China's electric automakers have potential, but consultant warns 'there's bound to be a correction'

Key Points
  • There's good reason to be investing in Chinese electric automakers, but their stock run-ups have been "sensational" recently, says Michael Dunne of ZoZo Go.
  • Nio's stock is up around 187% from the close of Oct. 13, 2020, while Xpeng's share price surged 176% over the same period. Li Auto saw its stock rise nearly 90% in the last three months.
  • Dunne also said these companies have to succeed at home first if they want to "really thrive."
Chinese EV makers can see themselves becoming 'the Tesla of China': CEO
Chinese EV makers can see themselves becoming 'the Tesla of China': CEO

SINGAPORE — Chinese electric vehicle companies such as Nio, Xpeng and Li Auto are strong companies, but their stocks are likely to see a moderate drop, the chief executive of an auto consulting firm told CNBC this week.

That's because their shares have shot up in recent months, said Michael Dunne, CEO at ZoZo Go, which advises automakers on doing business in Asia. He said the stock movement "does resemble a bubble," but the companies have the potential to become the "Tesla of China."

There's bound to be a correction, these are young companies.
Michael Dunne
ZoZo Go

"There's merit. They're strong companies built by tech billionaires not unlike [Tesla CEO] Elon Musk," he told CNBC's "Squawk Box Asia" on Wednesday.

"There's good reason to be investing in these stocks, but be careful," he warned. "The stock run-ups have been sensational in the last three months."

On Wednesday, Nio shares listed on the New York Stock Exchange closed at $62.15, soaring more than 1,500% from a year ago. The stock is up about 187% over the past three months, while NYSE-listed Xpeng surged 163% and Nasdaq-listed Li Auto gained 83% in the same period.

"There's bound to be a correction. These are young companies," Dunne said.

Li Auto and Xpeng went public in July and August, respectively, while Nio's initial public offering was in 2018. And the companies still fall far short of market leader Tesla in terms of market capitalization and vehicle deliveries.

How Nio became one of the most valuable carmakers
How Nio became one of the most valuable carmakers

Dunne said the Chinese automakers have to focus on the domestic market.

"To really thrive, these companies — Xpeng, Nio, Li Auto and others — have to succeed at home first," he said.

They won't be welcomed in the U.S. due to political reasons, and the Europeans will be "very tough on the Chinese, just as they've been on the Japanese and Koreans before them," he added.

"So look for the Chinese to concentrate their efforts on their home market which is, after all, the largest in the world, and has all kinds of potential on the high end and the low end," he said.