Tesla’s recent rally left electric car investors transfixed after the company was named to the Standard & Poor’s 500. However, there was a big news in the market – a rush of very solid earnings reports from relatively smaller companies looking to challenge Tesla in China, the largest electric vehicles market in the world.
The likes of Xpeng and Li Auto reported relatively mixed results compared to the expectations of investors. However, the companies gave bullish sales guidance and improved gross profit margins, leading their shares to go on a new rally.
The news fuels the controversy over whether Chinese EV makers are following the footsteps of Tesla in the U.S., starting a fundamental auto market transformation, or just following the market valuation of Tesla’s sky-high stock.
China’s EV sector is predicted to continue the rise as it begins with the size of the market, especially in the domestic scene, where everyone seems to be focused at the moment.
Experts have predicted that about 40% of Tesla’s unit sales will come from the Chinese market by late 2022, as the government continues to maintain subsidies for early EV buyers, particularly as a similar gesture from the US government has ended for Tesla and General Motors after selling over 200,000 vehicles with tax credits.
“We want to lead in this space. We don’t just want to participate, we want to lead,” said Doug Parks, GM executive vice president of global product development, purchasing and supply chain, during a media briefing. “Tesla’s got a good jump and they’ve done great things. They’re formidable competitors … and there’s a lot of start-ups and everyone else invading this space. We’re not going to subside leadership there.”
According to Dan Ives, the managing director of Wedbush Securities in New York, 4.5% of Chinese light vehicles are electric-powered, a figure predicted to reach 10% in the next seven years.
“LI, Nio and BYD are some of the most innovative EV companies in the world and they are focused on the China market,” Ives said. “We believe China is eight to nine times the opportunity for EVs as [near-term U.S. sales growth].”
Tesla stated that capital expenses grew to $1 billion in its earnings report published in October due to investments in new plants in Shanghai, Berlin and Austin. The company recently got the approval for important government approvals for the Model Y plant as part of its Shanghai gigafactory.
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