Source: Barron's

In 2023, the global NEV market continued to grow. Bloomberg New Energy Finance predicts that in 2023, global sales of electric vehicles will exceed 14 million units, an increase of about 34% over the previous year. In the Chinese market, according to estimates by the China Association of Automobile Manufacturers, production and sales of new energy vehicles will exceed 9 million units, an increase of about 29% over the previous year.

In the process of rising sales, individual NEV stocks showed significant differences. By tracking 45 individual stocks related to new energy in the US, Hong Kong, and A shares, we are trying to find industry keywords from the past year.

After experiencing the bursting of the bubble in 2022, the stock prices of leading NEV companies picked up somewhat. As of December 29, 2023, in the US stock market,$Tesla (TSLA.US)$Leading the industry with a market capitalization of 789.9 billion US dollars and a share price increase of 101.72%; in the Hong Kong stock and A-share markets,$BYD COMPANY (01211.HK)$It ranked first with a market capitalization of US$80.7 billion;$Li Auto (LI.US)$It became the car company with the highest share price increase, and the Hong Kong stock price rose 91.54%.

Meanwhile, the share prices of NEV companies at the bottom of the US stock market continued to decline —$Faraday Future Intelligent Electric Inc. (FFIE.US)$,$Canoo (GOEV.US)$,$Workhorse (WKHS.US)$The remaining 6 stocks all fell by more than 50%.

Behind the intertwining of heat and chill, investors are gradually fading away their enthusiasm for 2020-2021 and focusing on truly profitable automakers — just like Tesla, BYD, and Ideal. In the future, NEV companies' stock price drivers may come more from fundamental performance such as vehicle sales and profitability.

Market capitalization and stock price performance of some NEV companies in 2023

The polarization of European and American auto stocks

If 2022 is the year the European and American NEV bubble burst, then 2023 is the year of market reshaping — NEV companies' stock prices are showing a “polarization” phenomenon.

According to previous statistics, at the end of 2022, the total market value of the top 10 NEV companies in the US stock market capitalization was about US$853 billion. After a year, the total market value of the top 10 car companies was 1.48 trillion US dollars, an increase of about 73% over the previous year. except$NIO Inc (NIO.US)$In addition, the stock prices of the other nine car companies all increased to varying degrees.

Among them, Tesla's market capitalization is still at its best, and its stock price increased by 101.72%, reflecting the market's recognition of its position as an industry leader. Throughout 2023, Tesla's global deliveries were approximately 1.81 million, an increase of 38% over the previous year. In the first three quarters, the company's net profit reached 7.069 billion US dollars, continuing to be profitable.

Another reason the market is betting on Tesla comes from its autonomous driving technology — Autopilot autonomous driving and FSD fully autonomous driving. CEO Elon Musk (Elon Musk) has stated many times that he believes autonomous driving will bring huge opportunities to the company — selling autonomous driving software through a “subscription” model, generating billions of dollars in sales. Even though Tesla recalled 2 million cars in December 2023 due to autonomous driving issues, the company's stock price did not drop sharply.

Traditional car manufacturers are leaning towards the field of electric vehicles and are investing more in batteries and new models.$Stellantis NV (STLA.US)$und$Ferrari (RACE.US)$The stock price showed impressive gains of 75.83% and 59.02%.$Toyota Motor (TM.US)$,$Honda Motor (HMC.US)$,$General Motors (GM.US)$und$Ford Motor (F.US)$The growth rate is relatively stable.

In contrast, the stock prices of the lowest-ranked car companies have declined markedly. except$XPeng (XPEV.US)$und$Kandi Technolgies (KNDI.US)$The stock prices of the eight car companies ranked 11-20 by market capitalization fell by an average of 70%, which is close to the 2022 performance. Most of these car companies are start-ups.

The extreme case comes from Faraday's future. As a manufacturer of ultra-luxury cars with 1,000 horsepower or more, the company's stock price peaked at 1,660 US dollars in February 2021, while the closing price on December 29, 2023 was only 23 cents. On December 29, Faraday Future issued an announcement stating that it had received a notice from NASDAQ about delisting or not complying with the rules or standards for continuing listing.

To make matters worse, Lordstown Motor Company ranked 17th with a market capitalization of US$227 million at the end of 2022 ($Lordstown Motors (RIDEQ.US)$), it was announced in June 2023 that an application to commence bankruptcy restructuring with the Delaware Bankruptcy Court in the United States was announced.

CFRA automotive analyst Garrett Nelson (Garrett Nelson) confesses,$Rivian Automotive (RIVN.US)$,$Lucid Group (LCID.US)$,$Fisker (FSR.US)$und$Polestar Automotive (PSNY.US)$“It's far from being profitable, and the speed at which money is being burned may threaten their viability”.

In previous years, market enthusiasm pushed the stock prices of related car companies to astonishing heights. Today, sales and performance are even more important — Tesla, Ideal, and BYD, which is listed on Hong Kong stocks and A-shares, all achieved sales growth in 2023. Among them, Tesla and BYD are the only two electric vehicle manufacturers that are continuously profitable, and Ideal will turn losses into profits starting in the fourth quarter of 2022.

Investment opportunities for Chinese car companies

Compared with European and American car companies, the performance of individual Chinese new energy and related automobile stocks was relatively stable. In 2023, Ideal Auto, Cyrus and$BRILLIANCE CHI (01114.HK)$The stock price increased by more than 50%; only$WULING MOTORS (00305.HK)$The stock price fell more than 50%.

Popular models and increased sales are the driving forces boosting stock prices. After the L9, L8, and L7 were delivered one after another, Ideal Auto's monthly sales broke through the 40,000 mark, reaching a critical profit scale. Delivery volume increased 180% year-on-year to 376,000 vehicles in 2023.

$Chongqing Sokon Industry Group Stock (601127.SH)$versus$Chongqing Changan Automobile (000625.SZ)$Benefiting from the Huawei Auto Matrix — Huawei and Celis partner models such as the M5 and M7, and the Avita 11 and 12 with Changan, all became popular products after launch.

The catalyst for Xiaopeng Motor's stock price is the new blockbuster G6. In 2023, Xiaopeng's delivery volume increased 17% year over year to 141,900 vehicles. Although NIO's stock price declined slightly, its 2023 delivery volume reached 159,900, an increase of 31% over the previous year.

BYD, which topped the Hong Kong stock and A-share NEV market capitalization list, reached 3,024,400 units in 2023, an increase of 62% over the previous year. Among them, in the fourth quarter, BYD delivered 526,400 pure electric vehicles, surpassing Tesla's 484,500.

Citibank analyst Jeff Chung (Jeff Chung) said in a recent report that the performance of BYD, Ideal, and the entire Chinese electric vehicle industry was “better than expected.”

Behind the rapid increase in sales is the price competitiveness of electric vehicles in China. According to JATO Dynamics statistics, in the first half of 2023, the average price of electric vehicles in China was 32,920 US dollars, down 2% year on year; the average sales price of electric vehicles in the European market and US market was 73,276 US dollars and 74,546 US dollars respectively, up 20% and 7% year on year.

“Since the price of most electric vehicles in the US is close to that of luxury cars, pure electric vehicles account for 25% of US luxury car sales, and only 3% of non-luxury car sales.” Nelson said.

Beginning at the end of 2022, Tesla triggered a “price war” for new energy vehicles, reflecting the importance of low prices in the Red Sea market. Nelson predicts that in 2024, Tesla may launch smaller and cheaper models to boost sales.

According to some market opinions, thanks to increased production and reduced costs, China maintained its leading position in the electric vehicle field, and the fact that BYD surpassed Tesla's delivery volume in the fourth quarter was a landmark event. China has introduced electric vehicle models that are less expensive than fuel vehicles, which is exactly what is needed for the transition to electric vehicles.

However, the good performance of Chinese NEV companies is not fully reflected in valuations. Currently, Tesla's price-earnings ratio (TTM) is about 76 times, BYD's Hong Kong stock price-earnings ratio is about 18 times, and Ideal Auto's US stock price-earnings ratio is about 40 times.

Even considering Tesla's autonomous driving technology, there is still a possibility that BYD, which is the target of scale and performance, will be underestimated. Bernstein analyst Toni Sacconaghi (Toni Sacconaghi) wrote in the report that judging from sales volume, revenue, and profit, Tesla and BYD are highly comparable, but BYD is growing much faster.

Looking ahead to 2024, lower valuations combined with the Federal Reserve's interest rate cuts are expected to drive BYD and Ideal stock prices into an upward channel. Analysts covered by “Barron's” gave both BYD and the ideal stock average rating “buy.”

Editor/Jeffrey