The EV stock bubble is likely to end real bad for a lot of investors. Make sure you aren’t one of them. NIO a Chinese EV startup that burned $1 billion last year and is likely to burn close to $700 million this year is valued at $70 billion dollars. That’s much bigger than Ford and slightly larger than GM. At some point the ugly reality of arithmetic is going to catch up with the EV speculators. Joanne Chiu and Mischa Frankl-Duval report in The Wall Street Journal:
China’s electric-vehicle makers have surged in value, boosted by bold national green-energy targets and individual investors hoping for a repeat of Tesla Inc.’s stunning performance.
American depositary receipts in NIO Inc., NIO 1.98% the best known Chinese company focused solely on electric vehicles, have jumped roughly 11-fold this year, lifting its market value to nearly $70 billion as of Wednesday, according to FactSet. In Hong Kong, shares of Warren Buffett -backed BYD Co. 1211 1.05% , which produces hybrid electric- and gasoline-powered cars, as well as batteries, have more than quadrupled, valuing it at $69 billion.
The meteoric rises put these companies in line with large traditional car makers, such as General Motors Co. and Ford Motor Co. , which had market values of $59 billion and $36 billion, respectively, on a fully diluted basis.
For now, though, most Chinese upstarts are unprofitable—and they are also selling far fewer vehicles than major automobile groups. Xpeng Inc., XPEV -2.81% for example, delivered more than 14,000 cars in the first three quarters of 2020. By comparison, GM sold more than 1.9 million cars in China during the same period.
Tesla’s success has fed investor enthusiasm, as has China’s pledge to become carbon-neutral by 2060, said Elizabeth Kwik, investment manager for Asian equities at Aberdeen Standard Investments. “China is very serious about achieving this goal,” she said, citing President Xi Jinping’s personal endorsement.
To help cut carbon emissions, China aims for electric vehicles to make up 20% of car sales by 2025, and 50% by 2035. According to Principal Global Equities, those goals imply annual growth of 30% to 35% through 2025 in unit sales for what China calls new-energy vehicles, a category that includes hybrids, as well as battery- and fuel-cell-powered electric cars.
While the sector once relied heavily on subsidies to boost sales, investors and analysts say prospective buyers are now more focused on other issues, as cars have become cheaper and energy costs have come down. Tax breaks, longer driving ranges, and easier access to license plates—which can be hard to get in the major cities—have also helped stoke demand. The government has cut the scope of an earlier subsidy scheme, but extended it for two years.
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