chinese ev darlings nio, xpeng and li auto see their stocks suffer as covid woes put brakes on production and demand

Chinese car stocks may have captured investors’ hearts in 2021, but they have only inflicted pain – to the tune of almost US$400 billion in losses – this year, as extended lockdowns damage supply chains and imperil the demand outlook.

Shares of the three leading Chinese electric vehicle (EV) start-ups, Nio, Xpeng and Li Auto, have suffered steep losses ranging from 17 to 50 per cent in Hong Kong this year.

Across the car industry, related stocks mirrored the slump. An MSCI index tracking Chinese companies related to energy storage and autonomous vehicles has fallen 39 per cent this year, after soaring 35 per cent last year, according to Bloomberg data. The benchmark includes firms like Contemporary Amperex Technology (CATL), Nio, Xpeng and Jiangxi Ganfeng Lithium.

Chinese carmakers also have to contend with weaker demand as lockdowns restrict consumption. Car sales fell 11 per cent in March, compared to a year ago, according to the China Association of Automobile Manufacturers.

chinese ev darlings nio, xpeng and li auto see their stocks suffer as covid woes put brakes on production and demand

Visitors view Xpeng Motors vehicles during the China (Tianjin) Auto Show in Tianjin in September 2021. Photo: Xinhua

This month sales could contract by 32 per cent, the industry group said on Friday, despite production lines gradually resuming in the third week of April. Rising Covid-19 cases and fears of lockdown in Beijing this week only add to the pall hanging over the market.

China’s imposed lockdowns in recent months crippled supply chains, particularly in major hubs for car manufacturing like Shanghai, Guangdong and Jilin. These areas accounted for almost one-third of China’s production volume last year, according to Jefferies research, which expected April to track a 40 per cent decline in production.

chinese ev darlings nio, xpeng and li auto see their stocks suffer as covid woes put brakes on production and demand

A Li Auto electric-car showroom in Shanghai in July 2021. Photo: Shutterstock

“Besides near term first order impacts on production and retail sales in April or May, we worry about the second order impact on underlying auto demand in the second quarter and second year-half as a result of the slower economy and consumption momentum,” said JPMorgan analysts including Nick Lai in a note published last Thursday.

Factories that have seen shutdowns or disrupted production due to recent lockdowns include those of SAIC Motor in Shanghai, Nio in Anhui province and FAW Group in Jilin province. Li Auto warned last week it would delay deliveries of new cars due to production disruptions caused by pandemic control measures.

“The worst may be over for supply chain disruption in Shanghai, but recovery could be slow,” said Shi Ji, analyst at CMB International in an April note, given a “double hit in supply and demand”.

chinese ev darlings nio, xpeng and li auto see their stocks suffer as covid woes put brakes on production and demand

An employee works on a production line at a JAC Motors factory in Weifang, Shandong province, on February 28, 2019. Photo: Reuters

Persistent cost inflation in batteries and broader commodities is also weighing down profit margins, which could lead to more misses in carmakers’ earnings for the first quarter, said Lai of JPMorgan.

Lithium prices surged fivefold from 70,000 yuan (US$10,700) a tonne in mid 2020 to around 500,000 yuan in March. That has prompted carmakers to lift their prices, including Xpeng, BYD and Geely.

A stock slump in CATL, the world’s biggest maker of lithium-ion batteries for electric vehicles, shows that the Covid-19 production hiccups have spared no corner of the car industry. CATL’s market value slipped below the trillion yuan level last week for the first time in almost a year.

The company, which supplies batteries to Tesla, asked on Monday to delay publishing its financial report. Analysts have slashed their earnings forecasts for CATL amid pandemic fallout.

Share prices could see some recovery in late May as production lines resume and lockdowns end, but a rebound driven by fundamentals can only happen when demand ticks up, said Lai.

An indicator of improved demand would be when car sales return to growth, which Lai expects to happen only after the second quarter.

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