Here’s the key risk for Nio, Xpeng, and Li Auto stocks

By: Invezz

Chinese EV companies stocks continued their downward trend on Monday as investors continued dumping the country’s equities. Shares of companies like Nio (NIO), Xpeng (XPEV), and Li Auto (LI) have plunged by more than 16% in the past 30 days. Nio and Xpeng are down by 60% from their highest point in 2023 while Li Auto has slumped by over 40%.

Li Auto vs Xpeng vs Nio

American EV companies are also struggling

To be clear. Chinese EV companies are not the only ones that are plunging. In the United States, companies like Tesla, Mullen Automotive, Fisker, and Faraday Future have all plunged. This sell-off is mostly because of negative headlines in the industry. 

For example, earlier this year, Hertz announced that it would sell its EV cars, citing weak demand and high maintenance costs. This was a notable development since Hertz is one of the biggest fleet providers in the United States with over 424 cars, 

The implication is that other fleet companies in the United States like Enterprise and Sixt will avoid EVs. Most importantly, by flooding relatively new vehicles to an already-saturated market. Indeed, recent data shows that used EV prices are already in a freefall.

There have also been other negative headlines about EVs in the past few months. For example, Ford announced that it would be slashing its Lightning vehicle as demand cooled. This is an important thing since the Ford F-150 is the best-selling truck in the US.

The average price of a used Tesla has declined 18 months in a row, moving from a record high of $67,900 in July 2022 to a record low of $35,844 today (-47%). $TSLA

— Charlie Bilello (@charliebilello) January 19, 2024
Chinese EV companies are facing huge challenges

Chinese companies like Nio, Xpeng, and Li Auto are face numerous challenges as they continue to work on gaining market share in China, Asia, and other markets. The biggest issue is that most of them are boosting their production at one of the fastest paces in the world.

Let us look at some numbers. Nio made over 160k vehicles in 2023, a 30% increase from the previous year. Byd, the biggest EV company in the world, made over 3 million cars and it hopes to ramp up production this year.

Meanwhile, Xpeng made over 150 vehicles while Li Auto made over 300k vehicles. These are huge numbers considering that these are fairly new companies that started manufacturing a few years ago. They are also boosting production substantially.

The challenge of all this is that the Chinese economy is not doing well, as evidenced by the plunge of equities and the ongoing deflation. As such, the impact is that these companies will need to lower prices in a bid to stay competitive, which will hurt their margins.

Many of these companies have also started expanding internationally, especially in Asia and Europe, where they are facing more competition. The impact of all this on margins is becoming clear. Tesla’s margins continued falling last year.

In the last earnings report, Nio said that its gross margin dropped to 8% vs 13.3% in the same quarter in 2022. Vehicle margin fell to 11% from the previous 16.4%. Xpeng reported a negative gross margin of 2.7% as vehicle margin fell to 6.1%. Li Auto is the only EV company that improved its margins but there are questions about how long that will last. Therefore, the outlook for Nio, Xpeng, and Li Auto is broadly bearish as these events play out.

The post Here’s the key risk for Nio, Xpeng, and Li Auto stocks appeared first on Invezz

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