China's EV Market Ready To Charge Higher

EV's Take Market Share In China 

The latest data out of China shows that not only is China's auto market back to pre-pandemic levels but the EV market continues to take share. Data from China's Passenger Car Association show sales of passenger vehicles in the nation grew 70% in the first quarter and totaled 5.09 million. This is shy of the Q1 high set back in 2018 but well within striking distance. Based on the March data sales were accelerating into the Q2 period (up 75% versus 70% for the quarter) so it is very possible we'll see a new all-time record, if not a Q1 record, very soon.

The best news is that within China's car sales, sales of NEVs, or what China calls New Energy Vehicles, surged 239% to make up nearly 10% of all cars sold. With this acceleration in the data, China reaffirmed its goal for cars to be carbon neutral by 2060 and we think it may come much sooner than that. The bottom line is that China's EV market is hot and one we want to be a part of. 

Nio Is Leading In China 

Discounting competition from Tesla (NASDAQ: TSLA), automaker NIO (NYSE: NIO) is China's leading EV manufacturer and has been ramping production steadily over the past year. The company reports 20,060 deliveries in the Q1 period or up 423% from last year. The strength is driven by sales of all three models and is not expected to abate. Based on the data, deliveries are still accelerating and should easily set a new record in the Q2 period as well. On a month-to-month basis, the company reported 7,257 deliveries in March or up 373% and 25% ahead of the consensus target they themselves guided the market to adopt. The strength is noteworthy because of the global semiconductor shortage as well, a shortage that caused Nio to halt production for a full five days. 

Analyst Dan Ives at Wedbush was quick to call the company out following the news citing the same strength that we see. In his view, the EV market is entering a Golden Age fueled by government policy and increasing consumer demand.  n our view, the recent news out of the White House should usher in a green tidal wave regarding the EV akin to what we're seeing in the EU and China. This will boost not only the U.S. market but Chinese manufacturers as well because it will bolster the global supply chain, increase battery and semiconductor availability. 

XPeng (NYSE: XPEV) is another of China's EV manufacturers ramping production by triple digits. This company logged a record 13,340 of its smart EVs with a stunning 130% month-to-month increase in the March period. The company attributes the strength to the growing popularity of its brands as well as the launch of new models. XPeng's smart EVs offer a different experience from the standard model including autonomous driving. XPeng's P7 fleet has achieved a record low 0.71 driver interactions per 100 KM, a feature we think will continue to drive sales. 

The Technical Outlook: Nio Consolidates At Support 

Shares of NIO got a boost from the Q1 figures but not enough to spark a full reversal, at least not yet. Price action is still trading below the short-term moving average and appears to be under some pressure albeit weak pressure in the face of robust results. In the near term, price action may move down to retest support at the $34.50 level but we think it will bounce if it does. In that scenario, we expect to see shares of NIO begin moving higher and possibly test the $50 or $60 level before the next earnings report. If not, price action may fall through $34.50 in which case the $30 and $20 levels look like the best targets for solid support.