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Why Nio and Chinese EV Stocks Had an Awful January

In Business
February 05, 2024

Electric vehicle (EV) stocks have been under pressure for several months, and the start of the year just continued that trend. That was especially true for Chinese EV names Nio (NYSE: NIO), XPeng (NYSE: XPEV), and Li Auto (NASDAQ: LI). Over the past six months, those stocks are all down by between 39% and 64%.

Returns in January contributed heavily to those declines. For the month Nio shares lost 38%, XPeng plunged 42.9%, and Li Auto lost 26%. according to data provided by S&P Global Market Intelligence.

Record EV shipments

Some of those January results even came after the three Chinese upstarts reported record deliveries in December 2023. The three combined to deliver nearly 88,500 units, a third consecutive monthly record. Investors decided to sell the news, though.

That’s because there were building headwinds that materialized in January. Competition is causing these EV makers to lose pricing power in their domestic market. Both Tesla with its Shanghai factory and China-based BYD are much larger EV sellers.

BYD, which counts Warren Buffett’s Berkshire Hathaway as an investor, delivered more than 1.5 million fully electric cars last year, most of which were in its home country. Those two much larger players have been cutting prices to spur sales. That’s hitting smaller EV companies like Nio, XPeng, and Li Auto. Investors aren’t waiting around to see how negatively those price wars are impacting the bottom lines.

At the same time, China’s economic recovery is sputtering. That’s keeping some consumers from making large purchases including expensive electric cars. January vehicle sales numbers confirmed the slowdown. Nio, XPeng, and Li combined to deliver under 49,500 units in January, down 44% from December 2023.

Are Chinese EV stocks now a buy?

The Chinese government is trying to boost consumer spending and its domestic economy. It has addressed rules in the struggling real estate sector, taken action to add liquidity to the banking system, and is taking measures to prop up its lagging stock market.

Research firm Capital Economics still thinks China’s economy will struggle to grow even 4% this year. But it does see the government stimulus helping consumer spending that should positively contribute to economic growth.

That doesn’t mean things will turn around quickly for the EV makers, though. Nio reported a net loss of over $600 million in the third quarter, and investors shouldn’t expect to see profitability in its fourth-quarter report. XPeng’s net loss was over $500 million in its third quarter. Li Auto was the only one of the three to report a profit with $385 million in net income.

Nio did hold $6.2 billion in cash and equivalents on its balance sheet as of Sept. 30, however, while XPeng reported $5 billion. So while still unprofitable, both companies have ample cash to continue growing sales. China is the world’s largest EV market, so long-term investors who believe a transition to EVs will continue could risk investing in these companies. Achieving sustainable profitability will ultimately be what it takes for these to be successful long-term investments.

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Howard Smith has positions in BYD, Berkshire Hathaway, Nio, Tesla, and XPeng. The Motley Fool has positions in and recommends BYD, Berkshire Hathaway, Nio, and Tesla. The Motley Fool has a disclosure policy.

Why Nio and Chinese EV Stocks Had an Awful January was originally published by The Motley Fool

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