Shares in Chinese electric vehicle (EV) stocks traded in New York rose after posting their fourth-quarter and December delivery figures. Xpeng (NYSE:XPEV) led the way with gains of 9% in pre-market trading, while Nio (NYSE:NIO) and Li Auto (NASDAQ:LI) rose 6%.
Li Auto led the way in sales, delivering 21,233 cars during December. Nio delivered 15,815 and Xpeng 11,292. Together, the three delivered 48,340 cars during the month, their highest total ever.
Trouble for Tesla
The numbers show growing problems for Tesla (NASDAQ:TSLA) in a market it long dominated. Tesla delivered about 405,000 cars worldwide during the fourth quarter.
Production from China’s “Little Three” is still less than half that of Tesla, but all three have big plans for 2023. That means exports will increase, especially to Europe, cutting Tesla’s margins.
The biggest company in the Chinese EV market isn’t even traded in the U.S. That is BYD (OTCMKTS:BYDDF), which delivered 235,200 vehicles to Chinese buyers in December, up 150% from a year earlier. BYD specializes in mid-market cars costing roughly $25,000 to 35,000.
Growth in the Chinese market is expected to slow in 2023 as government purchase incentives expire. This means a global footprint will be essential to success. Tesla has such a footprint. Geely (OTCMKTS:GELYF), another big player in China, also sold over 50,000 Polestar units through its Volvo subsidiary during the year.
Meanwhile, American makers are depending on high-end pick-up trucks from General Motors (NYSE:GM), Ford Motor (NYSE:F) and Rivian (NASDAQ:RIVN), a market Tesla will soon enter with its Cybertruck.
Electric vehicles now dominate luxury markets, but competition is growing. The U.S. mid-market continues to depend on gas-electric hybrids from Toyota (NYSE:TM) and Korea’s Hyundai (OTCMKTS:HYMTF). Tesla will need to get costs down to compete there, and that market collision isn’t expected until 2024.
What Happens Next for Chinese EV Stocks?
Chinese EV stocks are still priced like Tesla at more than four times their revenue despite no profit. Tesla trades at about five times sales, but with margins of nearly 15%.
Something’s got to give, and my guess is it will be everyone. A more competitive market is good for consumers, but bad for automakers.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.
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