Wall Street firm ranks the top 3 Chinese electric vehicle stocks

Published Mon, Nov 1 202111:03 PM EDTUpdated Tue, Nov 2 202110:03 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Bernstein is finally out with stock ratings on three U.S.-listed Chinese electric car start-ups — because the firm thinks consumers are ready to buy the cars en masse. "Purchase intentions for domestic EV startup brands doubled compared to prior years," Bernstein analyst Eunice Lee wrote in an Oct. 28 report, citing a proprietary survey of 1,600 Chinese people in cities during the third quarter. That's a marked shift for the Chinese electric car industry, which Lee noted for years has been supported more by government policy than consumer demand. In the electric car category of "upper mass & premium brands," survey respondents liked Chinese start-ups the most, more than Tesla and premium German brands, according to the report. That includes electric cars priced from about 150,000 yuan to 350,000 yuan ($23,438 to $54,688). Bernstein projects 35% electric vehicle penetration in the upper mass segment by 2025. Here's how company stocks are expected to benefit: Li Auto Of the three main Chinese electric-car start-ups listed in the U.S., Bernstein forecasts the greatest share price increases ahead for Li Auto — nearly 31% in gains from Friday's close to a price target of $43 a share. The electric car company's only model on the market is an extended range vehicle (EREV) that comes with a fuel tank for charging the battery. Only about a third of public battery charging infrastructure in China works, and Bernstein doesn't expect improvement anytime soon. "Hence we think Li Auto's choice of the EREV technology will remain competitive for a very long time, especially in lower tier cities and rural areas," the report said. The report pointed out that Li Auto has surpassed Nio's and Xpeng's monthly sales volume recently, "despite having only one model offering and without favourable license plate treatment in Beijing." Bernstein rates both Li Auto and Xpeng as likely to "outperform" the market in the year ahead. Xpeng Bernstein's second-favorite pick is Xpeng as its cars cover a wide price range and have in-house developed autonomous driving software, which has attracted consumers to its brand. The firm predicts Xpeng shares can rise nearly 20% from Friday's close to a price target of $56 a share. Xpeng's product line is set to cover the 150,000 yuan to 400,000 yuan price range, "which should enable the company to tap a bigger addressable market," the Bernstein report said. The firm forecasts the China market segment for this price range will sell 4 million electric cars in 2025. At its tech day in October, Xpeng released an upgrade to its assisted autonomous driving software that adds support for driving on city streets. The previous versions only supported driving on highways. Xpeng has made the most progress on assisted driving software development in China, the Bernstein report said, citing the firm's channel checks. The start-up has been working on the technology since the company's founding, while Nio and Li Auto had only begun in-house development of similar software in late 2020, the report said. Xpeng is also spending a greater percentage of its revenue on research and development than the two other start-ups, according to the report. The risk, Bernstein pointed out, is that over time, autonomous driving may become just another feature that consumers can buy for their cars, rather than tied to a single brand. Nio In contrast to "outperform" ratings for competing start-ups, Bernstein rates Nio as "market-perform" and forecasts more muted gains ahead to a price target of $45 a share. That's still 14% higher than Friday's closing price of $39.32 a share. "Ultimately, we are skeptical of the market share it can obtain with competition intensifying in the premium segment," the Bernstein report said. The first reason is that Nio cars are not selling that well. The start-up's ES6, launched in the middle of 2019, is the company's best-selling model but its sales volume falls short of German market leaders "by a wide margin" in the mid-sized SUV category, the report said. The firm also expects Nio to face tough competition in the premium segment for its forthcoming luxury electric sedan, the ET7. Second, Nio faces challenges in building its brand beyond an initial group of loyal users. "Looking forward, we are mainly concerned that the user experience will get diluted as NIO continues to grow," the Bernstein report said. In particular, the firm noted that "while NIO has so far maintained a lead on number of monthly active users on its smartphone app, its growth is slowing and its gap with Xpeng and Li Auto is shrinking." — CNBC's Michael Bloom contributed to this report.

Nio plans to begin deliveries of its ET7 electric sedan in 2022.

Evelyn Cheng | CNBC

Bernstein is finally out with stock ratings on three U.S.-listed Chinese electric car start-ups — because the firm thinks consumers are ready to buy the cars en masse.

"Purchase intentions for domestic EV startup brands doubled compared to prior years," Bernstein analyst Eunice Lee wrote in an Oct. 28 report, citing a proprietary survey of 1,600 Chinese people in cities during the third quarter.