(ATF) Chinese electric vehicle (EV) maker Xpeng Inc last month signed an agreement with five banks for a 12.8 billion yuan ($2 billion) line of credit that will be used to fund its business operations and help expand its manufacturing, sales and service capabilities.
Meanwhile, Morgan Stanley shared an upbeat outlook on the performance of China’s EV startups - Xpeng, Nio and Li Auto - and raised their price targets just before the three companies reported soaring delivery numbers for January.
The five banks that signed strategic partnerships with Xpeng are Agricultural Bank of China Ltd, Bank of China Ltd, China Construction Bank Corp, China Citic Bank Corp and Guangzhou Rural Commercial Bank Co, according to a statement by Xpeng on its website.
“The strategic partnership with banks is important to Xpeng and will help the company improve capital efficiency and cost management,” He Xiaopeng, chief executive of Xpeng, said in a statement.
Xpeng raised $900 million before its initial public offering (IPO) and $1.7 billion during its trading debut on the New York Stock Exchange last August.
In December, Xpeng raised another $2.5 billion in its first follow-on public offering by selling American depositary shares (ADS) at $45 apiece. Its backers include Alibaba Group Holding and Hillhouse Capital Management Ltd.
Cheered by the success of Tesla’s EV commercialization among China’s wealthy younger generation, Chinese EV startups such as Xpeng, Nio and Li Auto are also trying to outmaneuver traditional carmakers with differentiated value propositions and product features.
All three have been actively raising funds to replenish their capitals for research and development (R&D) as well as business operations.
Besides Xpeng, Li Auto and Nio also issued additional ADS in December and raised $1.8 billion and $2.7 billion, respectively.
“The intelligent EV business requires substantial capital for the development of new car models, continuous upgrade of software features as well the expansion of technical teams... Take Nio, for example, its founder William Bin Li has had a strategy from the company’s early stage to grab the industry’s top spot by investing heavily in R&D,” David Zhang, an automotive sector analyst, said.
However, Zhang noted that Chinese EV makers’ R&D spending is dwarfed by that of Tesla. “The R&D investment by Nio, Xpeng and Li Auto, combined, is only 40% of that by Tesla,” he added.
Continuing a growth momentum from the latter half of last year, China’s top three EV startups opened the new year with soaring sales increases, albeit from last-year’s low posts.
In January, Nio delivered 7,225 vehicles in January, 352% higher than the same month of 2020, and a 3.1% rise over the December figure, according to the number it announced on Monday.
Xpeng reported on the same day deliveries of 6,015 vehicles in January, a 470% increase in deliveries on a year-on-year (YOY) basis and a modest 5.5% rise on a month-on-month (MOM) basis.
Li Auto reported 5,379 deliveries for January, up 355.8% from a year earlier, it said on Tuesday. In December, Li Auto reported 6,126 deliveries, which means deliveries fell by 12.2% MOM.
Market leader Tesla reported fourth-quarter deliveries at 180,570 vehicles on a global basis, a 61% YoY increase.
Tesla and the three Chinese EV startups together accounted for a 25% market share in China’s new energy vehicle (NEV) market in 2020, according to statistics from the Chinese Passenger Car Association (CPCA).
The NEV segment includes battery electric vehicles (BEVs) and plug-in hybrid EVs (PHEVs).
Tesla last year sold 137,000 EVs in China, which has become the company’s fastest-growing market accounting for 27.5% of its global sales.
Nio, Li Auto and Xpeng sold approximately 44,000, 33,000 and 27,000 EVs in China last year.
WM Motor, under the brand Weltmeister, is a strong contender at the No. 4 spot. It sold 22,500 EVs in 2020 and is planning an IPO on the Nasdaq-style Shanghai Stock Exchange Science and Technology Innovation Board (known as the STAR Market).
OUTLOOK REMAINS POSITIVE
Although China’s three EV startups have not yet achieved profitability, their gross margins are all improving and have turned positive. Nasdaq-listed Li Auto had the highest gross margin of 19.8%, while New York Stock Exchange-listed Nio and Xpeng had 12.9% and 4.6%, respectively, according to their third quarter financial reports from last year.
Morgan Stanley expects Nio and Li Auto to achieve profitability this year which could push their shares even higher, spurred by Beijing’s ambitions to become a global EV leader and ample funds flowing into the sector.
The investment bank expects Nio to generate sales of 33.6 billion yuan ($5.2 bn), up from an estimated 16.8 billion yuan last year, it said in a report last week. It also expects a small profit of 6 million yuan, compared to a loss of 4.4 billion yuan in 2020.
Morgan Stanley also expects Li Auto to record a profit for the first time this year. A profit of 980 million yuan is forecast compared to an estimated loss of 541 million yuan in 2020, while revenue is expected to jump 92% YOY to 17.96 billion yuan.
Xpeng, which is expected to post a 126% jump in revenue to 13.95 billion yuan this year, would see its losses widen to 4.23 billion yuan, from an estimated 3.56 billion yuan in 2020, the investment bank said.
The forecasts for the Chinese startups coincided with Tesla’s fourth-quarter earnings that fell short of market expectations. The US electric car maker said last Wednesday that its adjusted fourth-quarter profit was valued at 80 cents a share, missing analysts’ consensus estimate of $1.03.
For the market of new energy passenger cars, Morgan Stanley has raised their forecast by about 200,000 vehicles to 1.7 million in sales in China this year, about 41% growth from a year ago.
While Tesla has been riding the enthusiasm from investors with a current market value worth roughly as much as those of the world's 12 largest automakers combined, Nio, Xpeng, and Li Auto, have also become market darlings.
Nio, which listed in 2018, skyrocketed 12 times to $48.74 in 2020. Xpeng, which made its trading debut in August last year, soared 185.5% to close at $42.83 for the year and Li Auto that started trading in July 2020 surged 150% to end the year at $28.83.
MORGAN STANLEY RAISES PRICE TARGETS
Morgan Stanley expects the shares to climb further. It has set price targets of $80, $70, and $49 for Nio, Xpeng, and Li Auto, respectively, which are all double-digit gains from their current prices.
KPMG also has a positive outlook on the three Chinese EV startups, and expects them to be able to thrive and compete globally based on their differentiated value propositions and unique products.
“Nio's sales continue to ramp up despite the previous perception that local brands cannot compete in the premium NEV segment. While traditional local original equipment manufacturers (OEMs) have never been successful in the premium internal combustion engine (ICE) segment, Nio managed to establish a leading BEV position through an emphasis on customer experience and user feedback-driven product design and upgrades. Meanwhile, Li Auto has proposed a premium alternative to BEV and PHEV by focusing on range-extending electric vehicles to bypass range anxiety and charging network deficiencies,” KPMG said in a report last week.
Song Shaoling, chief analyst of the NEV sector from CITIC Securities, however, thinks it will take at least three to five years for the Chinese EV brands to gain influence in the global market.
He noted the emergence of Chinese smartphone brands such as Huawei, Oppo, Xiaomi and Vivo, saying it took them about seven years (from 2013 to 2019) to gain a combined 38.4% global market share, he said.
“Intelligent electric vehicles today are at a position similar to smartphones in 2010, and Tesla’s Model 3 is like Apple’s iPhone 4 back then. China’s homegrown EV brands are only starting to take off,” Song said.
Overall, he thinks China’s EV market has entered a period of rational and stable growth where smaller and weaker players have been squeezed out with the reduction of and more stringent technical requirements for government subsidies.
China has vowed to become carbon-neutral by 2060, partly via the electrification of transportation. The country aims for NEVs to account for 20% of all new auto sales in the country by 2025, and by 2035 all new vehicles sold will be “eco-friendly” – with energy-saving vehicles and NEVs accounting for half each.
The penetration rate of NEVs in China at present is approximately 5%.