A flurry of capital raises from Nio (NIO), Xpeng Motors (XPEV), Li Auto (LI) and Tesla (TSLA) foreshadows an arms race in the Chinese electric car market, Wall Street analysts said. Nio stock fell after pricing a secondary offering.
Over the next few years, Wedbush expects overall China EV sales could double given the pent-up demand.
“Overall we are seeing a major inflection of EV demand globally with our expectations that EV vehicles ramp from (about) 3% of total auto sales today to 10% by 2025,” Wedbush analysts wrote. “A crux of the EV global growth story for the coming years is around the Chinese market, which is showing a massive demand surge over the past six months with a tidal wave of momentum heading into 2021.”
In China, Nio, Tesla and Xpeng are all accelerating expansions in manufacturing capacity as overall Chinese EV sales boom. Nio’s deliveries more than doubled in November to 5,291 vehicles.
Rising worldwide demand prompted electric-car companies to sell more stock to fund growth and expansion.
Wedbush added the “EV arms race” has hit another gear, with supply chain and model expansions planned over the coming year.
On Monday, Nio said it raised about $2.65 billion in an upsized share offering. The 68 million American depositary receipts (ADSs), topping its forecast for 60 million, priced at 39 per share, a 7% discount to Friday’s closing price of 41.98.
Underwriters on the deal have the option to buy an additional 10.2 million shares, up from nine million earlier. Nio will use the proceeds to develop both EV and AV (autonomous vehicle) technologies.
Nio’s followed local rivals Xpeng and Li Auto raising about $2.16 billion and $1.36 billion, respectively, with Tesla eyeing $5 billion, from recent share offerings.
Nio Stock, Electric-Car Stocks
Shares of Nio lost 4.9% near 40 in Monday stock market trading. Nio stock remains far extended from a 15.55 buy point, meaning shares are not in buy range.
Among other electric-car stocks, Tesla rose 0.7% to 613.55, and BYD gained 3.7% to 23.05. Li Auto eased 2.3% to 30.68 and has given up much of its gains past a 21.96 cup-with-handle breakout, according to MarketSmith chart analysis. Xpeng added 0.4% to 44.42 as Deutsche Bank upgraded the stock and Kandi (KNDI), still suffering after a critical short-seller report, tumbled 6.8% to 7.87.
Over the weekend, CEO Elon Musk said Tesla is seeing strong demand but needs to ramp up production fast to capitalize on it.
According to Wedbush, strong Model 3 demand out of China “remains a ray of shining light for Tesla,” which could deliver a staggering 200,000 units in the first full year out of the gates for the new Shanghai Giga factory.
For Tesla, China could make up 40% of total deliveries with its Giga 3 factory, the analysts said. And in a bull case, “the China growth story” may be worth $100 per share of Tesla stock.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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