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Chinese “pure play” electric vehicle carmakers NIO Inc. (ticker: NIO) and XPeng Inc (ticker: XPEV) — both touted as “Tesla Killers” for a while now — have had some strong upticks over the past month. Across August till the 13th of September this year, NIO and XPEV have risen by 36.7% and 17.6% respectively. The reasons for this trend in these companies are quite nuanced.
Trend AnalysisAs of the first half (H1) of FY 2024, NIO’s total deliveries are trending to close the year with a 10% growth.
Source: Company Information; Leverage Shares analysis
Cost of sales, which had trended in line with delivery growth, became more efficient in FY 2023 with current trends indicating that it will close out the current FY lower than in the past FY. A similar trend is evident within operating expenses. In the trend estimates, net income can be considered closing out the year about 4% to 5% lower than the previous year, which is actually a plus: the company has never drawn a positive net income for any FY since it listed. As far as key line items go, post-sales services (charging, battery swaps, spare parts, et al.) have made a substantial improvement in revenue contribution, but vehicle sales remains as important as it was in the previous FY.
Source: Company Information; Leverage Shares analysis
Cost of sales shows signs of improvement, while net income (loss) pass-through is trending to remain steady with last year. Despite an encouraging growth in deliveries, revenues are trending lower than the past FY.
Meanwhile XPeng’s deliveries are trending at a net deficit in deliveries relative to the past FY:
Source: Company Information; Leverage Shares analysis
If trends continue, deliveries will close the current FY a full 26% lower than that in the previous year. However, on balance, revenues seem relatively healthy and trending to close flat or down 4% relative to past FY. While Net Income might seem as closing a full 48% down from the previous FY, this is actually a plus: the company has never shown a positive income since it went public. Therefore, losses are narrowing.
Overall, key line item trends relative to net revenue aren’t particularly interesting either:
Source: Company Information; Leverage Shares analysis
For the first time, after-sales services (spare parts, charging, et al.) are a strengthening double-digit percentage contributor to revenues while lower delivery volumes helped lower the cost of sales and lessen net losses in the year so far.
So, outside a slight improvement in net losses, there is virtually no reason at first blush to buy into the either company’s growth. However, market players with an eye on China are looking at the broader picture a little differently.
Market Players’ ConsiderationsChina’s auto market is massively fragmented, with hundreds of companies with levels of state involvement (either through debt ownership, stock ownership or outright management) ranging from none to very high. For nearly two years now, China’s carmakers have been waging a damaging price war that seems to be underway with a goal to consolidate the market, regardless of the economic headwinds blowing through China. Given the large number of players (currently), product build quality and engineering complexity are highly variable. The likes of XPeng and NIO are curious outliers in that overall build quality and engineering are generally considered to be running parallel to (or catching up with) that seen in the rest of the world among major globe-spanning carmakers.
NIO’s products are by no means cheap: the recently launched ET9 retails for around $112,000 while the ET7 retails for a little under $60,000. In China, this is a mid- to high-end brand (with an inclination towards the latter) and the company has traditionally stayed well away from the budget- to mid-price range where the bulk of the price war has been raging. However, even in its niche, the price war is prevalent.
The company is ostensibly decoupling its brand from the mid-price range by introducing a new marque — Onvo — to access the mid-priced “family car” market. The first model in this range is the Onvo L60.
Source: NIO, Inc
Starting at a little over $30,000, this model directly competes with Tesla’s Model Y by being 10% cheaper, has a more spacious interior, and eligible to access most of the parent brand’s established battery swap and charging stations. While there may or may not be some issues with battery swapping, this mode of operation does tend to optimize the downtime necessary to recharge an EV. Making this accessible to the mid-range market might be transformative in buyer preferences, and this is likely another point of interest for institutions.
The company is also preparing to enter the stiffly competitive budget/small car market via a second marque named “Firefly.” Chairman and CEO William Li described Firefly as being to Nio what Mini is to BMW in a short video on Douyin (a short-form video app similar to TikTok). Mr. Li further stated that these cars will be built on European “five-star” safety standards and will have battery swapping made available for a monthly fee through upcoming company-operated stations not used by NIO or Onvo brand vehicles. The first model under the “Firefly” brand is expected to debut by the end of the year, with Europe being a tentative market.
Meanwhile, XPeng’s products run the entire gamut of buyer segments: its P5 sedan starts at around $22,000, the top-selling G6 crossover SUV starts at around $30,000 while the X9 van/MPV starts at around $50,000. Despite the ostensible downturn in budget segment sales, the company has done what NIO has done and announced a new marque – “Mona” – for the budget buyer. The first model for “Mona” is the M03, a compact coupe priced at around $16,000 with an upgrade to Tesla-styled autonomous driving being made available at around $21,000.
Source: XPeng, Inc
Thus, regardless of conditions, both companies are pressing on with a clear intention to broaden their market at all costs.
From the beginning of the year till August 8, i.e., one month before the earnings release, net retail investor activity in NIO’s shares had declined from over 28% to around 9%.
Source: TrendSpider
In the week of the earnings release — starting from the 5th — retail activity spiked to 21% and even further to 26% as of the day of the earnings release. Since then, retail activity has dropped with a corresponding decline in price in early trends today. However, institutional interest, i.e., the likes of long-term growth funds, hedge funds, et al., continued to be the key drivers of volumes and price trajectories in the ADS.
With regard to XPeng, on the other hand, retail investor activity in the stock has never exceeded 3% of total activity through most of the Year Till Date (YTD):
Source: TrendSpider
The only period wherein retail investor activity spiked was following its Q1 earnings release, following which interest petered. In the immediate wake, a mild doubling to all of 5% of net activity is attributable to retail investors, which persisted for a short while before petering out. Here too, institutional interest has remained steady, with even a boost imparted at various points after the release of XPeng’s Q2 earnings release.
In ConclusionThe bulk of the investor base interested in these two companies likely consider them to be capable of garnering buyer attention and ultimately altering buyer preference to push automotive quality standards higher, which will inevitably force consolidation in China’s carmaker market. This outlook seems to be arrived at despite the fiscal trends: while NIO’s net income can tentatively be expected to trend towards zero or a weak positive by the end of FY 2025, XPeng’s lack of profitability – given current delivery trends – can be expected to last a while longer.
These two stocks’ trajectories imply that there are likely to be substantial periods of directional shifts in trajectory over the next few quarters. Professional investors in Europe can consider ETPs such as NIO3 and SNIO (for NIO) or XPE3 and XP3S (for XPeng), which offer leveraged exposure to the movements of these stocks for the upside and the downside, respectively.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
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