Investing in Chinese EV Makers
Shares of Chinese EV makers XPeng (NYSE:XPEV) and Nio (NYSE:NIO) are pricing in high expectations following a recent rally, according to a note from UBS on Wednesday.
The investment bank stated that the broader China auto sector has surged 30-50% over the past month, driven by a series of monetary and fiscal policy loosening measures.
As a result, Chinese automakers now represent 13% of the global car market capitalization, up from 9% just two months ago. However, this is still moderate compared to their 20% share of the global car market and 60% share of the EV market, as explained by UBS.
Despite the rally, UBS’s analysts caution that XPeng and Nio, both rated Neutral, are trading at high valuations. XPeng is priced at 1.5x 2025E price-to-sales (P/S), while Nio is at 1.1x. These valuations assume significant market share gains and high-single-digit net margins in the coming years, without the need for further equity refinancing.
UBS noted, "While such a scenario is possible, we think it will be difficult to achieve, especially considering fierce competition from larger and more cost-efficient companies like BYD (SZ:002594) and Li Auto (NASDAQ:LI)."
UBS remains bullish on other Chinese automakers like CATL and GWM, which they believe offer more attractive valuations. CATL is trading at 20.7x 2025E price-to-earnings (PE) and is well-positioned to benefit from Europe's accelerating electrification. Meanwhile, GWM, at 7.9x 2025E PE, shows growth potential from domestic premiumization and international expansion.
UBS advises investors to be selective within the Chinese auto sector, favoring CATL and GWM as their top picks. They remain on the sidelines regarding XPeng and Nio due to high valuation expectations.
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