Chinese electric vehicle (EV) stocks are rallying as NIO Inc. (NYSE: NIO), XPeng Inc. (NYSE: XPEV), and Li Auto Inc. (NASDAQ: LI) all surged in Monday’s trading session. The gains come on the heels of reports highlighting the potential impact of China’s aggressive cash-for-clunkers trade-in program, which could significantly boost demand for electric vehicles in the world’s largest auto market.
The Chinese government’s new incentive plan, announced in July, aims to accelerate the transition to electric vehicles by offering substantial financial incentives for consumers to trade in their old, higher-emissions vehicles. Under the program, consumers can receive up to 20,000 yuan (approximately $2,760) when trading in an older car for a new EV. Alternatively, a smaller incentive of 15,000 yuan is available for those opting for a more fuel-efficient gasoline vehicle. Many cities have also added their own incentives, ranging from $140 to $1,400 per vehicle, further sweetening the deal for consumers.
According to Bloomberg, these incentives could translate into more than 10 million EV sales in 2024, a significant increase that would likely reshape the competitive landscape. BNEF analyst Siyi Mi predicts that the government’s higher subsidies could spur up to 2 million additional car sales, including 1.1 million EVs, generating approximately $26 billion in revenue.
The positive sentiment from the cash-for-clunkers program comes as a welcome relief for Chinese EV makers who have faced a challenging year. NIO, XPeng, and Li Auto have all been engaged in a fierce domestic price war while also contending with protectionist tariffs from the U.S. and European Union. Over the past 12 months, NIO’s stock has plummeted by 64%, XPeng by 58%, and Li Auto by more than 48%.
Despite these headwinds, the companies have shown resilience in their vehicle delivery numbers. In July, NIO delivered 20,498 vehicles, a flat performance year-on-year, despite offering attractive discounts to maintain market share. Li Auto outpaced its peers with 51,000 vehicles delivered, representing a robust 49.4% growth year-on-year. Meanwhile, XPeng delivered 11,145 vehicles, marking a modest 1% increase compared to the previous year.
The surge in vehicle deliveries, combined with the potential tailwind from the government’s incentive program, has renewed investor confidence in these stocks. As of this publication, NIO shares are trading slightly higher, reflecting a 3.4% increase to $4.08 per share.
Looking forward, equity analysts are cautiously optimistic about NIO’s prospects. The stock has an average 1-year price target of $6.80, suggesting an expected upside of 67.9%. Analysts’ price targets range from a high of $8.50 from Citigroup to a low of $5.90 from BofA Securities. Notably, none of the analysts currently hold a bearish view on NIO, with one analyst giving a bullish recommendation.
However, it’s important to note that while the Chinese government’s incentives have the potential to boost EV sales, the market remains fraught with challenges. Reports indicate that China may implement a ban on Chinese software in autonomous and connected vehicles, which could pose a significant obstacle for companies like NIO, XPeng, and Li Auto, all of which are heavily invested in smart vehicle technology.
The Chinese government’s cash-for-clunkers trade-in program is poised to be a game-changer for the country’s EV market, offering much-needed support to beleaguered automakers stocks like NIO, XPeng, and Li Auto. While the program has sparked a rally in their stocks, the road ahead remains uncertain as these companies navigate ongoing domestic competition and regulatory challenges. For now, the market is responding positively, but investors will be watching closely to see if the momentum can be sustained in the months ahead.
