The Upcoming Catalyst That Could Move Chinese EV Stocks Nio, Xpeng, Li Auto

Chinese electric vehicle stocks have seen some moderation in momentum in recent sessions. One upcoming catalyst could lift the stocks out of this lackluster phase: the January delivery numbers that are due next week. 

Finding The Sweet Spot In China's EV Market: China is a hot EV market, both from the perspective of the addressable market opportunity and supply.

"China is a greenfield EV market opportunity for many well positioned auto players as we believe overall EV sales can potentially double in the region over the next few years given the pent-up demand for EV vehicles from customers across all price points," Wedbush analyst Daniel Ives said in a note.

Goldman Sachs analyst Fei Feng estimates EV penetration, including battery electric and plug-in hybrid vehicles, will increase from 5% in 2020 to 20% in 2025, 53% in 2035 and 80% in 2050.

Xu Haidong, the deputy chief engineer of China Association of Automobile Manufacturers, said in a summit late last year that China's EV sales might reach 1.8 million units in 2021 — up 40% from a year earlier — thanks to stable economic growth, continuous stimulus policies on vehicle consumption and sales promotions by manufacturers.

Yet the supply side is crowded with homegrown startups, international pure-play EV company Tesla Inc TSLA and traditional automakers all vying for a piece of cake.

Among the players in China, the standouts include Nio Inc – ADR NIO, Xpeng Inc – ADR XPEV, Li Auto Inc. LI and WM Motors, backed by both Baidu Inc BIDU and technology conglomerate Tencent Holdings ADR TCEHY.

Deutsche Bank Securities analyst Edison Yu said the firms are collectively the "Fab Four" of the China EV market.

Nio On Record Streak: Nio, which has a premium positioning in the China EV market, has been reporting record delivery numbers of late.

After the COVID-19 pandemic affected sales in the first two months of 2020, the company acquitted itself credibly through a series of innovative measures and technological enhancements.

The company ended 2020 on a high, having delivered a record 43,728 vehicles for the year. It has been churning out record monthly numbers since August 2020.

In December, Nio delivered a record 7,007 vehicles, comprising 2,009 ES8s, 2,493 ES6s, and 2,505 of the company's newly launched EC6s.

Deliveries are sitting at a not-so-robust pace of 1,598 in January 2020.

Given that Nio announced it would make good the reduction in government subsidies for vehicles purchased through Jan. 10 and a limited period zero down payment option, the pace of sales will likely have accelerated further.

Nio's battery-as-a-service scheme has already begun to show a positive impact on sales.

Related Link: Nio Analyst Sees Meaningful Tailwinds For EV Brand's Sales Volume

Xpeng Makes The Right Noises: Xpeng, which listed its ADSs on the NYSE in late August, has also joined the party.

"XPeng is well positioned to take market share in the mid-tier and lower premium market, delivering a tech-centric 'smart' experience through pushing the limits of its ADAS features and cockpit user interface functionality, especially in voice recognition," Deutsche Bank's Yu said in a note.

Xpeng — which sells the G3, an EV SUV and the P7, an all-electric sedan — is expected to launch a new sedan with lidar technology this year.

Earlier this week, the company launched a major over-the-air upgrade for its P7 sedan customers in China, delivering a new version of XPeng's operating system, Xmart OS 2.5.0.

In December, Xpeng delivered a record number of 5,700 vehicles, a 326% increase year-over-year and a 35% increase month-over-month.

For the year, the company delivered a total of 27,041 vehicles, a 112% increase year-over-year.

Li Auto's Robust Performance: Li Auto also turned in a stellar December performance, with deliveries of 6,126 Li ONEs in December and 14,464 units for 2020. The monthly performance represented increases of 31.9% month-over-month and 529.6% year-over-year.

Chinese EV Stock Performance: Nio shares ran up to record highs of $66.99 Jan. 11, reacting to the Nio Day event held Jan. 9. Since then, the stock has pulled back.

Xpeng, meanwhile, peaked at $74.49 Dec. 24 before pulling back. After moving roughly sideways thereafter, the stock has staged a comeback in recent sessions. 

Li Auto is witnessing a lean patch after it hit an all-time high of $47.70, also on Dec. 24.

The upcoming week's delivery numbers and the imminent fourth-quarter results could be the key to determine which way the stocks are headed.

Photo courtesy of Nio.