With Apple exiting the EV game and Tesla losing market share in some Chinese cities, arguably the best EV stocks are now all based in China. The country is the world's largest automobile market, with a penetration rate of new energy vehicles of at least 30%. Most of these cars come from local brands. Tesla China lost market share in January, especially in China's major cities, “despite price cuts” announced that month, Morgan Stanley analysts said in a Feb. 28 report looking at the previous month's sales breakdown. Xpeng and Nio lost share across regions, while BYD saw gains in major cities but saw losses in less developed regions, where it saw increasing competition from state-owned enterprises, the report said. Li Auto's market share has dwindled, and Morgan Stanley analysts are watching whether there will be a boost from new models. The automaker on Friday announced its first all-battery vehicle, a multi-purpose vehicle called the Li Mega. All Li Auto's cars so far have been SUVs that are technically hybrids because they come with a fuel tank to charge the battery. This product strategy addressed consumers' anxiety about range, and soon propelled Li Auto to deliver tens of thousands of vehicles per month, making it a top seller among its startup counterparts. Earnings top expectations The US and Hong Kong-listed company last week reported earnings that beat FactSet's expectations – and prompted some analysts to raise their price targets. “Following our upgrade earlier this month, Li Auto delivered impressive earnings/guidance, strengthening its position as a top-tier China OEM,” Deutsche Bank analysts said in a report issued in late February. They rated the stock a Buy and raised their price target by $9 to $50 per share. That's about 9% higher than where shares closed Thursday at $45.88. Part of their thesis comes from the automaker's high gross profit margin, which reached 23.5% in the fourth quarter, higher than expected at 21%. Li Auto's management said they expect gross profit margin to fluctuate between 10% and 25%, but generally remain above 20%. “Gross margin has proven much more resilient than feared despite the ongoing price war,” Deutsche Bank analysts said. Shares of Li Auto are up more than 20% so far this year. February deliveries were relatively low at 20,251 vehicles, which the company attributed to the week-long Lunar New Year holiday that month and the upcoming launch of new models. But the startup still expects a rebound to deliver 50,000 cars in March. Bank of America Securities analysts last week raised their forecasts for Li Auto's sales volume and earnings per share — with a $9 increase in their price target to $57 per share. BofA rates the stock a Buy. Li Auto has three more battery-only cars planned for the market, and is starting deliveries of the new Li Mega this month. New competition? But even with its premium pricing, the company is not immune to intense competition in China's electric vehicle market. Aito, a new energy vehicle brand developed by Huawei, claimed to have delivered 21,142 vehicles in February – more than Li Auto – and said its new M9 SUV had more than 50,000 orders. The brand sells cars in a price range slightly lower than the Li Auto range, and does not yet offer a multi-purpose vehicle. Seres, the automaker behind Aito, said on Friday that it produced more than 32,000 vehicles in February, an increase of about 250% from a year ago. Shares of Shanghai-listed Seres are up 21% so far this year. Chinese smartphone maker Xiaomi is also targeting its 20 million premium users with its next car, its president Weibing Lu told me last month. Higher authorities are paying attention. Chinese President Xi Jinping on Thursday called for more support for the development of new energy vehicles, especially through building charging infrastructure. Separately, the White House said on Thursday that the United States had launched an investigation into whether Chinese auto imports could pose national security risks. While the United States remains a difficult market for Chinese automakers, their electric vehicles are present in Europe and headed to other markets. China competed with Japan last year for most of the world's car exports. After long adhering to the China First strategy, Li Auto said last week that by the end of this year it will begin overseas deliveries, after establishing local sales and services in the Middle East and Central Asia. Nio, which delivered just over 8,100 vehicles in February, said last week that it had entered into a technology licensing agreement with Forseven, a subsidiary of Abu Dhabi-owned CYVN Holdings. Nio already sells cars in Norway and other parts of Europe. The company is scheduled to announce fourth-quarter earnings before the US market opens on Tuesday. — CNBC's Michael Bloom contributed to this report.
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The best EV plays are now in China. Analysts raise price targets
