall Street. The Dow Jones Industrial Average is typically less than 10%. But analysts love these three Chinese EV stocks, with over 70% of the ratings in the top three Buy. The average purchasing power ratio of stocks in the S&P 500 and Dow is less than 60%.
Analysts remain bullish, even as investors want to appear more than just high demand for electric vehicles.
Email Al Ruth at [email protected]