Chinese EV Makers Trade at High Valuations, Helped by Tesla and National EV Targets
Comment of the Day

December 17 2020

Commentary by Eoin Treacy

Chinese EV Makers Trade at High Valuations, Helped by Tesla and National EV Targets

This note from Dow Jones may be of interest to subscribers. Here is a section:

NIO, BYD and Xpeng are examples of Chinese electric-vehicle makers that have surged in value, buttressed by national targets regarding electric vehicles on the road and investors' search for the next EV titans. The American depositary receipts in these companies have surged this year and the meteoric rises put their valuations in line with large traditional car makers, such as General Motors and Ford Motor. To help cut carbon emissions, China aims for EVs to make up 20% of car sales by 2025, and 50% by 2035. Tesla's success this year has also fueled investor appetite for the technology. Investors should be aware though that most Chinese upstarts are unprofitable, The Wall Street Journal reported, and they are also selling far fewer vehicles than major automobile groups.

Eoin Treacy's view

Tesla’s success in attracting capital has set off a global gold rush in copycats seeking to cash in on investor demand for renewable investments. Anything that has a battery in the description is doing well and a lack of income was not seen as a barrier to entry when discount rates are zero and the world is swimming in cash.

The evolution of the SPAC market has been a gateway for a pace of IPOs to rival that of the late 1990s. The number in 2020 alone has exceeded the total for all other years combined. The result is new companies have been popping up on the stock market at a dizzying pace. Advice to pursue growth at all costs, capture market share and not to worry about profits carry heavy reminiscences of the tech bubble in the late 1990s.

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