A Li Auto car. The company said this month it will deliver about 28,000 cars this quarter, far fewer than analysts expected.
Something is amiss in the Chinese electric-vehicle industry. If recent problems persist, that would be bad news for a host of stocks, including
Tesla
.
The latest guidance from
Li Auto
(ticker: LI) and
XPeng
(XPEV) makes the point. Both companies will deliver fewer cars in the third quarter than Wall Street had projected. Back on Aug. 15, Li said it would deliver about 28,000 cars in the third quarter, while analysts were expecting closer to 39,000. And on Tuesday,
XPeng
said it would deliver about 30,000 cars in the current quarter. Analysts were looking for about 45,000.
“At [a] top-down level…the market is worried that Sep/Oct high season purchases could be largely affected by a weakened economy,” wrote Citigroup analyst Jeff Chung in a Wednesday research report.
In China, car sales pick up in September and October. Those two months generally account for about 18% or 19% of annual vehicle sales, a bit more than the 16.7% that could be expected if sales were evenly distributed over the year.
Slowing deliveries, a weakening economy, along with persistent problems with Covid-19 and the supply chain, have led to significant weakness in the stocks, a slide that Chung called a collapse in the title of his report. Over the past month, Li and
XPeng
shares are down about 15% and 25%, respectively, while
NIO
(
NIO
) and
BYD
(1211.Hong Kong) shares have dropped about 5% and 9% respectively.
Even stock in battery giant
Contemporary Amperex Technology Co. Ltd.
(300750.China) seems to have been affected. Shares are down about 2% over the past month, while the
Shanghai Composite Index
has fallen about 1% over the same span.
What needs to happen to turn things around for the stocks, according to Chung, is strong sales in the final week of August and in the first half of September. Chung tracks industry data and insurance registrations to get a read on how sales are progressing.
Chung, for his part, seems optimistic that sales data will look better in coming weeks. He rates shares of
BYD
,
NIO
,
XPeng and Li all Buy.
Better data might be needed to keep maintain the momentum in
Tesla
(TSLA) stock as well. The shares are up about 9% over the past month, better than the 6% gain in the
S&P 500
and the 7% rally in the
Nasdaq Composite.
China is the world’s largest market for EVs, accounting for roughly one-quarter of
Tesla
’s
sales. Sooner or later, what happens in China affects Tesla stock.
Write to Al Root at [email protected]
This content was originally published here.
