Tesla Cuts Prices In China Could Impact NIO, Li and XPeng - Barron's

A view of Tesla Superchargers
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Tesla posted pricing for the Chinese-made Model Y recently. It’s a little more affordable than some of the competition. That’s good news for Tesla bulls, but it could be bad news for the competition.

Tesla (ticker: TSLA) is selling the Model Y manufactured in Shanghai for a base price of 339,000 Yuan or about $52,000. Lower priced NIO (NIO) EC6 crossover vehicles start at 368,000 Yuan.

The XPeng (XPEV) G3 starts for less money, but it’s a lower performance vehicle. The G3 lists its time to accelerate from 0 miles per hour to 60 miles per hour at about nine seconds. A comparable Model Y hits that speed in about five seconds.

The Li Auto (LI) Li ONE SUV starts at about 328,000 Yuan. “With the Li ONE, we want to...become the top-selling model in its price segment which is [the 300,000 to 350,000 Yuan] price segment,” Li Auto President Kevin Shen said on the companies recent earnings conference call.

Tesla, for its part, is able to cut costs as it ramps up local production in China. “We are also seeing benefits from the continuing upward trend of locally built and delivered cars, which has increased from under 50% at the beginning of last year to over 70% most recently,” Tesla Chief Financial Officer Zachary Kirkhorn said on the company’s recent third-quarter earnings conference all.

The Chinese built Model Y was approved for sale in China in late November. Tesla also makes Model 3 sedans in China.

CEO Elon Musk recently said it’s important to continue to reduce vehicle prices. “I do not think we lack for desire for our product, but we do lack for affordability,” Musk said on the recent conference call.

Price cuts and competition haven’t hurt EV stocks. Shares of XPeng, NIO and Li Auto—along with Tesla—produced incredible returns in 2020. NIO stock, for instance, rose roughly 1,110%, beating Tesla’s huge 743% gain.

Despite competition and the share price performance, the Chinese EV stocks are still popular with analysts. More than 60% of analysts covering all three companies rate the shares at Buy. The average Buy-rating ratio in the Dow is about 57%.

Barron’s is more cautious, recently writing that valuations in Chinese EV producers are too high, while suggesting that investors take profits. That article appeared in mid-December.

XPeng trades for roughly 15 times estimated 2021 sales. NIO and Li Auto trade for about 15 times and 8 times estimated 2021 sales, respectively. Tesla, for comparison, trades for about 14.5 times 2021 sales.

The three Chinese EV producers are expected to report delivery numbers in the early days of 2021.

Write to Al Root at allen.root@dowjones.com

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