Li Auto comes to the rescue for EV stocks

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  • China’s Nio stock rises more than 4% on Monday.
  • S&P 500 falls on Monday as market closes lower.
  • Li Auto earnings were the catalyst for EV stocks on Monday.
  • NIO shares lost more than 12% last week after JPMorgan downgraded the company.

 

Nio (NIO), a Chinese electric vehicle (EV) maker, started off on a better foot on Monday after the previous week’s pullback. More successful competitor Li Auto (LI) trounced the earnings forecast for its most recent quarter on Monday, sending Nio stock up more than 4%.

In addition to Nio, Li Auto’s success helepd XPeng (XPEV) rise 6.8%, sector leader BYD (BYDDY) add 4.6.%, and Tesla (TSLA) rise 3.9%. Tesla CEO Elon Musk has spoken glowingly about competition from Chinese automakers in the EV realm.

This upswing follows last week when Nio shed more than 12% as a result of receiving a major downgrade from Wall Street, as well as worries over reduced demand for lithium.

The stock market in the US was largely lower on Monday. The S&P 500 lost 0.38%, while the NASDAQ and Dow Jones receded more moderately. 

NIO follows on the coattails of China’s Li Auto

Li Auto reported diluted net earnings per American Depository Share (ADS) of $0.75 in the fourth quarter, greatly surpassing the figures from one year prior. Net income rose over 2,000% from a year ago. 

Revenue of $5.88 billion surged 136% from a year ago as the company continued to ramp up its operations. Total vehicle deliveries soared 185% from the final quarter of 2022 to 131,805 in the fourth quarter.

Besides the extreme increase in vehicle deliveries, Li Auto’s operating margin increased from -0.8% to 7.3% in just one year, allowing the company to translate the increase in revenue to the bottom line.

Nio investors will have to ask themselves if their investment in NIO stock is benefited by Li Auto’s success. Nio has experienced a trying time over the past year, while Li Auto has appeared to eat its electric lunch. This may be because Nio is a pure EV play, while Li Auto offers a suite of hybrid vehicles.

Nio stock sank last Friday after receiving a downgrade from JP Morgan. The investment bank lowered its price target on NIO stock to just $5 a share, and the once-prized company now trades at one-tenth of its value during the pandemic equity bubble. The company is no longer prized by Wall Street as China’s economy wades through an era of difficulty in the property market that has caused pessimism to spread throughout other domestic industries. 

EVs more generally experienced risk-off sentiment last week after an Albemarle (ALB) executive lowered his outlook on lithium demand in 2030 due to the current leveling off of demand seen by multiple electric automakers.

 

EV stocks FAQs

Electric vehicles or EVs are automobiles that use rechargable batteries and electric motors to accelerate rather than internal combustion engines (ICEs). They have been around for more that 100 years, but battery technology research & development was meager for much of the 20th century. Lithium-ion battery technology became advanced enough to produce EVs at scale in the late 1990s and 2000s, and sales have been steadily increasing since then Tesla’s Roadster was unveiled in 2008. EVs are viewed as a means of reducing carbon emissions since battery electric vehicles (BEVs) themselves produce zero emissions. Other vehicles called plug-in hybrid electric vehicles (PHEVs) utilize both battery electric power and ICEs as a backup.

EVs are growing from a small base, but they rose from 9% of global new auto sales in 2021 to 14% of the total in 2022. This was a 65% YoY growth rate, and the industry delivered 10.2 million EVs worldwide in 2022. Projections show this number climbing above 16 million in 2023. Across the world, market shares differ greatly among nations. Nearly 88% of Norwegian new car sales in 2022 were EVs. On the other hand, the United States, where much of the modern innovation in EVs was forged, had less than 8% of new vehicle sales go to EVs in 2022. The largest EV market in the world, China, saw 30% of the market go to EVs that year.

We know you’re thinking Elon Musk, but he’s probably more like the father of the mass-market, contemporary EV. All the way back in 1827, a Hungarian priest named Anyos Jedlik invented the electric motor and used it the following year to power a vehicle of sorts. French scientist Gaston Planté invented the lead-acid battery in 1859, and German engineer Andreas Flocken built the first true electric car for the public in 1888. EVs made up about 38% of all vehicles sold in the US around 1900. They began losing market share rapidly after 1910 when gasoline-powered vehicles grew much more affordable. They largely died off until new research programs in the 1990s led to gradual private sector investment in the 2000s.

China’s BYD is by far the largest manufacturer of EVs in the world. In 2022 it sold 1.8 million EVs and in the second half of the year made up 20% of the global market. The asterisk given to BYD is that the vast majority of these vehicles are hybrids. Tesla’s 12% market share is often treated as more significant than BYD, because it only sells BEVs and is the most famous EV brand in the world. Volkswagen, BMW and Wuling then round out the top five. As a new sector with heavy investment though, many startups have flooded the market. These include China’s Nio, Li Auto and Xpeng; a Swedish-Chinese manufacturer called Polestar; and Lucid and Rivian from the US.

Nio stock forecast

Nio stock closed up 4.6% to $5.65 on Monday. The stock is certainly in a downtrend and will be until the February 16 range high at $6.34 is overcome. For now, the February 5 low at $5.30 is the place of near-term support. 

On the Moving Average Convergence Divergence (MACD) indicator, a bullish crossover has been in tow for most of February, but it looks unappealing due to its sideways action and latitude below the zero threshold. 

Bulls need Nio stock to confidently surmount the 20-day Simple Moving Average (SMA) just above $5.80. Holding above this SMA for several sessions could allow more bulls to daydream about the 50-day SMA at $6.90. For any of that to happen, Nio stock requires a larger catalyst than living vicariously through Li Auto’s earnings.

NIO daily stock chart

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