Story Stocks^®

Demand for EVs remain brisk in China, bolstered by government subsidies and intensifying competition that has driven vehicle prices lower as manufacturers continue to ramp up discounts and incentives. Earlier this morning, several Chinese EV makers reported strong November delivery numbers, including a 106% yr/yr surge to 27,011 vehicles for recent IPO ZEEKR Intelligent Technology (ZK). The company, which focuses on the premium side of the EV market, also just launched its new ZEEKR MIX, a family-oriented five seat luxury van that began shipments on October 23, 2024.

• ZK isn't the only Chinese EV company to recently launch a new vehicle into the market. This past May, NIO (NIO) introduced a new brand called ONVO, which is positioned to compete against Tesla (TSLA). The first vehicle from ONVO, a mid-size SUV called "L60", had deliveries of 5,082 vehicles in November, pushing the company's total deliveries to 20,575 (+29% yr/yr) for the month.
  • Additionally, on April 18, 2024, Li Auto (LI) launched its own mix-size SUV, the "L6", which has achieved over 160,000 cumulative deliveries -- the most of any Chinese EV model with a price above RMB 200,000.
• As more EVs continue to enter the market, the competitive environment is only becoming more intense. On that note, Bloomberg reported that TSLA and BYD Company (BYDDF) are becoming even more aggressive with their promotional activity in a bid to close out the year with a flurry. TSLA is offering 0% financing on five-year loans and a 10,000-yuan discount on its Model Y, while BYDDF is offering discounts up to 3,000 yuan on some of its models.
• ZK, NIO, LI, and XPeng (XPEV) are bound to follow suit and offer their own incentives, adding another chapter to a price war that's only heating up more as the calendar approaches 2025. That's not great news for margins and profits that are already squeezed from price cuts. For instance, ZK's vehicle margin contracted to 15.7% in 3Q24 from 18.1% in the year-earlier period, while LI's vehicle margin dipped to 20.9% from 21.2% in 3Q23.
  • On the flip side, XPEV's vehicle margin significantly improved to 8.6% in 3Q24 from (6.1)% in the same period of 2023 and its gross margin reached a historical high of 15.3%, fueled by technology-driven cost savings and stronger volume growth. Accordingly, the company's non-GAAP net loss narrowed to RMB (1.53) bln from RMB (2.79) bln in the year-ago period.

The main takeaway is that adoption of EVs is rising rapidly in China, supported by the PRC's government goal of having EVs account for 45% of new car sales by 2027. However, fierce competition and difficult macroeconomic conditions are fueling a profit-eroding price war that could make it difficult for Chinese EV stocks to receive a major jolt in 2025.