A series of economic stimulus has boosted the performance of stocks in the electric car sector traded in the United States (US). It even outperformed Tesla’s stock, which is the leader in the electric car market.
Bloomberg, Monday (27/6) reported that the stock performance of Nio Inc., XPeng Inc. and Li Auto Inc. each has soared at least 64% over the past month and is one of the highest-earning stocks for Chinese stocks.
These conditions reflect positive sentiment after they faced a slump for months on concerns over high market valuations and supply chain bottlenecks.
Their gains easily beat Tesla’s 17% gain, boosted by Chinese stimulus sentiment. Meanwhile, investors are still concerned that Elon Musk’s efforts to fund a Twitter deal are weighing on Tesla’s share price.
Previously, China’s electric car industry was at its lowest during the lockdown. So not a single car could be sold last April and factories were forced to close under strict restrictions.
Since then, authorities have launched a series of stimulus measures to revive the sector, including granting subsidies and higher quotas for car ownership in Shanghai and Guangdong, and a possible extension of the purchase tax exemption for new energy vehicles.
Fund Manager at LW Asset Management Advisors Ltd. in Hong Kong Andy Wong said the flow of funds had spurred the purchase of electric cars. But that’s only a longer term upside potential when cases spike again.
Meanwhile, Tesla’s stock has seen a big swing and is down about 36% from this quarter’s high in April, despite the company’s aggressive return to production in China.
The US automaker’s looming layoffs, uncertainty over Musk’s Twitter deal, and his recent comments about new factories in Germany and Texas losing money kept stocks in check.
The market performance is also a symbol of the divergent growth and policy outlook in China and the US. To date, China’s Nasdaq Golden Dragon Index has fared better than the broader Nasdaq index by nearly 18 percentage points.
Because Chinese companies are expected to use policy stimulus. Meanwhile counterparts from the US languish under aggressive monetary tightening and fears of a recession. But after the gains made by Chinese electric car companies, investors are looking for further catalysts that can maintain momentum.
In 14 days, the Li Auto index is at 84 levels, well past 70 which is a signal to investors that the stock is overbought. Meanwhile, the projections for XPeng and Nio shares are at 70.
The increase in shipping numbers offers some comfort as China’s economy is gradually recovering from the damage wrought by the Covid-19 lockdown. Li Auto, which has the largest market cap among the Chinese trio, shipped 11,496 units in May, up 176% from April and more than doubling last year’s level.
“Looking ahead, we think the catalyst will come from earnings and the economy is improving as most of the good news for China’s auto sector has been factored in,” said Eason Cui, analyst at Sunwah Kingsway Capital Holdings Ltd.