Equity Research 8 February 2022China Technology China Electric Vehicles: Not Just Brawn, But Brain Too - Initiate LI, NIO and XPEV at OW We are initiating coverage of leading Chinese EV makers with Overweight ratings. EVs and Smart Cars are among China’s top national priorities and the TAM is not just China but the global auto market. We believe that the rapid adoption of EVs around the world and booming EV sales have presented China’s EV makers a rare opportunity to not only take a sizable market share of the domestic auto market – the largest in the world with about 25-30% global share by units sold per annum – but also build a dominant position on the world stage. It is a national priority for China to develop cutting-edge EV and autonomous driving technologies, and to export competitive EVs around the world, as Chinese smartphone manufacturers have done in recent years. Several leading EV makers have already started selling their products in Europe. Not only is China the world’s largest auto market, its auto industry accounts for over one-third of the global automotive profit pool. The enormous domestic profits available incentivize China’s EV makers to invest heavily both in technologies and in manufacturing capacity in order to stay ahead of the pack. In addition, the highly developed EV component supply chain in China enables EV start-ups to scale quickly. Compared to many countries in the world, including the US, China has one of the most supportive and well-thought-out government policy agendas for the EV industry. Measures such as qualified subsidies for EV purchases (low-quality EVs excluded), sales taxes waivers, free and readily available “green” license plates, as well as a national carbon credit system for all auto makers, EV or ICE, have been instrumental in helping achieve EV penetration of around 14% in the country today. It is nearly impossible at this point to accurately envision what the future smart car may look like, or who the eventual winners and losers will be. Innovations and capabilities in autonomous driving and automobile robotics will ultimately decide the winners. With this as a backdrop, we initiate coverage with an Overweight rating on three leading Chinese EV makers: purpose-built EV producer Li Auto (LI), luxury early mover and battery innovator NIO (NIO), and mass-market oriented and value-focused XPeng Motors (XPEV), and aim to closely monitor their progress in developing cutting-edge smart car technologies and expanding their product portfolios to address mass-market needs.Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as ...
