Can Tesla, Nio and XPeng Drive Your Profits Up?

May 10, 2021

What this report is about:

  1. Global EV stock is expected to grow by 36% annually to reach 245m vehicles by 2030
  2. Government policies are supportive of EV adoption, especially in China and the US
  3. Three EV stocks you may want to put on your watchlist are Tesla, Nio and XPeng
  4. Investors can also consider using ETFs for more diversified exposure

Share prices of EV players like Tesla, Nio and XPeng have crashed from their stratospheric highs in February. This was amid a market sell-off of high-growth stocks as US Treasury yields rose and semiconductor chips were in short supply. Nio has temporarily suspended vehicle production for five days due to a lack of chips. Other players are likely to be in the same shoes.[1]

Shortage or no shortage, Nio still managed to deliver 20,060 vehicles in the quarter ending March 2021. This was up a whopping 423% YoY! [2] Tesla also shipped 184,800 vehicles in the quarter, up 209% YoY. [3,4] These delivery figures are simply out of whack with their share-price drops.

Is it time to enter EV stocks?

Before you dash to buy, let’s understand their potential future growth rates and the direction of government policies.


Future growth rates

Figure 2: IEA [5]

IEA estimates that the global EV stock – excluding two- and three-wheelers – will grow by 36% annually to reach 245m vehicles by 2030. This would be 30 times above 2019 levels. [5] Such growth rates are expected to secure the future of EV makers.

However, a few major hurdles to EV adoption need to be crossed. Until then, EV interest could remain tepid.

  1. – Lack of charging stations
  2. – Charging time of EVs, which is much longer than conventional cars’ refuelling
  3. – Limited driving range
  4. – Higher costs of purchasing EVs

Government policies

Singapore’s government aims to phase out internal combustion engine (ICE) vehicles by 2040, when all vehicles are expected to run on cleaner energy. To this end, the government has ramped up incentives and initiatives. [6,7]

In the US, President Biden has pledged to strengthen auto emission standards and introduce incentives for carmakers to develop zero-emission cars. His administration has proposed a US$174bn plan which includes boosting incentives for consumers to buy EVs, allocating funds for the retooling of factories to make fuel-efficient vehicles and building more EV charging stations. [8,9]

China plans to phase out conventional gas-burning cars by 2035. [10] China launched subsidies for EV purchases as early as 2009. Since then, it has introduced zero-emission zones, EV tax credits and fuel-efficiency standards to make EVs a more attractive proposition to manufacturers, consumers and businesses. By 2020, it had built over 807,000 public EV charging poles, up from 516,000 the previous year. It intends to build more. [11] All these have helped turn the country into the world’s largest EV market that it is today.

Against this supportive backdrop in two of the world’s most important EV markets, we’ve picked three EV stocks which you may want to place on your watchlist for their growth prospects.


1) Tesla (Nasdaq: TSLA)

The company

Tesla was founded by two engineers, Martin Eberhard and Marc Tarpenning, in 2003. Elon Musk didn’t join the company until 2004, when he invested US$30m and became its Chairman.

The company’s initial journey was rocky. It went through a leadership restructuring in 2008 and faced considerable financial stress in 2009 [12]. It was not until 2013 that Tesla made its first quarterly profit [13]. The company’s market cap has grown so big that it could be included in the S&P 500 on 21 December 2020. It is now one of the top 500 US stocks by value [14].

Tesla’s unique selling points

    1)Supercharger network

Tesla’s superchargers in North America as of 6 April 2021.Source:https://www.tesla.com/en_SG/supercharger

Tesla has over 7,600 supercharger points in the US. This dwarfs both ChargePoint’s (NYSE: CHPT) 1,400 charging points and 1,660 points for Volkswagen’s Electrify America network in Q3 2019. ChargePoint is a company that operates an independent network of EV chargers [15].

Tesla’s widespread and well-integrated charging stations in the US provide efficient and convenient recharging opportunities for its EVs, which partially account for their appeal.

    2) Branding

Unlike other EV makers, Tesla prefers direct sales channels. Direct sales give it rapid access to customer feedback and help it cultivate customer relationships [16]. It has built a strong brand and delivered more EVs in 2020 than both Nio and XPeng combined [17,18,19].


2) Nio (NYSE: NIO)

The company

Luxury EV manufacturer, Nio, was founded in November 2014 by Li Bin, the Elon Musk of China. The company has prominent shareholders such as Tencent [20] and Temasek [21].

Like Tesla, Nio had its share of roller-coaster rides in its early years. Initially, Chinese subsidies for NEVs led to boom times for EV makers, including Nio.

However, after a spate of quality and safety issues, the Chinese government cut back on subsidies. This was soon followed by the double whammy of COVID-19 lockdowns, which caused sales of EVs to evaporate. Nio teetered on the brink of bankruptcy. Fortunately, the city of Hefei came to its rescue with an investment of US$1bn. From that moment, it made a triumphant return to the stock market. Its shares have skyrocketed by almost 1,700% since [22,23].

Nio’s unique selling points

   1) Patented battery swapping technology

All of Nio’s EVs support battery swapping, which takes three minutes to complete [24]. This is much faster than current power charging that takes half an hour [25,26].

Nio is committed to shortening its battery-swapping time to under three minutes by enhancing the capacity and efficiency of its battery-swapping stations starting Q2 2021 [27]. As at end-2020, Nio had 172 PowerSwap stations covering urban areas and expressways in China, including 74 cities [28]. By March 2021, Nio had completed 2,000,000 battery swaps at its PowerSwap stations [29].

   2) Battery-as-a-service (BaaS)

Nio launched its BaaS offering in 2020 to customers that includes lower vehicle-purchase prices, monthly or yearly battery-pack subscriptions and options for future battery upgrades. It is so well-received that by the end of Q1 2021, over half of the new orders it received came with BaaS subscriptions [30]. BaaS is expected to evolve into Nio’s next core business, creating a stable stream of recurring revenue for the company.


3) XPeng (NYSE: XPEV)

The company

XPeng is a smart EV maker co-founded by Xiaopeng He in 2014. The latter earlier founded UCWeb, a Chinese mobile-browser company, which he sold to Alibaba in 2014 [31]. XPeng is currently backed by Alibaba [32].

As with Nio, XPeng has successfully raised funds – US$78m – from the Guangdong provincial government for its EV production and autonomous-driving R&D [33].

XPeng’s unique selling points

   1) End-to-end autonomous driving technology

XPeng prides itself on providing fast software and hardware iterations and technology innovations to provide the best autonomous-driving experience to its customers.

For instance, customers’ vehicles receive timely software upgrades over WiFi, including a Navigation Guided Pilot (NGP) system which it recently introduced. The NGP allows drivers to change lanes, speed up or slow down, overtake cars as well as enter and exit highways automatically.

In March this year, XPeng launched an 8-day NGP expedition from Guangzhou to Beijing to showcase the robustness and reliability of its NGP system. An XPeng P7 fleet undertook the journey of over 3,600 km, with 2,930 km of highway driving under the control of the NGP [34].


How to get exposure to EVs

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References

[1] https://www.cnbc.com/2021/03/26/chinese-ev-start-up-nio-shuts-factory-for-5-days-due-to-chip-shortage.html

[2] https://ir.nio.com/news-events/news-releases/news-release-details/nio-inc-provides-march-and-first-quarter-2021

[3] https://ir.tesla.com/press-release/tesla-q1-2021-vehicle-production-deliveries

[4] https://ir.tesla.com/press-release/tesla-q1-2020-vehicle-production-deliveries

[5] https://www.iea.org/reports/global-ev-outlook-2020

[6] https://www.lta.gov.sg/content/ltagov/en/industry_innovations/technologies/electric_vehicles.html

[7]https://www.lta.gov.sg/content/ltagov/en/newsroom/2021/3/news-release/Accelerating_nationwide_deployment_of_electric_vehicle_charging_points.html

[8] https://www.cnbc.com/2021/03/31/us-ev-charging-system-a-priority-under-bidens-2-trillion-infrastructure-plan.html

[9] https://robbreport.com/motors/cars/president-biden-174-billion-electric-cars-1234604827/

[10] https://asia.nikkei.com/Business/Automobiles/China-plans-to-phase-out-conventional-gas-burning-cars-by-2035

[11] https://www.statista.com/statistics/993121/china-public-electric-vehicle-charging-station-number/#:~:text=This%20statistic%20shows%20the%20number,stations%20in%20the%20previous%20year

[12] https://www.thestreet.com/technology/history-of-tesla-15088992#:~:text=was%20founded%20in%202003%20by,properties%20of%20rotating%20electromagnetic%20fields.

[13] https://ir.tesla.com/_flysystem/s3/sec/000156459021004599/tsla-10k_20201231-gen.pdf

[14] https://www.bloomberg.com/news/articles/2020-11-16/tesla-will-join-s-p-500-in-december-as-largest-ever-new-member

[15] https://www.forbes.com/sites/greatspeculations/2020/01/21/a-closer-look-at-teslas-supercharger-network/?sh=3562481e7193

[16] https://www.forbes.com/sites/greatspeculations/2016/03/03/is-the-direct-sales-model-critical-for-tesla-motors/?sh=34e0b28e23b3

[17] Tesla delivered 499,647 vehicles in 2020,
https://www.sec.gov/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm

[18] Nio delivered 43,728 vehicles in 2020,
https://ir.nio.com/static-files/72b2a3c4-24c7-492f-8a4e-c4ea9c103350

[19] XPeng delivered 27,041 vehicles in 2020,
https://ir.xiaopeng.com/news/news-details/2021/XPeng-Reports-Fourth-Quarter-and-Fiscal-Year-2020-Unaudited-Financial-Results/default.aspx

[20] https://www.sec.gov/Archives/edgar/data/1293451/000119312521068398/d29853dsc13da.htm

[21] https://www.sec.gov/Archives/edgar/data/1021944/000119312520027678/d884591dsc13ga.htm

[22] https://technode.com/2020/03/23/insights-nio-lives

[23] https://techcrunch.com/2020/04/29/ev-startup-nio-secures-1-billion-investment-from-china-entities/

[24] https://www.nio.com/nio-power#:~:text=NIO%20Power%20Swap&text=It%20takes%20only%203%20minutes,till%20self%2Dcheck%20is%20finished

[25] https://www.nio.com/nio-power

[26] https://www.tesla.com/en_SG/supercharger

[27]  Nio’s FY2020 Annual Report on Key Innovations and Breakthroughs section on battery swapping time,
https://ir.nio.com/static-files/cb42cc7f-6069-45a2-bbe4-21d4808609b8

[28] Nio’s FY2020 Annual Report on Key Innovations and Breakthroughs section on PowerSwap Stations,
https://ir.nio.com/static-files/cb42cc7f-6069-45a2-bbe4-21d4808609b8

[29] https://www.greencarcongress.com/2021/03/20210327-nio.html

[30] Nio’s FY2020 Annual Report on Key Innovations and Breakthroughs section on BaaS,
https://ir.nio.com/static-files/cb42cc7f-6069-45a2-bbe4-21d4808609b8

[31] https://www.forbes.com/sites/jillbaker/2021/02/22/how-to-charge-your-portfolio-with-chinese-ev-disruptors-like-nio-xpeng-and-li/?sh=31e7fdb35d30

[32] https://www.sec.gov/Archives/edgar/data/1577552/0001104659-21-024340-index.htm

[33] https://en.xiaopeng.com/news/news_info/3813.html

[34] https://www.businesswire.com/news/home/20210331005581/en/

About the author

Mike Ong (Senior Dealer) & Tan Kean Soon (Dealer)

Mike is a member of the largest dealing team that specialises in equities, ETFs, CFDs and bonds in Phillip Securities, managing 50,000 client accounts. He believes in investing long term for passive income and evaluates stocks using fundamentals. He is currently the Chief Editor of the HQ Education Series that aims to equip clients with the tools and skill sets to make better-informed investing and trading decisions.

Kean Soon graduated from the National University of Singapore with a Bachelor’s degree in Materials Engineering. He is a passionate CFD dealer who believes that equity markets can help grow one’s wealth with the right mindset, risk management and investing discipline.