Tesla and Nio have sold off, but the EV party is just getting started and China is key, say these analysts
Electric-vehicle stocks have lost their charge in recent weeks, with Tesla shares down more than 23% over the past month.
According to tech analysts Daniel Ives and Strecker Backe of investment firm Wedbush, the EV stock slump has been largely caused by the more general “risk-off” mood in markets, compounded by sales weakness in the key Chinese market in January.
But investors have no reason to unbuckle yet, the analysts said, because “the EV party is just beginning,” they wrote in a note on Thursday.
Also read: Tesla’s market share in Europe keeps crumbling, as China reclaims top spot in global EV race
While the global chip shortage has “modestly impacted production capacity” at the likes of Tesla TSLA,
Tesla stock has also been hurt by contained recalls in China, which has drawn the ire of regulators in Beijing, they said.
And shares in Nio slipped after the company’s recent results. In large part this was because investors were disappointed by the growth trajectory for the first quarter of the year, despite a 100% year-over-year increase, Ives and Backe said.
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The selloff in EV stocks has mostly been focused on Chinese companies, the Wedbush analysts said, pointing to Xpeng XPEV,
Despite the recent headwinds, Wedbush remains bullish on electric-vehicle stocks, projecting a $5 trillion market opportunity over the next 10 years. This is based on a growth in EV market penetration from 3% today to 10% by 2025, with much more to come.
The analysts point to established auto makers, like Volvo 0MHW,
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So look beyond just auto stocks, Wedbush advises, to the wider ecosystem, which includes QuantumScape as well as other companies exposed to the sector, like sustainable battery recycler Li-Cycle—which intends to list in New York via a merger with Peridot Acquisition PDAC,
In the short term, however, Ives and Backe say that China will be “the linchpin of growth” for the EV market, with “eye popping demand” in 2021 and 2022 giving Tesla, with its Gigafactory 3 in Shanghai, a major competitive advantage.
Domestic players Nio, BYD, Xpeng, and Li Auto are also “firing on all cylinders and just scratching the surface” of total addressable demand in China, the analyst said.
