Macquarie Equity Research issued a positive outlook for the short-term Chinese EV market following a $142 billion (one trillion yuan) stimulus package. Analysts listed several positive catalysts, including new model launches, expanded margins due to operating leverage, the end of subsidies pulling demand forward, reduced discounting pressures and clarity on potential European Union (EU) tariffs, which had previously been uncertain for Chinese automakers.
The firm sees BYD (OTC: BYDYY) and NIO Inc (NYSE: NIO) - ADR benefiting from the shift. BYD led the charge, selling 419,400 units in September, marking a 46% year-over-year increase. The company's aggressive expansion overseas surprised the EV market.
Launching new models, particularly those based on its highly efficient DM-i hybrid technology, should help sustain its growth momentum in the coming months. Macquarie remains optimistic and has raised the price target for BYD shares to about $46.35 (HK$ 360), indicating a potential upside of over 20%.
Although on a much lower scale, Nio also had a successful September, selling 21,200 units, indicating a 35% year-over-year growth. The company successfully introduced a battery-as-a-service model, lowering consumers' upfront costs.
Still, Macquarie sees the risks from domestic and foreign competition, believing that the battery-swapping technology is not widely adopted. It rates the stock as Neutral, with its U.S-listed share price target of $8.20, representing a modest upside of around 13.5%.
Li Auto Inc (NYSE: LI) faces a more challenging outlook despite performing well in sales. The company sold 53,700 units in September, marking a 49% year-over-year increase. But, Macquarie believes there is a lack of a clear catalyst in the second half of the year, particularly as no new models are scheduled for release during this period.
Li Auto's extended-range electric vehicles (EREVs) have been popular, but the market is notably shifting toward pure battery electric vehicles (BEVs). The company risks losing momentum without new BEV models or innovations in the near term.
Macquarie's analysts point out that price competition pressuring the margins is one of the key risks, alongside a potential decline in demand for EREVs as consumers shift to fully electric vehicles.
Still, they acknowledge the possibility of Li Auto outperforming if its L series continues selling well and if it can successfully launch a BEV SUV in 2025. For now, Macquarie has set the price target at $33, giving it an upside of 10.4%. The firm also gave Li Auto stock a downgrade from Outperform to Neutral.