The Chinese EV Automarket Is About To Boil Over

Demand For EV’s Surges In China And The Outlook Is Bright

New data out of China has the entire EV market moving higher. Well, most of it anyway. There are still some highly speculative names in the industry and not all of them participated in the rally. The data? That demand in China is on the rise and stronger than previously expected. Not only is it stronger than expected but the data out of China is so robust the official long-term targets have already been hit.

China had been expecting EV sales to reach 5.0% of the total Chinese auto market by 2025. That goal was met last year spurring an upward revision to 20% by 2025 and we’re well on the way to hitting that goal already. EV sales are expected to top 40% growth in 2021. China is expecting the volume to top 1.8 million units and account for 6% of the total auto market. Looking forward, the outlook for growth does not diminish. The four-year CAGR is in the low-40% range and may tick higher if the December 2020 data is any indication.

Deliveries In December Top The Consensus

China’s top EV automakers experienced a surge in demand in 2021 that only accelerated throughout the second half of the year. The December delivery figures set another new all-time record with all the major manufacturers participating.

• Li Auto (NASDAQ:LI) reports sales grew 32% from November to December with December’s figure up 530% from the previous year and Q4 up 67% from Q3. The company manufactures a line of EV SUV’s and is a possible partner for Apple’s iCer development.
• NIO (NYSE:NIO) is another EV SUV manufacturer with operations in the UK and Germany as well as in China/Asia. The company reported a 121% YOY increase in December deliveries to set a monthly record. The 7,007 vehicles delivered is up 32% from November which was also an all-time record. NIO could become the next Tesla as it is looking into launching a line of sedans.
• Xpeng (NYSE:XPEV) has a smart SUV and smart sedan in production to help it drive sales. The company reported a 326% YOY increase in monthly deliveries that drove a 303% increase for the quarter. December deliveries accelerated to 51% QoQ and are expected to continue accelerating at a high-double digit pace in 2021. The next two quarters should be very strong because mass deliveries only began over the summer. The comps in calendar Q1 and Q2 may even accelerate from the 303% set in the Q4 period.
• Tesla (NASDAQ:TSLA) says it delivered 180,570 cars in the Q4 period to top the consensus mark. Sales for the year came in at 495,550 vehicles delivered to fall short of the 500,000 guidance but who cares. The company missed by less than 500 vehicles after shutting down operations for an extended period. Looking forward, the 40% growth expected for China in 2021 will equate to high-double digit growth for Tesla’s China operations as well.

A not-so-surprising factor is that demand is surging in the face of declining incentives to buy. China subsidizes not only the automakers but the buyers as well and those benefits, while extended, will eventually expire and are scheduled for periodic decreases. The upshot is that incentives are expected to linger into 2023 and possibly beyond and could lead to ever-increasing demand. The closer the incentives are to expiring the more incentive there will be to buy.

China’s EV Stocks Move Higher

Shares of China’s EV stocks surged on the news with Li Auto and NIO leading the pack. Those stocks both gained more than 10% to confirm support at major moving averages. The chart of NIO, in particular, is interesting in that an obvious uptrend is confirmed not only by price action but by both stochastic and MACD. The two indicators are both showing bullish crossovers in line with prevailing trends and both have plenty of room to room. Investors should expect to see price action in NIO retest the recent highs at least. If price action breaks to a new high shares of NIO could see a gain of $15 to $25 or roughly 27% to 45% upside.