The Zacks Analyst Blog Highlights Tesla, Li Auto, NIO and XPeng

For Immediate Release

Chicago, IL – June 23, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Tesla TSLA, Li Auto LI, NIO, Inc. NIO and XPeng XPEV.

Here are highlights from Thursday’s Analyst Blog:

3 Stocks to Watch as China Extends EV Tax Exemption

In a bid to revive the electric vehicle (EV) sales slump and stimulate economic growth, China — the world’s largest auto market — has extended tax exemptions for new energy vehicles (NEVs) through 2027. It would provide financial incentives to consumers in China, with each vehicle purchase offering tax breaks amounting to more than $4,000 per vehicle, which will gradually reduce over the next four years.

Will the move boost the sales growth of green vehicles in the country? And what triggered this tax-break extension? Also, which stocks could be on your watchlist to benefit from this development?

China’s Green Push

New vehicles are typically subjected to a 10% sales tax. However, EV buyers are entitled to a 10% purchase tax exemption. These exemptions were initially set to expire at the end of 2023 but China’s Ministry of Finance confirmed the extension of tax exemptions yesterday.

The government of China unveiled a 520-billion yuan or $72.3 billion package of tax breaks spanning four years for EVs and other green cars, marking its biggest support yet for the industry. NEVs purchased in 2024 and 2025 will be exempt from purchase tax up to 30,000 yuan or $4,175 per vehicle. For the two years thereafter, the tax break will be halved to 15,000 yuan or $2,085 per vehicle.

The Secret Behind the Extension

This extension comes as a response to recent sluggish sales growth in China’s EV industry. For perspective, sales in the world’s largest market for EVs experienced 41% growth during the January-May 2023 timeframe. While this may seem substantial growth at first glance, it is significantly lower than the 120% surge in EV sales growth during the same period last year.

The Chinese government has used cumulative tax breaks to encourage EV adoption for over a decade with great success, making China one of the fastest-growing EV markets globally. Additionally, the government has also been granting EV subsidies since 2010 to support commercialization. But with the expiration of subsidies beginning 2023, sales growth in the country began to dwindle. So much so that it triggered an EV price war in China. It started with the EV behemoth Tesla slashing its sticker prices to boost sales, which prompted other automakers to follow suit amid cut-throat competition.

Many industry watchdogs are of the view that this full-blown EV price war may wipe out financially weaker automakers. Most of the EV upstarts are struggling financially and are not profitable yet. Such price cuts may further clip margins. While some companies may suffer reduced profit margins, others will likely accept greater losses to sustain their sales figures. While big EV makers like Tesla can afford to get aggressive with price reductions, smaller and not-so-financially sound rivals may find it difficult to keep up with this price war.

The announcement of the tax exemption extension has been hailed as a push to revitalize growth in the industry and local economy. The extension of China’s EV tax exemption comes as a testament to the country’s commitment to fostering a greener economy and promoting the adoption of NEVs. Analysts anticipate this move to boost China’s EV growth by 15% in 2023 and potentially as much as 30% in 2024. Local governments are also contributing to the EV push by announcing fresh stimulus measures and various incentives to prop up sales.

We believe that China’s comprehensive strategy to support its domestic EV market, from tax breaks to local government incentives, paints a rather optimistic picture for the future of the industry.

Stocks to Benefit

To capitalize on the latest development, one may consider keeping a close watch on these China-based companies — Li Auto, NIO, Inc. and XPeng. Enticing tax exemptions and incentives have historically boosted the sales of local automakers and also facilitated the expansion of R&D to introduce new EV technologies and reach new markets globally.

Though China’s economy and auto sales have been struggling lately, a recovery seems to be on the horizon. Li Auto looks well-positioned to cash in on China’s EV stimulus. Li’s lineup consists of Li L9, Li L8 and Li ONE— all six-seater SUVs — and Li L7, a flagship family SUV for five people. Li Auto’s vehicles stand out due to their extended-range electric powertrain, which combines an electric motor with an onboard gasoline generator to extend the driving range, alleviating concerns related to charging infrastructure.

Continued investment in extended-range EVs, advanced driver-assist systems and capacity expansion efforts bodes well. The company currently sports a Zacks Rank #1 (Strong Buy). The consensus mark for LI’s 2023 revenues indicates year-over-year growth of 131%.

China’s intense push for EV vehicles is a major booster for NIO. ES6, ES8 and EC6 models are enhancing the firm’s prospects. The firm’s latest offerings based on the NIO Technology Platform 2.0— including EL7, ET5 and ET7 models— will further drive deliveries. Just a couple of days back, NIO’s global expansion plan got a $738.5 million boost from UAE.

The company initiated its internationalization process in 2021, starting with Norway and then expanding to several other European markets. The company currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for NIO’s 2023 revenues implies year-over-year growth of 32%.

XPeng also looks poised for speedy sales growth, thanks to the soaring popularity of the existing models, including G9, G3i and G3 SUVs as well as P7 and P5 sedans. XPeng unveiled its latest model, the G6 SUV coupe, at Auto Shanghai 2023. The company expects the G6 to emerge as one of the best-selling models in China’s NEV SUV market segment, particularly within the price range of RMB200,000 to RMB300,000.

We expect XPeng’s commitment to innovation and continuous R&D spending to bolster its standing in the market and fortify its EV game. XPEV’s groundbreaking SEPA2.0 technology architecture is set to drive the stock to new heights. The stock currently carries a Zacks Rank #3. The Zacks Consensus Estimate for NIO’s 2023 revenues implies year-over-year growth of 8.5%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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