The growing Chinese electric vehicle (EV) market offers Chinese enterprises and investment manager Jian Shi Cortesi a “gigantic opportunity.”
“The Chinese consumers tell us that Tesla’s car is very clean and simple looking — but it doesn’t necessarily fit the taste of many Chinese consumers who want the luxury feeling,” Cortesi said.
They prefer the electric cars of Chinese start-up Nio, which compete in the same high-end SUV market as Tesla.
“When you look inside Nio’s car, you get this very luxurious feeling,” Cortesi said, pointing to the interior design.
While Tesla continues to outsell the 6.5-year-old Chinese start-up, Nio has delivered more vehicles per month than its domestic rivals, Xpeng and Li Auto — both of which are listed in the United States like Nio.
“We have seen the rise of Chinese EV manufacturers such as Nio, Xpeng, and Li Auto,” she said.
Cortesi predicted that China’s electric vehicle industry would thrive as a result of the country’s plans to achieve zero carbon emissions by 2060 — “That means a lot more electric vehicles.” “This also means a lot of opportunities for domestic Chinese automakers,” she added.
Another reason for her enthusiasm is the potential advantages Chinese start-ups may have over traditional automakers in new energy vehicle technology.
Nio’s ‘intelligent’ business model
In August, Nio introduced a “battery-as-a-service” product that allows customers to pay a lower upfront price for the vehicle and rent the battery separately for a monthly fee.
This business model is “very smart,” according to Cortesi, because it reduces the initial cost of acquiring (the) electric vehicle.
It also provides the consumer with a lot of flexibility and convenience, according to her.
‘Waiting’ to reinvest
Cortesi, on the other hand, cautioned that the sector may be overvalued at the moment.
Despite the fact that GAM purchased Nio’s U.S.-listed shares last year based on the company’s innovation and “strong potential,” Cortesi stated that the fund reduced its position after Nio’s stock price soared last year.
“We always need to pay the right prices to buy a good company,” Cortesi said. “I believe that the market has gotten a little ahead of the fundamentals due to Tesla’s strong performance last year and the Chinese electric vehicle makers.”
“We are now waiting to see if these stocks correct further… in order to enter them at a more appealing valuation,” she said.
Nio announced plans to enter Norway, its first market outside of China, last week. The company stated that it will begin delivering cars to Norway in September.
Warnings around Tech stocks
CDC director Dr. Thomas Frieden said today that fully vaccinated Americans no longer require face masks in most settings.
“We believe the CDC will lift restrictions on many epicenter industries, including cruise lines, among others,” he wrote. “This would be beneficial to the US economy, which is on track for a full reopening and return to near normalcy by mid-year.”
Lee issued the call on Friday morning, at the end of what he described as a “tumultuous” week in which the VIX rose 78 percent before falling 20 percent in the previous day. The VIX is the Cboe Volatility Index, and it is calculated using puts and calls on the S&P 500.
Lee cautioned that while technology has become a source of cash for large investors, travel-related stocks and others that benefit from trade resumption should fare better.
“There have been multiple downdrafts in equities, triggered by panic associated with headlines,” he wrote, citing the rise in the Consumer Price Index on Wednesday as well as selling motivated by the May 17 deadline for 2020 federal income taxes.
“Typically, a VIX peak equals a market bottom,” he wrote.
If inflation is a concern, Lee believes Treasury yields should rise, and the 10-year yield, at 1.64 percent, is lower than it was when it hit 1.77 percent.
Consumer discretionary was the only epicenter group that did not outperform the S&P 500 this week, according to Lee. “We believe Discretionary is the most crowded Epicenter group,” he wrote, “because it is the most familiar to hedge fund and growth managers.”
He claimed that those large investors dumped their holdings of discretionary stocks.
Because it was a crowded trade, Lee downgraded tech to underweight last week and upgraded staples to neutral.